A rapidly growing body of research applies survey methods to examine the ability of SMEs to obtain external financing. These studies focus on firm-specific characteristics and demonstrate the impact of such ability on their own growth and overall economic growth, among other outcomes. However, the use of external financing is of crucial importance, especially whether SMEs can adopt innovation when they succeed in getting a loan. This paper reviews this literature that is not as extensive as the one focusing on typical investments with two purposes. First, we summarize recent work, providing a guide to its methodologies, datasets, and findings. Second, we consider applications of the literature in innovation, including insights for policymakers that seek to assess the potential economic effects of investments in innovation.
KeywordsInformation AsymmetrySmall Business LendingCredit RationingInnovationSurvey Data
Acemoglu, D., Aghion, P., & Zilibotti, F. (2006). Distance to Frontier, Selection, and Economic Growth. Journal of the European Economic Association, 4, 37-74. https://doi.org/10.1162/jeea.2006.4.1.37
Adegboye, A. C., & Iweriebor, S. (2018). Does Access to Finance Enhance SME Innovation and Productivity in Nigeria? Evidence from the World Bank Enterprise Survey. African Development Review, 30, 449-461. https://doi.org/10.1111/1467-8268.12351
Alessandrini, P., Presbitero, A. F., & Zazzaro, A. (2010). Bank Size or Distance: What Hampers Innovation Adoption by SMEs? Journal of Economic Geography, 10, 845-881. https://doi.org/10.1093/jeg/lbp055
Anastasiou, D., Kallandranis, C., & Drakos, K. (2022). Borrower Discouragement Prevalence for Eurozone SMEs: Investigating the Impact of Economic Sentiment. Journal of Economic Behavior & Organization, 194, 161-171. https://doi.org/10.1016/j.jebo.2021.12.022
Arrow, K. J. (1972). Economic Welfare and the Allocation of Resources for Invention (pp. 219-236). Macmillan Education UK. https://doi.org/10.1007/978-1-349-15486-9_13
Audretsch, D. (2012). Determinants of High-Growth Entrepreneurship. In OECD/DBA International Workshop on High-Growth Firms: Local Policies and Local Determinants. OECD/Copenhagen, DBA.
Audretsch, D., & Elston, J. (2002). Does Firm Size Matter? Evidence on the Impact of Liquidity Constraints on Firm Investment. International Journal of Industrial Organization, 20, 1-17. https://doi.org/10.1016/S0167-7187(00)00072-2
Ayyagari, M., Demirgüç-Kunt, A., & Maksimovic, V. (2011). Firm Innovation in Emerging Markets: The Role of Finance, Governance, and Competition. Journal of Financial and Quantitative Analysis, 46, 1545-1580. https://doi.org/10.1017/S0022109011000378
Beck, T., Demirguc-Kunt, A., Laeven, L., & Maksimovic, V. (2006). The Determinants of Financing Obstacles. Journal of International Money and Finance, 25, 932-952. https://doi.org/10.1016/j.jimonfin.2006.07.005
Berger, A. N., & Udell, G. F. (2002). Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure. The Economic Journal, 112, F32-F53. https://doi.org/10.1111/1468-0297.00682
Berger, A. N., & Udell, G. F. (2006). A More Complete Conceptual Framework for SME Finance. Journal of Banking & Finance, 30, 2945-2966. https://doi.org/10.1016/j.jbankfin.2006.05.008
Bierly III, P. E., & Daly, P. S. (2007). Alternative Knowledge Strategies, Competitive Environment, and Organizational Performance in Small Manufacturing Firms. Entrepreneurship Theory and Practice, 31, 493-516. https://doi.org/10.1111/j.1540-6520.2007.00185.x
Blanchard, P., Huiban, J. P., Musolesi, A., & Sevestre, P. (2013). Where There Is a Will, There Is a Way? Assessing the Impact of Obstacles to Innovation. Industrial and Corporate Change, 22, 679-710. https://doi.org/10.1093/icc/dts027
Bongini, P., Ferrando, A., & Rossi, E. (2021). SME Access to Market-Based Finance across Eurozone Countries. Small Business Economics, 56, 1667-1697. https://doi.org/10.1007/s11187-019-00285-z
Brancati, E. (2015). Innovation Financing and the Role of Relationship Lending for SMEs. Small Business Economics, 44, 449-473. https://doi.org/10.1007/s11187-014-9603-3
Brown, J. R., Martinsson, G., & Petersen, B. C. (2012). Do Financing Constraints Matter for R & D? European Economic Review, 56, 1512-1529. https://doi.org/10.1016/j.euroecorev.2012.07.007
Canepa, A., & Stoneman, P. (2003). Financial Constraints on Innovation: A European Cross-Country Study. In M. Waterson (Ed.), Competition, Monopoly and Corporate Governance (p. 42). Edward Elgar Publishing.
