The Demand and Supply of External Finance for Innovative Firms

Industrial and Corporate Change (2013) 22 (4): 869-901 (Open Access)

with Andrea Mina and Alan Hughes

Abstract: Access to finance has figured prominently in the debate on barriers to firm growth, even though existing empirical research has not found conclusive evidence of a ‘finance gap’. Moreover, it is not clear to what extent innovation aggravates financial constraints and what role innovation inputs, processes and outputs play in the market for external capital. In this paper we analyse how firm-level innovation affects 1) the likelihood of seeking external finance and 2) the likelihood of obtaining it. We analyse an original dataset of 3,095 UK and US firms (SMEs and middle-market) containing information on firms’ innovation behaviours, performance and finances for the period 2002-2004. Controlling for firm-specific characteristics, we provide novel and extensive evidence on the effects of innovation, in its input, process and output dimensions, on the demand for external capital and its supply.

An earlier version is available at the FINNOV website.

Latest version: July 2012