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Innovation and SME finance: Evidence from developing countries

Nirosha Hewa WELLALAGE () and Viviana Fernandez

International Review of Financial Analysis, 2019, vol. 66, issue C

Abstract: This paper explores the relationship between firm-level innovation and external finance for small and medium enterprises (SMEs). Our sample consists of 13,430 firms from Eastern Europe and Central Asian countries. A propensity score matching approach reports a positive relationship between formal finance and product and process innovation, which is greater for early-stage SMEs than for mature counterparts. However, informal finance has more significant impact on mature firms' product innovation. Our empirical evidence highlights policy implications for countries desiring to enhance the innovation of their SMEs by improving the external finance of these SMEs.

Keywords: Developing countries; External finance; Innovation; SMEs; Propensity score matching methods (search for similar items in EconPapers)
JEL-codes: O30 G20 G21 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.irfa.2019.06.009

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