Carpenter, R. E., & Petersen, B. C. (2002). Capital Market Imperfections, High-Tech Investment, and New Equity Financing. The Economic Journal, 112, F54-F72. https://doi.org/10.1111/1468-0297.00683
Carpenter, R., & L. Rondi, (2000). Italian Corporate Governance, Investment, and Finance. CERIS-CNR Working Paper No. 14/2000.
Chava, S., Chong, X., & Nanda, V. (2012). Funding Innovation: The Role of Lender Expertise and Control Rights. Georgia Institute of Technology Working Paper.
Chundakkadan, R., & Sasidharan, S. (2020). Financial Constraints, Government Support, and Firm Innovation: Empirical Evidence from Developing Economies. Innovation and Development, 10, 279-301. https://doi.org/10.1080/2157930X.2019.1594680
Clausen, T. H. (2008). Search Pathways to Innovation (No. 20080311). TIK Working Paper on Innovation Studies.
D’este, P., Iammarino, S., Savona, M., & von Tunzelmann, N. (2012). What Hampers Innovation? Revealed Barriers versus Deterring Barriers. Research Policy, 41, 482-488. https://doi.org/10.1016/j.respol.2011.09.008
Dinh, H. T., Mavridis, D. A., & Nguyen, H. B. (2012). The Binding Constraint on the Growth of Firms in Developing Countries. In H. T. Dinh, & G. R. G. Clarke (Eds.), Performance of Manufacturing Firms in Africa: An Empirical Analysis (pp. 87-137). World Bank Group. https://doi.org/10.1596/9780821396322_CH04
Drakos, K., & Giannakopoulos, N. (2011). On the Determinants of Credit Rationing: Firm-Level Evidence from Transition Countries. Journal of International Money and Finance, 30, 1773-1790. https://doi.org/10.1016/j.jimonfin.2011.09.004
Drakos, K., & Kallandranis, C. (2005). Firm-Specific Attributes of Financing Constraints: The Case of Greek Listed Firms. Investment Management and Financial Innovations, 2, 98-110.
Farinha, L., & Félix, S. (2015). Credit Rationing for Portuguese SMEs. Finance Research Letters, 14, 167-177. https://doi.org/10.1016/j.frl.2015.05.001
Fazzari, S., Hubbard, R., & Petersen, B. (1988). Financing Constraints and Corporate Investment. Brookings Papers on Economic Activity, 19, 141-195. https://doi.org/10.2307/2534426
Ferrando, A., & Lekpek, S. (2018). Access to Finance and Innovative Activity of EU Firms: A Cluster Analysis (No. 2018/02). EIB Working Papers.
Ferrando, A., Popov, A., & Udell, G. F. (2017). Sovereign Stress and SMEs’ Access to finance: Evidence from the ECB’s SAFE Survey. Journal of Banking & Finance, 81, 65-80. https://doi.org/10.1016/j.jbankfin.2017.04.012
Fombang, M. S., & Adjasi, C. K. (2018). Access to Finance and Firm Innovation. Journal of Financial Economic Policy, 10, 73-94. https://doi.org/10.1108/JFEP-10-2016-0070
Francis, B., Hasan, I., Huang, Y., & Sharma, Z. (2012). Do Banks Value Innovation? Evidence from US Firms. Financial Management, 41, 159-185. https://doi.org/10.1111/j.1755-053X.2012.01181.x
Freel, M. S. (2007). Are Small Innovators Credit Rationed? Small Business Economics, 28, 23-35. https://doi.org/10.1007/s11187-005-6058-6
Freel, M., Carter, S., Tagg, S., & Mason, C. (2012). The Latent Demand for Bank Debt: Characterizing “Discouraged Borrowers”. Small Business Economics, 38, 399-418. https://doi.org/10.1007/s11187-010-9283-6
Galia, F., & Legros, D. (2004). Complementarities between Obstacles to Innovation: Evidence from France. Research Policy, 33, 1185-1199. https://doi.org/10.1016/j.respol.2004.06.004
Garcia-Teruel, P., & Martinez-Solano, P. (2007). Short-Term Debt in Spanish SMEs. International Small Business Journal, 25, 579-602. https://doi.org/10.1177/0266242607082523
Guiso, L., & Minetti, R. (2010). The Structure of Multiple Credit Relationships: Evidence from U.S. Firms. Journal of Money, Credit and Banking, 42, 1037-1071. https://doi.org/10.1111/j.1538-4616.2010.00319.x
Hall, B. (2014). Patents as Quality Signals? The Implications for Financing Constraints on R & D (No. 430). National Institute of Economic and Social Research.
