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Internal and external financing of innovation

Internal and external financing of innovation Successful innovation requires a significant financial commitment. Therefore, the purpose of this paper is to investigate the relation between internal and external financing and the degree of innovation in European firms.Design/methodology/approachAn empirical investigation is carried out using a longitudinal data set including 146 large, quoted, European firms over ten years, resulting in 1,460 firm years.FindingsThe authors find that only firms in the energy sector will be more innovative when they are profitable. For the sectors of basic materials, manufacture and construction, services, financial and property services, and technology and telecommunications, profitability is negatively related to innovation. External financing in the form of debt reduces the focus on innovation in profitable firms.Research limitations/implicationsThe authors analyze the findings through the lens of evolutionary economics. The model is not valid for firms in the consumer-goods sector, which indicates a need for adapting the model to each sector. We conclude that the impact of profitability on innovation varies across sectors, with debt financing as a moderating factor.Originality/valueTo the best of authors’ knowledge, this is the first study that analyzes the internal and external financing and the degree of innovation in European firms on a longitudinal basis. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png European Journal of Innovation Management Emerald Publishing

Internal and external financing of innovation

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References (92)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1460-1060
DOI
10.1108/ejim-09-2018-0207
Publisher site
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Abstract

Successful innovation requires a significant financial commitment. Therefore, the purpose of this paper is to investigate the relation between internal and external financing and the degree of innovation in European firms.Design/methodology/approachAn empirical investigation is carried out using a longitudinal data set including 146 large, quoted, European firms over ten years, resulting in 1,460 firm years.FindingsThe authors find that only firms in the energy sector will be more innovative when they are profitable. For the sectors of basic materials, manufacture and construction, services, financial and property services, and technology and telecommunications, profitability is negatively related to innovation. External financing in the form of debt reduces the focus on innovation in profitable firms.Research limitations/implicationsThe authors analyze the findings through the lens of evolutionary economics. The model is not valid for firms in the consumer-goods sector, which indicates a need for adapting the model to each sector. We conclude that the impact of profitability on innovation varies across sectors, with debt financing as a moderating factor.Originality/valueTo the best of authors’ knowledge, this is the first study that analyzes the internal and external financing and the degree of innovation in European firms on a longitudinal basis.

Journal

European Journal of Innovation Management – Emerald Publishing

Published: Feb 4, 2020

Keywords: Innovation; Europe; Innovation performance; Financing; Large enterprises; Large companies

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