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Do Financing Constraints Matter for Technological and Non-technological Innovation? A (Re)examination of Developing Markets

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  • Safi Ullah Khan
  • Attaullah Shah
  • Mohammad Faisal Rizwan

Abstract

Drawing on a rich data from the World Bank Enterprise Surveys from twenty-one countries, this paper finds consistent evidence of the role of financial frictions as an impediment to a firm’s likelihood of introducing technological innovations as well as soft forms (e.g., organizational-managerial and marketing innovations). After controlling for endogeneity concerns, we show that this empirical evidence is robust to alternative indicators of financing constraints, complementarity between innovation types, and various subsamples of potential innovators and non-innovators. Furthermore, in a first, we find that financing constraints’ impact decreases in the degree of innovation radicalness. In other words, the impact of financing constraints is stronger for incremental innovation than it is for radical innovations, highlighting the need to take into account the degree of innovation radicalness in assessing the finance-innovation nexus. These findings suggest a crucial role for bank-based financing in promoting various types of innovation in developing countries.

Suggested Citation

  • Safi Ullah Khan & Attaullah Shah & Mohammad Faisal Rizwan, 2021. "Do Financing Constraints Matter for Technological and Non-technological Innovation? A (Re)examination of Developing Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(9), pages 2739-2766, July.
    • Handle: RePEc:mes:emfitr:v:57:y:2021:i:9:p:2739-2766
    DOI: 10.1080/1540496X.2019.1695593
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    Cited by:

    1. Chenxi Zhang & Shanyue Jin, 2022. "How Does an Environmental Information Disclosure of a Buyer’s Enterprise Affect Green Technological Innovations of Sellers’ Enterprise?," IJERPH, MDPI, vol. 19(22), pages 1-25, November.
    2. Samuel Kwesi Dunyo & Samuel Amponsah Odei, 2023. "Firm-Level Innovations in an Emerging Economy: Do Perceived Policy Instability and Legal Institutional Conditions Matter?," Sustainability, MDPI, vol. 15(2), pages 1-24, January.
    3. Khan, Safi Ullah, 2022. "Financing constraints and firm-level responses to the COVID-19 pandemic: International evidence," Research in International Business and Finance, Elsevier, vol. 59(C).
    4. Ning, Shuying & Lin, Zhiyang, 2023. "Effect of accounting information manipulation on innovation: Evidence from China," Emerging Markets Review, Elsevier, vol. 56(C).

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