Hall, B. H. (2002). The Financing of Research and Development. Oxford Review of Economic Policy, 18, 35-51. https://doi.org/10.1093/oxrep/18.1.35
Hall, B. H., & Lerner, J. (2010). The Financing of R & D and Innovation. In Handbook of the Economics of Innovation (Vol. 1, pp. 609-639). North-Holland. https://doi.org/10.1016/S0169-7218(10)01014-2
Hall, B. H., Helmers, C., Rogers, M., & Sena, V. (2013). The Importance (or Not) of Patents to UK Firms. Oxford Economic Papers, 65, 603-629. https://doi.org/10.1093/oep/gpt012
Hall, B. H., Moncada-Paternò-Castello, P., Montresor, S., & Vezzani, A. (2016). Financing Constraints, R & D Investments and Innovative Performances: New Empirical Evidence at the Firm Level for Europe. Economics of Innovation and New Technology, 25, 183-196. https://doi.org/10.1080/10438599.2015.1076194
Hashi, I., & Toci, V. Z. (2010). Financing Constraints, Credit Rationing and Financing Obstacles: Evidence from Firm-Level Data in South Eastern Europe. Economic and Business Review, 12, 29-60. https://doi.org/10.15458/2335-4216.1241
Howell, S. T. (2015). Financing Innovation: Evidence from R & D Grants. https://ssrn.com/abstract=2687457
Huergo, E., & Jaumandreu, J. (2004). How Does Probability of Innovation Change with Firm Age? Small Business Economics, 22, 193-207. https://doi.org/10.1023/B:SBEJ.0000022220.07366.b5
Jaffee, D., & Stiglitz, J. (1990). Credit Rationing. In B. Friedman, & F. Hahn (Eds.), Handbook of Monetary Economics (Vol. 2, pp. 837-888). Elsevier.
Johnson, W. H., & Medcof, J. W. (2007). Motivating Proactive Subsidiary Innovation: Agent-Based Theory and Socialization Models in Global R & D. Journal of International Management, 13, 472-487. https://doi.org/10.1016/j.intman.2007.03.006
Kallandranis, C. (2020). An Overview of Systematically Rejected Loan Applicants in Eurozone SMEs: Evidence from SAFE Survey. Empirical Economics Letters, 19, 1491-1502.
