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Financial constraints and public funding of eco-innovation: empirical evidence from European SMEs

Abstract

Financial constraints have an important impact on the development of eco-innovations but their effect varies according to the type of funding. This article studies the interaction between public funding on the one hand, and internal and external lack of funding on the other. The empirical analysis is based on a sample of European small- and medium-sized enterprises, and exploits information on firms’ involvement in eco-innovation activities, their drivers, and obstacles. Our results show that, even accounting for demand-pull effects and regulatory interventions, access to public funds and fiscal incentives is effective for improving the firm’s ability to introduce eco-innovations, particularly if the company has ample funds from either internal or external sources. Our findings suggest also that public funding is perceived by firms as complementary to other external finance.

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Notes

  1. Empirical evidence shows that firms use mostly internal funds to finance innovation and this reflects a gap in the cost of capital (Hottenrott and Peters 2012).

  2. Subsidies can be assigned to firms that achieve specific goals regarding, e.g., the overall percentage of sustainable products or processes developed, or to firms investing in new sustainable energy projects.

  3. There is some evidence of a negative effect of lack of internal funds, while the variable indicating the importance of lack of external funds is significant only in column (3), where it also appears interacted with the “public incentives” variable.

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Correspondence to Nicoletta Corrocher.

Annex A

Annex A

SELECTED QUESTIONS USED

Questions used to build the dependent variable and the quality control on the dependent variable

D5. During the past 24 months have you introduced the following eco-innovation

  • Yes ..........................................................1

  • No............................................................2

  1. a.

    a new or significantly improved eco-innovative product or service to the market..... 1 2

  2. b.

    a new or significantly improved eco-innovative production process or method........ 1 2

  3. c.

    a new or significantly improved eco-innovative organisational innovation............... 1 2

Q0 How would you describe the relevance of innovation you have introduced in the past 24 months in terms of resource efficiency?

  • Less than 5% reduction of material use per unit output................................. 1

  • Between 5% to 19% reduction of material use per unit output...................... 2

  • Between 20% to 39% reduction of material use per unit output..................... 3

  • Between 40% to 60% reduction of material use per unit output..................... 4

  • More than 60% reduction of material use per unit output .............................. 5

Question used to build the variables on lack of internal and external funds

Q7. I will list you some barriers that could represent an obstacle to accelerated eco-innovation uptake and development for a company. Please tell me for each of them if you consider them a very serious, somewhat serious, not serious or not at all serious barrier in case of your company?

  • Very serious ...........................................4

  • Somewhat serious .................................3

  • Not serious .............................................2

  • Not at all serious ....................................1

  1. a.

    Lack of funds within enterprise ........................... 0 1

  2. b.

    Lack of external financing................................... 0 1

Question used to build the variable on access to public funds and fiscal incentives

Q8. I will list you some drivers that could accelerate eco-innovation uptake and development for a company. Please tell me for each of them if you consider them a very important, somewhat important, not important or not at all important driver in case of your company?

  • Very important.............................................. 4

  • Somewhat important .................................... 3

  • Not important................................................. 2

  • Not at all important ....................................... 1

  1. n.

    Access to existing subsidies and fiscal incentives .................................................................. 0 1

Question used to build the variables on supply-side, demand-side and regulation

Q8. I will list you some drivers that could accelerate eco-innovation uptake and development for a company. Please tell me for each of them if you consider them a very important, somewhat important, not important or not at all important driver in case of your company?

  • Very important.............................................. 4

  • Somewhat important .................................... 3

  • Not important................................................. 2

  • Not at all important ....................................... 1

SUPPLY-SIDE VARIABLES (INTERNAL AND EXTERNAL KNOWLEDGE)

  1. a.

    Technological and management capabilities within the enterprise....................................... 0 1

  2. f.

    Collaboration with research institutes, agencies and universities.......................................... 0 1

REGULATION

  1. l.

    Existing regulations, including standards ............................................................................. 0 1

DEMAND

  1. o.

    Increasing market demand for green products ............................................................................ 0 1

MPRICE

  1. c.

    Current high material prices (as an incentive to innovate, to use less material and decrease the cost) ............................................................................. 0 1

EPRICE

  1. i.

    Current high energy prices (as an incentive to innovative, to use less energy and decrease the cost) ………………..................................................... 0 1

MSCARCITY

  1. e.

    Expected future material scarcity (as an incentive to develop innovative, less material-intensive substitutes).....................................................................0 1

Question used to build the variable on the innovation investment related to eco-innovation

Q6. Over the last 5 years, what share of innovation investments in your company were related to eco-innovation, i.e. implementing new or substantially improved solutions resulting in more efficient use in material, energy and water?

  • More than 50% .......................................................1

  • Between 30% and 49%...........................................2

  • Between 10% and 29%...........................................3

  • Less than 10%.........................................................4

  • None .......................................................................5

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Cecere, G., Corrocher, N. & Mancusi, M.L. Financial constraints and public funding of eco-innovation: empirical evidence from European SMEs. Small Bus Econ 54, 285–302 (2020). https://doi.org/10.1007/s11187-018-0090-9

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  • DOI: https://doi.org/10.1007/s11187-018-0090-9

Keywords

  • Eco-innovations
  • Public funding
  • Financial constraints
  • SMEs

JEL codes

  • O31
  • Q55
  • G38
  • L26