IDEAS home Printed from https://ideas.repec.org/a/eme/jfeppp/jfep-10-2016-0070.html
   My bibliography  Save this article

Access to finance and firm innovation

Author

Listed:
  • MccPowell Sali Fombang
  • Charles Komla Adjasi

Abstract

Purpose - The study aims to examine the importance of access to finance in firm innovation by using firm-level data from the World Bank enterprise survey (WBES) on selected African countries. Design/methodology/approach - This study utilises firm-level data from the WBES database and computes aggregate innovation index by using multiple correspondent analysis. The authors then apply instrumental variable models (to control for possible endogeneity between innovation and finance) to assess the link between finance and innovation. Findings - The research finds that finance in the form of overdraft overwhelmingly drives innovation in all selected countries – Cameroon, Kenya, Morocco, Nigeria and South Africa. Trade credit enhances innovation among firms in Nigeria, South Africa and Cameroon, while asset finance drives innovation amongst firms in Cameroon, Nigeria and South Africa. Practical implications - Policy incentives such as tax breaks could be put in place for financial intermediaries that have shown proof of extending loans to financially constraint firms to enable them to innovate. Furthermore, different financial institutions such as microfinance institutions can be supported to increase credit to enterprises. Partnerships with organisations willing to fund firms and support start-ups should be encouraged. One of such support mechanisms could be specialised schemes such as a credit guarantee scheme to encourage and secure lending to enterprises to promote innovation. Originality/value - This paper provides empirical insights into how finance enhances innovation in African enterprises. It also shows how different finance structures (overdraft, asset finance and trade credit) affect firm innovation in different African countries.

Suggested Citation

  • MccPowell Sali Fombang & Charles Komla Adjasi, 2018. "Access to finance and firm innovation," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 10(1), pages 73-94, April.
  • Handle: RePEc:eme:jfeppp:jfep-10-2016-0070
    DOI: 10.1108/JFEP-10-2016-0070
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/JFEP-10-2016-0070/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers

    File URL: https://www.emerald.com/insight/content/doi/10.1108/JFEP-10-2016-0070/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers

    File URL: https://libkey.io/10.1108/JFEP-10-2016-0070?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. García-Pérez-de-Lema, Domingo & Ruiz-Palomo, Daniel & Diéguez-Soto, Julio, 2021. "Analysing the roles of CEO's financial literacy and financial constraints on Spanish SMEs technological innovation," Technology in Society, Elsevier, vol. 64(C).
    2. Ferrando, Annalisa & Rossi, Stefania P. S. & Bonanno, Graziella, 2020. "Determinants of firms’ efficiency: do innovations and finance constraints matter? The case of European SMEs," Working Paper Series 2419, European Central Bank.
    3. Abderazak Bakhouche, 2022. "Assessing the Innovation-finance Nexus for SMEs: Evidence from the Arab Region (MENA)," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(3), pages 1875-1895, September.
    4. Daniel Ruiz-Palomo & Manuel à ngel Fernández-Gámez & Ana León-Gómez, 2022. "Analyzing the Effect of Financial Constraints on Technological and Management Innovation in SMEs: A Gender Perspective," SAGE Open, , vol. 12(1), pages 21582440221, March.
    5. Wellalage, Nirosha Hewa & Locke, Stuart, 2020. "Formal credit and innovation: Is there a uniform relationship across types of innovation?," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 1-15.
    6. Thi Thu Tra Pham & Thai Vu Hong Nguyen & Son Kien Nguyen & Hieu Thi Hoang Nguyen, 2023. "Does planned innovation promote financial access? Evidence from Vietnamese SMEs," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(2), pages 281-307, June.
    7. GuoHua Cao & WenJun Geng & Jing Zhang & Qi Li, 2023. "Social network, financial constraint, and corporate innovation," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(3), pages 667-692, September.

    More about this item

    Keywords

    Investment decisions; Africa; Financing policy; Instrumental variables; Finance; Firm innovation; Firm behaviour; Technological change: Choices and consequences; M02; M03; G2;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:jfeppp:jfep-10-2016-0070. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.