Small Business Economics

, Volume 44, Issue 2, pp 449–473 | Cite as

Innovation financing and the role of relationship lending for SMEs

Article

Abstract

Financial frictions represent a severe obstacle to firm innovativeness. The paper explores this link in times of crisis and provides new insights on the role of relationship lending for small and micro-sized firms. Not only small and medium enterprises (SMEs) have a lower probability to innovate and a higher likelihood to face financial constraints, their innovative propensity is also more sensitive to firm financial condition. The establishment of close ties with the lender bank can help overcoming financial barriers to innovation. By exploiting firm-specific proxies of relationship lending I document a highly nonlinear effect that is decreasing with the size of the firm, suggesting that small companies can gain disproportional benefits from banks’ accumulation of soft information, especially for the introduction of new products and processes.

Keywords

Innovation Financial constraints Relationship lending SMEs 

JEL Classification

O31 L25 G21 L26 

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.LUISS Guido Carli UniversityRomeItaly
  2. 2.METRomeItaly

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