Permanent link to Research Commons versionhttps://hdl.handle.net/10289/15459
We investigate the formal credit effect on firm level innovations of small and medium enterprises in developing economies. Using the instrumental regression method, we control for potential endogeneity in innovation and credit relationships. Results indicate that formal credit availability boosts all four types of innovations. However, this impact is more significant for soft innovations compared to hard innovations. The results also point to the importance of informal finance as a source of external finance for firms where capital markets suffer from imperfections. Our study encourages the development of policy based on financing for various types of innovation, which is especially suited for developing economies.
This is an author’s accepted version of an article published in the journal: International Review of Economics & Finance. © 2020 Elsevier B.V.
- Management Papers