The Financing of Innovative Firms

Hall, Bronwyn H.

doi:10.5202/rei.v1i1.4

Cited by 114 publications

(157 citation statements)

References 77 publications

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“…Empirical studies found that factors such as firm size, firm age, ownership structure, profitability, asset structure and industry are important determinants of the demand for and availability of financing instruments (Chittenden and Hutchinson 1996;Frank and Goyal 2007;Howorth 2001;López-Gracia and Sogorb-Mira 2008;Michaelas et al 1999;Romano et al 2001). In addition, a number of studies focused on the financing determinants of specific types of firms like innovative and high-growth companies (Freel 2006;Hall 2010;Mazzucato 2013;Mina et al 2013;Vanacker and Manigart 2010). The results of the cluster analysis contribute to this literature by disclosing that SME financing types are characterised by specific combinations of firm-, product-and industry-specific factors.…”

Section: Theoretical Contributionsmentioning

confidence: 89%

“…High-risk projects increase the probability of bankruptcy of the firm, whereas the higher risks are not offset by potentially higher returns for debt providers (Brown and Degryse 2012;Magri 2009). Equity investors, however, participate in the success of the firm and can compensate the higher risks with a potential higher return in the case of success (Carpenter and Petersen 2002a;Hall 2010). Furthermore, VC investors have been found to be better equipped to deal with the higher risks due to their comprehensive due diligence procedures, personal contacts with the entrepreneurs and direct involvement in the firm (Block and Sandner 2009;Carpenter and Petersen 2002a;Cosh et al 2009;Hall 2010;van Osnabrugge 2000).…”

Section: Product-specific Variablesmentioning

confidence: 99%

“…This is explained by the high failure risk of innovations, the informational opaqueness of the projects for external capital providers and the low diversification possibilities of SMEs (Ang 1992;Carpenter and Petersen 2002a;Fazzari et al 1988;Hall 2010;Magri 2009;Mina et al 2013). Hence, external capital is typically more expensive for these firms and internal resources such as retained earnings are important financing instruments (Hall 2010;Magri 2009). However, as internal financing capabilities are often scarce, innovative firms are more likely to seek external capital to finance the innovation.…”

Section: Product-specific Variablesmentioning

confidence: 99%

“…Equity investors, however, participate in the success of the firm and can compensate the higher risks with a potential higher return in the case of success (Carpenter and Petersen 2002a;Hall 2010). Furthermore, VC investors have been found to be better equipped to deal with the higher risks due to their comprehensive due diligence procedures, personal contacts with the entrepreneurs and direct involvement in the firm (Block and Sandner 2009;Carpenter and Petersen 2002a;Cosh et al 2009;Hall 2010;van Osnabrugge 2000). Hence, we expect that firms with more product and service innovation are more likely to use internal finance and equity, but also to be financed by a larger variety of capital sources.…”

Section: Product-specific Variablesmentioning

confidence: 99%

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Financing patterns of European SMEs – an empirical taxonomy

