Financial Development and Innovation in Small Firms
This paper uses firm level data from a cross-section of 57 countries to study how financial development affects innovation in small firms. The analysis finds that relative to large firms in the same industry, spending on research and development by...
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2007/09/8621977/financial-development-innovation-small-firms http://hdl.handle.net/10986/7590 |
| Summary: | This paper uses firm level data from a
cross-section of 57 countries to study how financial
development affects innovation in small firms. The analysis
finds that relative to large firms in the same industry,
spending on research and development by small firms is more
likely and sizable in countries at higher levels of
financial development. The estimates imply that among firms
doing research and development in a country like Romania,
which is at the 20th percentile of financial development, a
1 standard deviation decrease in firm size is associated
with a decrease of 0.7 standard deviations in research and
development spending. In contrast, this decrease is only 0.2
standard deviations in a country like South Africa, which is
at the 80th percentile of the distribution of financial
development. Small firms also report producing more
innovations per unit of research and development spending
than large firms, and this gap is narrower in countries at
higher levels of financial development. As a robustness
check, the author shows that these patterns are stronger in
industries inherently more reliant on external finance. |
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