Sources of financing: Which ones are more effective in innovation–growth linkage?

The study assesses the impact of eight sources of financing (internal funds, bank loans, credit lines, trade credit, equity, grants, leasing and factoring) on innovation and firm growth. It provides evidence that not all external financing sources have the same impact on innovation and growth. Output additionality on turnover growth seems higher for equity financing. In contrast, employment growth appears to be more associated with financing sources linked to increased fixed assets or the solving of liquidity problems. The number of financing instruments used together also seems to matter, revealing the existence of complementarities.


Variable name
Variable description

Source of financing (INPUT)
Financing: internal funds = 1 if firm has retained earnings or sold assets in the past 6 months (question 4A in SAFE questionnaire); 0 otherwise.

Financing: external source
= 1 if firm has obtained or used any source of external financing in the past 6 months (question 4A and 7B in SAFE questionnaire); 0 otherwise.External source of financing refers to bank loan, trade credit, credit line, grants, equity, leasing, factoring, debt securities and all others not individually identified (loans from family, friends, related enterprise or shareholders, subordinated debt instruments, participating loans, peer-to-peer lending and crowdfunding).

No-financing
= if firm has not used, issued or obtained any sources of external financing, among those listed above, in the past 6 months (question 4A and 7B in SAFE questionnaire); 0 otherwise (= control group and untreated).
Financing: bank loan = 1 if firm has obtained finance through a bank loan over the past 6 months; 0 otherwise.Obtained means to apply for finance and received everything requested, most of it or a limited part (question 7B in SAFE questionnaire).
Financing: trade credit = 1 if firm has obtained finance through a trade credit over the past 6 months; 0 otherwise.Obtained means to apply for finance and received everything requested, most of it or a limited part (question 7B in SAFE questionnaire).

Financing: credit line
= 1 if firm has obtained finance through a credit line, bank overdraft or credit card overdraft over the past 6 months; 0 otherwise.Obtained means to apply for finance and received everything requested, most of it or a limited part (question 7B in SAFE questionnaire).
Financing: grants = 1 if firm has obtained new grants or subsidized bank loan in the past 6 months (question 4A in SAFE questionnaire); 0 otherwise.

Financing: equity
= 1 if firm has issued equity capital, including venture capital and business angels, in the past 6 months (question 4A in SAFE questionnaire); 0 otherwise.

Financing: leasing
= 1 if firm has used leasing or hire-purchase in the past 6 months (question 4A in SAFE questionnaire); 0 otherwise.

Financing: factoring
= if firm has issued factoring in the past 6 months (question 4A in SAFE questionnaire); 0 otherwise.

N° of financing
N° of external financing sources used by firms (0-7), among those listed above, in the past 6 months.Zero means no financing used or obtained.

Innovation indicator (OUTPUT)
Innovative firm = 1 if firm has introduced, during the past 12 months, one of the following types of innovative activities: a) new or improved product or service; b) new or improved production process or method; c) new organization of management; d) new way of selling goods or services; 0 otherwise.

N° of innovations
N° of innovation types introduced by firms (0-4), among those listed above, during the past 12 months.Zero means no innovation has been introduced in the market and firm is considered non-innovative.

Firm growth indicators (OUTCOME)
Increase: turnover = 1 if firm has increased its turnover in the past 6 months; 0 otherwise (= remained unchanged or decreased).
Increase: employees = 1 if firm has increased the number of employees in the past 6 months; 0 otherwise (= remained unchanged or decreased).Size: Small = 1 if small firm; 0 otherwise.

Firm's main activity sector
Activity: Industry = 1 if firm's main activity is industry, which includes manufacturing, mining and electricity, gas and water supply; 0 otherwise.

Activity: Trade
= 1 if firm's main activity is wholesale or retail trade; 0 otherwise.

Activity: Services
= 1 if firm's main activity is services to businesses or individuals, for example hotels and restaurants, IT services; 0 otherwise (reference category).
Activity: Construction = 1 if firm's main activity is construction; 0 otherwise.

Firm's ownership
Ownership: private = 1 if firm's main ownership lies with one owner only, family or entrepreneurs; 0 otherwise (reference category).
Ownership: public shareholders = 1 if firm's main ownership lies with public shareholders, as firm is listed on the stock market; 0 otherwise.

Ownership: other
= 1 if firm's main ownership lies with other enterprises; venture capital enterprises or business angels; with other business associates or others not previously listed; 0 otherwise (reference category).

Autonomy
= 1 if firm is an autonomous profit-oriented enterprise, making independent financial decisions; 0 otherwise (= a subsidiary or a branch of another enterprise).

Firm age
Firm age was divided in three categories taking into account the criteria of Criscuolo et al. (2014).
Age: Mature firm = 1 if a mature firm between 5 and 10 years old; 0 otherwise (reference category).
Age: Old firm = 1 if an old firm more than 10 years old; 0 otherwise.

Firm's past performance
Export intensity % of turnover destined to international market or non-residents in the year before the survey (e.g.refers to value of 2013 for survey made in 2014).
Grow fast = 1 if firm has grown in terms of turnover, on average over 20% per year, in the past three years (2011 -2013); 0 otherwise (reference category).
Grow moderate = 1 if firm has grown in terms of turnover less than 20% per year, in the past three years (2011 -2013) ; 0 otherwise.

No growth
= 1 if firm has not grown or become smaller in terms of turnover, in the past three years (2011 -2013); 0 otherwise.
Source: Authors' own elaboration based on SAFE Survey template.Balance plot

Table A1 .
Variable name and description (continuation)

Table B1 .
Mean, Standard Deviation, Minimum and Maximum all sample Source: Authors' own elaboration.Note: Number of observations = 3,786.

Table B2 .
Source of financing, mean by country Source: Authors' own elaboration.Note: Number of observations = 3,786.

Table B3 .
Output: mean by country Source: Authors' own elaboration.Note: Number of observations = 3,786.

Balancing test -Type of financing
Figure D1.Distribution of treated and non-treated firms according to the covariates by source of financing

Table E1 .
Probability of increasing turnover with dummy innovation measure

Table E2 .
Probability of increasing employment with dummy innovation measure

Table E3 .
Probability of increasing turnover with count data innovation measure

Table E4 .
Probability of increasing employment with count data innovation measure Source: Authors' own elaboration based on results of kernel density plots of treated and control group, before and after matching.Authors' own elaboration based on PSM results.Note: The Z-test was estimated following Clogg et al. (1995) approach , where H0: Differences between coefficients = 0 and the Z test is estimated by the following equation:  =  1 −  2 √(. 1 ) 2 + (. 2 ) 2