2016

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PrefaceSmall and medium-sized enterprises (SMEs) are often called the backbone of the European economy, contributing to job creation and economic growth. In 2013, more than 21.5m of SMEs in the European Union made for more than 99% of all non-financial enterprises, employed almost 89m people (67% of total employment), and generated 58% of total added value. However, access to finance is more difficult for SMEs than for larger enterprises, not only during the current financial and economic crisis, but also on a permanent structural basis, due to market imperfections in SME financing (see Kraemer-Eis, Lang and Gvetadze, 2015, for more details).The European Investment Fund (EIF) supports Europe's SMEs by improving their access to finance through a wide range of selected financial intermediaries. To this end, the EIF primarily designs, promotes and implements equity and debt financial instruments which specifically target SMEs. In this role, the EIF fosters EU objectives in support of entrepreneurship, growth, innovation, research and development, and employment.EIF's Research & Market Analysis team has established a research cooperation with the Chair of Management at the University of Trier. This EIF Working Paper is one result of the successful cooperation. A follow-on project, building on the findings of the presented analysis and financially supported by the EIB Institute under the Knowledge Programme, is scheduled to start soon.Even though research in SME financing has strongly increased over the recent years, the financing patterns of SMEs in Europe are still not well analysed. Previous empirical studies have shown that firm-, product-, industry-, and country-specific factors influence the financing of SMEs. However, there are only few studies with a holistic perspective taking into account the interrelationships between different financing instruments and their determinants.The research, presented in this EIF Working Paper, provides an integrative perspective of SME financing patterns by identifying and analysing in detail the use of various financing instruments by SMEs. The findings can support the design and development of SME financing instruments across Europe.We thank the researchers for their important work and the very good cooperation with the EIF. We also thank the participants of a seminar with the researchers, which took place at EIF, as well as the participants of a workshop that took place at the European Central Bank, for fruitful discussions. This EIF Working Paper takes a holistic approach to investigate SME financing patterns in Europe by performing a cluster analysis including 12,726 SMEs in 28 European countries. The results reveal that SME financing in Europe is not homogenous but that different financing patterns exist. The cluster analysis identifies six distinct SME financing types: mixed-financed SMEs, statesubsidised SMEs, debt-financed SMEs, flexible-debt-financed SMEs, trade-financed SMEs and internally-financed SMEs. These SME financing types differ according to the number of fin...

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Section: Theoretical Contributionsmentioning

confidence: 89%

Section: Product-specific Variablesmentioning

confidence: 99%

Section: Product-specific Variablesmentioning

confidence: 99%

Section: Product-specific Variablesmentioning

confidence: 99%

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Financing patterns of European SMEs – an empirical taxonomy

2016

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“…Data used in this paper and described afterwards, indicate that trade credit accounts on average for 24.9% of firms' total liabilities. Finally, Venture Capital (VC) and, in general, private equity have been extensively studied in recent years since they should provide external finance to firms which are normally excluded from credit market (Hall, 2010). Economic theory highlights the role played by venture capitalists in reducing asymmetric information by intensively screening firms before providing capital and monitoring them afterwards.…”

Section: Introductionmentioning

confidence: 99%

Finance and R&D Investment: A Panel Study of Italian Manufacturing Firms

Succurro

Costanzo

2016

IJEF

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The purpose of this study is to examine the role of different sources of finance on R&D investment decisions in Italian manufacturing firms. Accounting data, taken from the Aida database, are collected over the [2006][2007][2008][2009][2010][2011][2012][2013] years. The empirical evidence shows that the availability of external financing primarily affects the decision to engage in R&D activity rather than R&D intensity. Internal cash flow, on the contrary, does affect both the likelihood of whether firms will undertake any R&D and the size of R&D spending. This impact is strongly significant for financially weaker firms, SMEs and high-tech firms. Due to greater asymmetric information problems, small innovative firms mainly rely on cash-flow to finance innovative projects. Since bank loans and other forms of debt are not well suited for R&D-intensive activities, our study would contribute to the debate whether it might be socially desirable to incentivize alternative small business financing options, still limited in Italy.

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How can firms access bank finance for circular business model innovation?

2021

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Access to bank finance has emerged as a key challenge for firms engaged in circular business model innovation (circular BMI), both in practice and in the academic literature. Through interviews, focus groups and archival documents, we document the experience of firms accessing finance for circular BMI and assess bank willingness to lend to firms that engage in circular BMI. Our findings offer potential strategies for firms who look for external (bank) finance to realise circular BMI. Using a case studybased theory-refining approach, we identify three core strategies that firms can use to obtain bank finance for circular BMI. First, firms can signal future cash flow expectations by aiming to secure customer contracts and preorders. Second, relationship building with banks, suppliers and customers improves the banks' risk perception of firms. Third, firms can design standardised, long-lasting circular assets that can serve as bank collateral, especially once secondary markets develop, overcoming the difficulty of lending based on innovative, firm-specific assets.

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The Financing of Innovative Firms

Cited by 114 publications

References 77 publications

Financing patterns of European SMEs – an empirical taxonomy

Financing patterns of European SMEs – an empirical taxonomy

Finance and R&D Investment: A Panel Study of Italian Manufacturing Firms

How can firms access bank finance for circular business model innovation?

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