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Financing constraints for innovation

In: Elgar Encyclopedia on the Economics of Knowledge and Innovation

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  • Hanna Hottenrott

Abstract

Investment in innovation is characterized by uncertain and often intangible outcomes, knowledge spillovers as well as information asymmetries between managers vis-Ã -vis lenders and investors. These properties affect the financing of innovation. Financing constraints occur when firms' innovation activities are affected negatively by the lack of internal financing and constrained access to external financing, including high cost of debt or a shortage of equity. The extent to which a firm's innovation activities are affected by financing constraints depends on its size, maturity and the nature of its innovation investments: Smaller and younger firms as well as firms pursuing more radical innovation projects are more likely to face financing constraints than larger, older or incrementally innovating firms.

Suggested Citation

  • Hanna Hottenrott, 2022. "Financing constraints for innovation," Chapters, in: Cristiano Antonelli (ed.), Elgar Encyclopedia on the Economics of Knowledge and Innovation, chapter 18, pages 153-156, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:19760_18
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