On Young Innovative Companies: Why They Matter and How (Not) to Policy Support Them (original) (raw)
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Young SMEs: Driving innovation in Europe?
2018
Using large scale EIB Investment Survey evidence for 2016 covering 8,900 non-financial firms from all size and age classes across all sectors and all EU Member States, we identify different innovation profiles based on a firm's R&D investment and/or innovation activities. We find that "basic" firms - i.e. firms that do not engage in any type of R&D or innovation - are more common among young SMEs, while innovators - i.e. firms that do R&D and introduce new products, processes or services- are more often old and large firms. This hold particularly for "leading innovators", ie those introducing innovations new to the market. To further explore why young SMEs are not more active in innovation, we explore their access to finance. We confirm that young small leading innovators are the most likely to be credit constrained. Grants seem to at least partly addressing the external financing access problem for leading innovators, but not for young SMEs.
This policy report explores the role of R&D grant schemes in supporting young innovative firms with growth potential. This issue is important because it is associated to the ways in which the innovativeness and growth of a myriad of young innovative firms with growth potential can be effectively be supported by policy. We have used primary literature from Science direct and Scopus databases which we have organised and conducted between March and June 2017 and policy evaluations. It contributes to the current political debate in Europe on new sources and forms of R&I funding to enhance EU level support for young innovative companies with growth potential.
Determinants of European Firm's Innovation and the Role of Public Financial Support
Innovation activities at firm-level are often significantly influenced by factors that determine the outcome of the innovation process. The primary aim of this paper is to study and empirically verify the role of several determinants that affect company innovations in the European Union. The dataset for the analysis comes from Flash Eurobarometer 394 survey carried out in early 2014 and covers issues related to innovation activities, commercialization of innovation and also public support. We summarize the answers on selected questions from the survey by country, and subsequently based on the dataset, we perform regression analysis. In line with our primary assumptions, our results suggest that R&D activities on firm-level and their support represent the key factors substantially responsible for innovations. The work emphasizes the importance of firm characteristics and substantial differences between different types of innovation. Public sector support of innovation is also crucial.
Economics of Innovation and New Technology, 2015
The relationship between financing constraints, investments in research and development (R&D) and innovative performances has recently attracted renewed attention in the aftermath of a financial crisis that has led to problems of access to the credit on which innovation activities crucially rely. In spite of past developments in the theoretical analysis and in the data and methodologies for empirical investigation, some issues have remained unexplored to date. In this introduction to the special issue, we examine the contribution of the papers it contains, which provide new conceptualisations and empirical evidence at the firm level for Europe. Most previous research results, which were mainly based on extending models of financing constraints and physical investments to R&D investments, are confirmed, while new insights about this relationship are uncovered, in terms of the structural characteristics of the constrained firms, of the industries in which they operate, of their innovative activities and of the innovation outcomes they achieve.
The Role of Founders in Young Firms ? Innovative Performance : Empirical Evidence from Europe
2015
This paper explores the effect of founder-specific characteristics on the innovative performance of newly-established firms. The study also takes into account firm characteristics and characteristics of a firm?s environment. The empirical analysis is based on data from a rich European survey that examined small firms between three and ten years of age across a wide industrial spectrum of knowledge-intensive services and manufacturing sectors in ten countries. The study provides evidence that aspects of both generic and specific human capital (founder education, prior working experience, prior exposure to academic research) along with founding team heterogeneity expressed in terms of diversity of functional expertise are vital to explaining the innovative effort of such firms. Important policy implications about the identification of high growth potential companies and the promotion of entrepreneurship among specific populations follow.
Fostering product innovation: Differences between new ventures and established firms
Technovation, 2015
This study combines insights from the entrepreneurship, competency-based view and innovation policy literature to analyze the relationships among different types of public incentives designed to foster innovation and product innovation at both new ventures and incumbent firms. To test our hypotheses, we ran a system of regression models on a cross-national sample comprised of 5238 firms from 29 European countries and found a different pattern for new ventures and incumbents. Our results suggest that support for attendance or participation in trade fairs and networking with other companies are the most effective methods of promoting product innovation for new ventures. However, for incumbent firms, we found that the most effective policies consisted of tax reduction for R&D expenditures and subsidies for acquiring buildings or other infrastructure(s) for innovation activities. This distinction prompts interesting insights related to theory development in research on entrepreneurship and innovation policy.
A sample of 18 papers and 32 data sets revealed 210,404 firm level observations about European firms making decisions about innovation. A total of 66,965 observations describe activities of innovators between 1986 and 2008. This paper used a basic literature review to assess properties of innovation among quite rare full CDM (Crépon, Duguet, and Mairesse) papers. This study compared results from two systems of estimation and showed that both international and regional comparisons are rather problematic because of different definitions of innovation variables and data set representativeness. On average, a typical firm that engaged in innovation was a large firm competing in international markets in the sample of firms with 20+ employees. Smaller firms, however, invested more in research and development (R&D) and no linear relationship was found for output characteristics. Cooperation on R&D projects increased overall innovation intensity. There is strong evidence that public funding had an ambiguous effect on R&D spending and no additional effect on innovation output on average. This output measured by sales from innovated goods and services was on average in a positive relationship with labour productivity; however, a detailed view suggested this effect was present only in product innovation. In this paper, it is shown that results of innovation studies cannot be compared or used in research without deeper analysis of the data sample (micro companies, industries, active firms, entrants etc.), dependent variable (innovator, R&D expenditures, sales, productivity, new product, new service etc.) and the baseline company that is defined by independent variables.
ACCESS TO FINANCE AS A PRESSING PROBLEM: EVIDENCE FROM INNOVATIVE EUROPEAN FIRMS
Using an ordinal generalized linear model and survey data from European firms, the present paper provides evidence about how much access to finance is a pressing problem for innovative firms and which obstacles in the financial market affect firms' financing constraints. After controlling for firms' characteristics and market conditions, the results show that innovative European firms, compared to non-innovative ones, are more likely to perceive access to finance as an extremely pressing problem, and these constraints are stressed even more by smaller firms and according to the number of different types of innovation launched in the market. Interpretation of the model's specifications also reveals that the most pressing problem affecting the degree of access to finance is the non-availability of financing in the capital market and firms' insufficient collateral or guarantee, for both innovative and non-innovative firms. Moreover, assessing the impact of several factors affecting future financing, we found that for innovative SMEs, in addition to guarantees for loans, a major solution to fill the market gap is to facilitate equity investments, whereas for innovative non-SMEs the answer lies in the provision of better business support services. All these conclusions could be very useful for policy guidelines, providing some orientation about different needs as a function of firm size.
2003
It is argued that in Europe (and elsewhere) governments intervene actively to stimulate the SME sector, and because SMEs face financial constraints in particular, governments encourage the provision of debt and venture capital to such firms. We discuss a particular form of financefunding secured only on a claim written on sales, i.e. Sales Contingent Claim (SCC) backed finance -that offers a different risk-repayment profile to debt and equity instruments which will be attractive to many firms. We argue that if such financing were available it would further stimulate SME growth and innovation. However, for various reasons SCC-backed financial instruments are not available to SMEs on the market. We recommend the correction of this market incompleteness by the introduction of a scheme providing SCC-backed corporate finance for SMEs in higher risk (higher tech) sectors. This is not a recommendation of a subsidy for SMEs. We illustrate the workability of such schemes by looking at existing examples (aimed at project finance for larger firms) and also discuss other practical issues. JEL number: O38 (Technological Change -Government Policy)