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Financial constraints, government support, and firm innovation: empirical evidence from developing economies

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  • Radeef Chundakkadan
  • Subash Sasidharan

Abstract

The aim of this paper is two-fold. First, we empirically investigate the role of financial constraints on innovation activities. Second, we examine the significance of non-financial support provided by government on firm innovation. We employ firm-level survey data over the period 2006–2017 for 100 countries. Based on the direct indicators of financial constraints, different estimation methods and addressing the endogeneity concerns, we document that financial constraints have a significant negative impact on firms’ innovation activities. Further, we find a positive correlation between government support and the innovative activities of small-medium enterprises; and the impact is more pronounced in the case of financially unconstrained firms.

Suggested Citation

  • Radeef Chundakkadan & Subash Sasidharan, 2020. "Financial constraints, government support, and firm innovation: empirical evidence from developing economies," Innovation and Development, Taylor & Francis Journals, vol. 10(3), pages 279-301, September.
    • Handle: RePEc:taf:riadxx:v:10:y:2020:i:3:p:279-301
    DOI: 10.1080/2157930X.2019.1594680
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    Cited by:

    1. Farid Ullah & Ma Degong & Muhammad Anwar & Saddam Hussain & Rizwan Ullah, 2021. "Supportive tactics for innovative and sustainability performance in emerging SMEs," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-31, December.
    2. Siddarth Roche & Sizhong Sun & Riccardo Welters, 2022. "Do Financial Constraints Reduce Process Innovation? Evidence from Australian Firms," The Economic Record, The Economic Society of Australia, vol. 98(323), pages 335-353, December.
    3. Mushtaq, Rizwan & Gull, Ammar Ali & Usman, Muhammad, 2022. "ICT adoption, innovation, and SMEs’ access to finance," Telecommunications Policy, Elsevier, vol. 46(3).
    4. Dung Ngo, Vi & Leonidou, Leonidas C. & Janssen, Frank & Christodoulides, Paul, 2024. "Export-specific investments, competitive advantage, and performance in Vietnamese SMEs: The moderating role of domestic market conditions," Journal of Business Research, Elsevier, vol. 170(C).
    5. Zongsen Zou & Xiangyu Teng & Xindi Liu & Meng Wang, 2024. "Commercial Credit, Financial Constraints, and Firm’s R&D Investment: Evidence from China," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 7257-7279, June.

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