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Firm innovation in transition economies: The role of formal versus informal finance

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  • Ullah, Barkat

Abstract

In this study, I investigate the association between firm innovation and formal versus informal finance for 5,982 firms in 30 transition economies. I also examine whether the association between firm innovation and formal versus informal finance differs between developed and developing countries. I find that access to formal finance is associated with greater firm innovation. I find no evidence that informal finance promotes innovation. Formal finance is more effective in fostering innovation in developing countries. By establishing a link between formal finance and innovation, I provide evidence on a potential channel through which formal finance contributes to firm growth. The findings also show the limitation of using informal finance in promoting firm innovation even for smaller firms in developing countries who substantially use financing from informal sources.

Suggested Citation

  • Ullah, Barkat, 2019. "Firm innovation in transition economies: The role of formal versus informal finance," Journal of Multinational Financial Management, Elsevier, vol. 50(C), pages 58-75.
    • Handle: RePEc:eee:mulfin:v:50:y:2019:i:c:p:58-75
    DOI: 10.1016/j.mulfin.2019.04.004
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    Cited by:

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    2. Raminta Benetyte & Halit Gonenc & Rytis Krusinskas, 2021. "Corporate Governance vs. Financial Performance for Intensity of Innovation Investments," Sustainability, MDPI, vol. 13(9), pages 1-13, April.
    3. Amin, Md Ruhul & Wang, Xinyu & Aktas, Elvan, 2023. "Does oil price uncertainty affect corporate innovation?," Energy Economics, Elsevier, vol. 118(C).
    4. Edmund Mallinguh & Christopher Wasike & Zeman Zoltan, 2020. "Technology Acquisition and SMEs Performance, the Role of Innovation, Export and the Perception of Owner-Managers," JRFM, MDPI, vol. 13(11), pages 1-19, October.
    5. Simplice A. Asongu & Valentine B. Soumtang & Ofeh M. Edoh, 2021. "Financial determinants of informal financial development in Sub-Saharan Africa," Research Africa Network Working Papers 21/077, Research Africa Network (RAN).
    6. Cheng, Peng & Wei, Jiuchang & Liu, Yang, 2024. "Give a plum in return for a peach: The effect of entrepreneurial informal financing on environmental corporate social responsibility," Journal of Business Research, Elsevier, vol. 175(C).
    7. Shreya Biswas, 2021. "She Innovates- Female owner and firm innovation in India," Papers 2109.09515, arXiv.org.
    8. Phan, Trang Hoai & Stachuletz, Rainer & Nguyen, Hai Thi Hong, 2022. "Export Decision and Credit Constraints under Institution Obstacles," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 132783, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    9. Trang Hoai Phan & Rainer Stachuletz & Hai Thi Hong Nguyen, 2022. "Export Decision and Credit Constraints under Institution Obstacles," Sustainability, MDPI, vol. 14(9), pages 1-27, May.
    10. Zheng, Mingbo & Feng, Gen-Fu & Wang, Quan-Jing & Chang, Chun-Ping, 2023. "Financial globalization and technological innovation: International evidence," Economic Systems, Elsevier, vol. 47(1).
    11. Harrison Paul Adjimah & Victor Yawo Atiase & Dennis Yao Dzansi, 2022. "Examining the Role of Regulation in the Commercialisation of Indigenous Innovation in Sub-Saharan African Economies: Evidence from the Ghanaian Small-Scale Industry," Administrative Sciences, MDPI, vol. 12(3), pages 1-21, September.

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    More about this item

    Keywords

    Firm innovation; Formal finance; Informal finance; Firm growth; Transition economy;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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