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The financing of small innovative firms: the Italian case

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  • Silvia Magri

Abstract

Small firms encounter difficulties in collecting external finance due to greater information problems. For small innovative firms, whose activity is more difficult to evaluate, the cost of external finance could be even higher. This paper aims to shed light on special features in financial structures of small innovative firms, compared with firms of similar size that do not innovate. The evidence shows that small innovators rely less on financial debts and more on internal financial resources; no important differences appear for large firms. This is consistent with the view that information problems mainly affect small firms. Another finding is that small innovative firms show a lower investment sensitivity to cash flow than small non-innovative firms: it is likely that the high incidence of internal financial resources allows them more flexibility in deciding their investments. No difference in investment sensitivity to cash flow, by innovative attitude, is found for large firms.

Suggested Citation

  • Silvia Magri, 2009. "The financing of small innovative firms: the Italian case," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 18(2), pages 181-204.
    • Handle: RePEc:taf:ecinnt:v:18:y:2009:i:2:p:181-204
    DOI: 10.1080/10438590701738016
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    1. Benfratello, Luigi & Schiantarelli, Fabio & Sembenelli, Alessandro, 2008. "Banks and innovation: Microeconometric evidence on Italian firms," Journal of Financial Economics, Elsevier, vol. 90(2), pages 197-217, November.
    2. Diana Marina Del COlle, & Paolo Finaldi Russo & Andrea Generale, 2006. "The Causes and Consequences of Venture Capital Financing. An Analysis based on a Sample of Italian Firms," Temi di discussione (Economic working papers) 584, Bank of Italy, Economic Research and International Relations Area.
    3. von Kalckreuth, Ulf, 2004. "Financial constraints for investors and the speed of adaptation: Are innovators special?," Discussion Paper Series 1: Economic Studies 2004,20, Deutsche Bundesbank.
    4. Stephen R. Bond, 2002. "Dynamic panel data models: a guide to micro data methods and practice," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 1(2), pages 141-162, August.
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    More about this item

    Keywords

    corporate finance; innovative firms; investment dynamics;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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