Kallandranis, C., Anastasiou, D., & Drakos, K. (2023). Credit Rationing Prevalence for Eurozone Firms. Journal of Business Research, 158, Article ID: 113640. https://doi.org/10.1016/j.jbusres.2022.113640
Khan, S. U., Shah, A. U., & Rizwan, M. F. (2017). Innovation and Access to Finance: International Evidence from Developing Markets. Working Paper, Universiti Teknologi Brunei. https://pide.org.pk/psde/wp-content/uploads/2018/12/Dr.Safi-Ullah-Khan.pdf
Khosravi, P., Newton, C., & Rezvani, A. (2019). Management Innovation: A Systematic Review and Meta-Analysis of Past Decades of Research. European Management Journal, 37, 694-707. https://doi.org/10.1016/j.emj.2019.03.003
Laforet, S. (2013). Organizational Innovation Outcomes in SMEs: Effects of Age, Size, and Sector. Journal of World Business, 48, 490-502. https://doi.org/10.1016/j.jwb.2012.09.005
Lee, N., Sameen, H., & Cowling, M. (2015). Access to Finance for Innovative SMEs Since the Financial Crisis. Research Policy, 44, 370-380. https://doi.org/10.1016/j.respol.2014.09.008
Liberti, J. M., & Petersen, M. A. (2018). Information: Hard and Soft. Technical Report, National Bureau of Economic Research. https://doi.org/10.3386/w25075
Lööf, H., & Nabavi, P. (2016). Innovation and Credit Constraints: Evidence from Swedish Exporting Firms. Economics of Innovation and New Technology, 25, 269-282. https://doi.org/10.1080/10438599.2015.1076196
Malhotra, M. (2007). Expanding Access to Finance: Good Practices and Policies for Micro, Small, and Medium Enterprises. World Bank Publications. https://doi.org/10.1596/978-0-8213-7177-0
Mancusi, M. L., & Vezzulli, A. (2010). R&D, Innovation and Liquidity Constraints in Italy (Vol. 442). Boston College Working Papers in Economics. Boston College.
Masiak, C., Moritz, A., & Lang, F. (2017). Financing Patterns of European SMEs Revisited: An Updated Empirical Taxonomy and Determinants of SME Financing Clusters (No. 2017/40). EIF Working Paper.
Mina, A., Lahr, H., & Hughes, A. (2013). The Demand and Supply of External Finance for Innovative Firms. Industrial and Corporate Change, 22, 869-901. https://doi.org/10.1093/icc/dtt020
Mohnen, P., Palm, F. C., Van Der Loeff, S. S., & Tiwari, A. (2008). Financial Constraints and Other Obstacles: Are They a Threat to Innovation Activity? De Economist, 156, 201-214. https://doi.org/10.1007/s10645-008-9089-y
Mol, M. J., & Birkinshaw, J. (2009). The Sources of Management Innovation: When Firms Introduce New Management Practices. Journal of Business Research, 62, 1269-1280. https://doi.org/10.1016/j.jbusres.2009.01.001
Moritz, A., Block, J. H., & Heinz, A. (2016). Financing Patterns of European SMEs—An Empirical Taxonomy. Venture Capital, 18, 115-148. https://doi.org/10.1080/13691066.2016.1145900
Mulkay, B., Hall, B. H., & Mairesse, J. (2001). Investment and R & D in France and in the United States. In D. Bundesbank (Ed.), Investing Today for the World of Tomorrow (pp. 229-273). Springer Verlag. https://doi.org/10.1007/978-3-642-56601-1_19
Mushtaq, R., Gull, A. A., & Usman, M. (2022). ICT Adoption, Innovation, and SMEs’ Access to Finance. Telecommunications Policy, 46, Article ID: 102275. https://doi.org/10.1016/j.telpol.2021.102275
Myers, S. C. (1984). Capital Structure Puzzle. The Journal of Finance, 39, 574-592. https://doi.org/10.1111/j.1540-6261.1984.tb03646.x
Nightingale, P., & Coad, A. (2014). Muppets and Gazelles: Political and Methodological Biases in Entrepreneurship Research. Industrial and Corporate Change, 23, 113-143. https://doi.org/10.1093/icc/dtt057
Oliner, D., & Rudebusch, D., (1992). Sources of the Financing Hierarchy for Business Investment. Review of Economics and Statistics, 74, 643-654. https://doi.org/10.2307/2109378
Ongena, S., & Smith, D. C. (2001). The Duration of Bank Relationships. Journal of Financial Economics, 61, 449-475. https://doi.org/10.1016/S0304-405X(01)00069-1
Öztürk, B., & Mrkaic, M. M. (2014). SMEs’ Access to Finance in the Euro Area: What Helps or Hampers? IMF Working Papers WP/14/78. https://doi.org/10.5089/9781484379059.001
Öztürk, E., & Ozen, O. (2021). How Management Innovation Affects Product and Process Innovation in Turkey: The Moderating Role of Industry and Firm Size. European Management Review, 18, 293-310. https://doi.org/10.1111/emre.12444
Paunov, C. (2012). The Global Crisis and Firms’ Investments in Innovation. Research Policy, 41, 24-35. https://doi.org/10.1016/j.respol.2011.07.007
Potters, L., Ortega-Argilés, R., & Vivarelli, M. (2008). R & D and Productivity: Testing Sectoral Peculiarities Using Micro Data (No. 3338). IZA Discussion Papers.
