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Innovation financing and the role of relationship lending for SMEs

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  • Emanuele Brancati

Abstract

Financial frictions represent a severe obstacle to firm innovativeness. The paper explores this link in times of crisis and provides new insights on the role of relationship lending for small and micro-sized firms. Not only small and medium enterprises (SMEs) have a lower probability to innovate and a higher likelihood to face financial constraints, their innovative propensity is also more sensitive to firm financial condition. The establishment of close ties with the lender bank can help overcoming financial barriers to innovation. By exploiting firm-specific proxies of relationship lending I document a highly nonlinear effect that is decreasing with the size of the firm, suggesting that small companies can gain disproportional benefits from banks’ accumulation of soft information, especially for the introduction of new products and processes. Copyright Springer Science+Business Media New York 2015

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  • Emanuele Brancati, 2015. "Innovation financing and the role of relationship lending for SMEs," Small Business Economics, Springer, vol. 44(2), pages 449-473, February.
    • Handle: RePEc:kap:sbusec:v:44:y:2015:i:2:p:449-473
    DOI: 10.1007/s11187-014-9603-3
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    More about this item

    Keywords

    Innovation; Financial constraints; Relationship lending; SMEs; O31; L25; G21; L26;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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