Innovation and borrower discouragement in SMEs
Abstract
In this paper, we investigate whether innovative small and medium sized enterprises (SMEs) are more likely to be discouraged from applying for external finance than non-innovators. These so-called discouraged borrowers are credit worthy SMEs who choose not to apply for external finance despite the fact that this is needed. We find that SMEs undertaking pure product and joint product and process innovation have a significantly higher incidence of borrower discouragement than non-innovative counterparts. Moreover, radical and incremental product innovators are more likely to be discouraged relative to non-innovative counterparts. Innovative activity can increase borrower discouragement for a myriad of reasons including fear of rejection, reluctance to take on additional risk, negative perceptions of the funding application process and perceived negative economic conditions. Overall, our results suggest a need for targeted policy interventions in order to alleviate borrower discouragement of innovative SMEs, as well as a closer alignment between innovation and SME finance policy.
Citation
Brown , R C , Linares Zegarra , J M & Wilson , J O S 2022 , ' Innovation and borrower discouragement in SMEs ' , Small Business Economics , vol. First Online . https://doi.org/10.1007/s11187-021-00587-1
Publication
Small Business Economics
Status
Peer reviewed
ISSN
0921-898XType
Journal article
Description
Funding: We gratefully acknowledge the ESRC-funded Enterprise Research Centre.Collections
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