SMEs, R &D financing, and credit shocks

Pietro Grandi (), Jean Belin, Elisa Darriet and Marianne Guille
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Pietro Grandi: Université Paris Panthéon Assas.
Jean Belin: Chaire Economie de la Défense - IHEDN
Elisa Darriet: Université Paris Panthéon Assas
Marianne Guille: Université Paris Panthéon Assas; Labex MME-DII

Small Business Economics, 2024, vol. 63, issue 1, No 12, 325-347

Abstract: Abstract We study how young and small firms’ R &D investment responds to the tightening of credit conditions. Using detailed R &D information on over 25,000 French companies, we show that financially constrained firms were relatively more likely to scale back their R &D activities during the European sovereign debt crisis (2010–2012), in particular those related to fundamental research. We then exploit variation in the sovereign risk exposure of firms’ main bank during the sovereign debt crisis as an exogenous credit supply shock. Results indicate that firms related to banks with larger exposures to risky sovereign debt decreased R &D expenditure by more relative to other firms following the crisis. Our findings indicate that credit supply shocks have significant impact on firms’ R &D activities, especially for SMEs and young firms, and highlight an important transmission channel of sovereign risk to firm innovation and productivity.

Keywords: R& D; SMEs; Banks; Credit; O32; G01; G21 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11187-023-00814-x

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