Psillaki, M., & Daskalakis, N. (2009). Are the Determinants of Capital Structure Country or Firm Specific? Small Business Economics, 33, 319-333. https://doi.org/10.1007/s11187-008-9103-4
Rosenbusch, N., Brinckmann, J., & Bausch, A. (2011). Is Innovation Always Beneficial? A Meta-Analysis of the Relationship between Innovation and Performance in SMEs. Journal of Business Venturing, 26, 441-457. https://doi.org/10.1016/j.jbusvent.2009.12.002
Rostamkalaei, A., Nitani, M., & Riding, A. (2020). Borrower Discouragement: The Role of Informal Turndowns. Small Business Economics, 54, 173-188. https://doi.org/10.1007/s11187-018-0086-5
Salavou, H., & Avlonitis, G. (2008). Product Innovativeness and Performance: A Focus on SMEs. Management Decision, 46, 969-985. https://doi.org/10.1108/00251740810890168
Santos, A., & Cincera, M. (2022). Determinants of Financing Constraints. Small Business Economics, 58, 1427-1439. https://doi.org/10.1007/s11187-021-00449-w
Savignac, F. (2008). Impact of Financial Constraints on Innovation: What Can Be Learned from a Direct Measure? Economics of Innovation and New Technology, 17, 553-569. https://doi.org/10.1080/10438590701538432
Schaller, H. (1993). Asymmetric Information, Liquidity Constraints, and Canadian Investment. The Canadian Journal of Economics, 26, 552-574. https://doi.org/10.2307/135887
Schumpeter, J. A. (1934). The Theory of Economic Development—An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. In Harvard Economic Studies 46. Harvard University Press. (Translated by Redvers Opie)
Segarra-Blasco, A., García-Quevedo, J., & Teruel, M. (2018). Financial Constraints and the Failure of Innovation Projects. Technological Forecasting and Social Change, 127, 127-140.
Serrasqueiro, Z., & Nunes, P. (2011). Is Age a Determinant of SMEs’ Financing Decisions? Empirical Evidence Using Panel Data Models. Entrepreneurship Theory and Practice, 36, 627-654. https://doi.org/10.1111/j.1540-6520.2010.00433.x
Sørensen, J. B., & Stuart, T. E. (2000). Aging, Obsolescence, and Organizational Innovation. Administrative Science Quarterly, 45, 81-112. https://doi.org/10.2307/2666980
Stiglitz, J. H., & Weiss A., (1981). Credit Rationing in Markets with Imperfect Information. American Economic Review, 71, 393-410.
Tsai, K. H., & Wang, J. C. (2004). R & D Productivity and the Spillover Effects of High-Tech Industry on the Traditional Manufacturing Sector: The Case of Taiwan Region. World Economy, 27, 1555-1570. https://doi.org/10.1111/j.1467-9701.2004.00666.x
Vaccaro, I. G., Jansen, J. J., Van Den Bosch, F. A., & Volberda, H. W. (2012). Management Innovation and Leadership: The Moderating Role of Organizational Size. Journal of Management Studies, 49, 28-51. https://doi.org/10.1111/j.1467-6486.2010.00976.x
Van de Vrande, V., De Jong, J. P., Vanhaverbeke, W., & De Rochemont, M. (2009). Open Innovation in SMEs: Trends, Motives and Management Challenges. Technovation, 29, 423-437. https://doi.org/10.1016/j.technovation.2008.10.001
Winters, R., & Stam, E. (2007). 12. Beyond the Firm: Innovation and Networks of High Technology SMEs. In J. Arauzo-Carod, & M. Manjón-Antolín (Eds.), Entrepreneurship, Industrial Location and Economic Growth (pp. 230-246). Edward Elgar Publishing.
Xiang, D., Worthington, A. C., & Higgs, H. (2015). Discouraged Finance Seekers: An Analysis of Australian Small and Medium Sized Enterprises. International Small Business Journal, 33, 689-707. https://doi.org/10.1177/0266242613516138