Access to Finance, Technology Investments and Exporting Decisions of Indian Services Firms

Abstract

This study provides fresh empirical evidence on the influence of various financing sources on firms’ technology investments and exporting decisions using a panel of firms from the service sector in India during the period 1999–2010. Allowing both activities to be jointly determined, our results show that the source of finance matters for exporting and investing in technology. Moreover, the importance of different types of finance varies across industries in the service sector. Overall, we find that internal funds and non-conventional sources of finance play an important role for exporting and investing in technology in both modern and traditional services. However, funding from conventional financial markets exerts divergent effects across service industries: while traditional service firms use resources from the banking sector to fund their technological investments, firms in the modern service sector rely more on funds raised through equity markets to support their exporting and technological efforts. These results contribute to the academic literature and policy debate on the importance of financial mechanisms to promote firms’ strategic investment decisions.

The financial access, ICT trade balance and dark and bright sides of digitalization nexus in OECD countries

“…Fanta and Makina ( 2019 ) reported a strong positive relationship between financial inclusion and technology (Beyene Fanta & Makina, 2019 ). Financial inclusion is a very critical subject because it can negatively or positively affect lives and provide new opportunities for the global evolution of civilizations (Boskov & Drakulevski, 2017 ) and the growth of small businesses (Boshkov, 2016 ) and technological exports (Gonzalez et al, 2014 ; Burjorjee & Scola, 2015 ; Helm et al, 2019 ; Yang et al, 2020 ). Since high-technology exports are among the main technological growth indicators of ICT trade (Kabaklarli et al, 2017 ; Xing, 2014 ), we posed the following research question: RQ2: How does financial access push towards an increase in high-technology exports (technological growth proxy)?…”

“…Yang et al ( 2020 ) identified a significant positive relationship between companies’ exporting and ICT investment choices. A reduction in ICT investments can be related to a sharp drop in ICT equipment exports and imports (Baudchon, 2002 ).…”

“…Companies that export and invest in technology have meaningfully better access to external and internal funding sources (Yang et al, 2020 ). However, as firms adopt innovation solutions, they also need to consider the associated risks of innovation (Helm et al, 2019 ).…”

“…This will help increase the income of individuals, especially those with a low income, as limited access to financial resources through credit can weaken the financial capacity of individuals and lead them to use internal financial sources. Consequently, they might lose many economic opportunities, and the cohesion of their social network may decline; this reflects the dark side of financial technology (FinTech) (Tarafdar et al, 2015a ; Yang et al, 2020 ).…”

“…In addition, in spite of the rising greatness and significance of technological investments and ICT international trade in sectors, such as services, very little research has investigated the indicators/factors motivating companies to invest in technology (Yang et al, 2020 ). Hence, we aimed to provide important insights for researchers and practitioners regarding the digitalization in the financial sector and whether increasing financial access (which is expected to be followed by ICT exports and imports) has a positive (bright) or negative (dark) impact on the sector.…”