Published at : 01 Apr 2022
Volume : IJtech
Vol 13, No 2 (2022)
DOI : https://doi.org/10.14716/ijtech.v13i2.4835
Ali Maarouf | St. Petersburg State University, 199178 St. Petersburg, Russia |
Olga N. Korableva | St. Petersburg State University, 199178 St. Petersburg, Russia. |
This
article studies the relationship between the credit constraints on Russian
enterprises and their decision to introduce product innovation, process
innovation, and to spend on research and development (R&D). The evidence
regarding the relationship between R&D spending remains somewhat ambiguous
and could differ between countries. A cross-sectional macro dataset of the
World Bank Enterprises Survey in Russia in 2019 is used in a system of
seemingly unrelated regressions. The results show that the existence of credit
constraints is associated with a lower probability of introducing product
innovations and spending on R&D activities. Nevertheless, there is no
significant relationship between being credit constrained and the enterprise decision
to introduce process innovations. The importance of this article stems from the
fact that previous works showed that these relationships differ by country and
that these relationships are considered simultaneously, while other works
concentrate mainly on one of these relationships.
Credit constraints; Financial constraints; Innovation activities; Research and development; World Bank Enterprises Survey
Innovation activity is
considered to be one of the main drivers of economic growth on the national
level (Aghion
et al., 2009; Solow, 1957). Innovations are of
great importance for company growth and competitiveness. Companies develop new
products and processes or improve old ones to maintain and increase their
productivity and market share (Berawi,
2016, 2017; Dabla-Norris et al., 2012; Leland & Pyle, 1977). However, many factors
could hinder investment in innovation activities, particularly in R&D
activities. Innovation projects require high sunk costs, especially projects containing R&D
activities that could require large investments in their initial stages (Alderson
& Betker, 1996). In addition to
research activities, numerous other activities are necessary to develop new
products and release them to the market, which creates a large time lag between
investing in these projects and starting to get a return on such investments.
This time lag discourages banks from giving companies credit to finance their
innovative projects (Bakker,
2013).
Other factors that hamper investing in innovation
activities include the inherent high level of uncertainty in such projects.
Many technological, strategic, and market factors lead
Applying
a system of simultaneous seemingly unrelated regressions led to the conclusion
that credit constraints are negatively correlated with the decision of the company
to introduce new products or to spend on R&D internally or externally. Such
a relationship has not been observed between credit constrained and introducing
process innovation. The development of new products and spending on R&D
activities require large investments from enterprises. Financially constrained
enterprises may not have enough resources to invest in such activities.
Meanwhile, the enterprise decision to introduce process innovation, which needs
less investment, is not correlated with credit constraints. It is worth noting
that the correlations between credit constraints and both product innovation
and R&D spending are of the same size, while not all enterprises that
introduced a product innovation decided to spend on R&D. This means that the
existence of financial constraints led companies to avoid activities that
require high investments or that associated with high risks. Process
innovations are less risky and do not require large investments, so the
enterprise can introduce them whether or not it is constrained.
These results have many policy
implications, especially considering the notion that credit finance is not
vital for innovation activities. Government endeavors should be evenly directed
to support enterprises’ access to external financial resources in order to
increase their ability to spend on R&D and to introduce product
innovations. This support should be directed evenly to help enterprises to
develop new products and to engage in R&D activities such that enterprises under
credit constraints are equally inclined to undertake such activities. Among the
main limitations of this work was the absence of panel data to consider the
relationships over time and to check the causality relationship. Is there only
a correlation between credit constraints, product innovation, process
innovation, and R&D spending? Or does limited access to external financial
resources lead companies to decide not to introduce new product innovations and
not to spend on R&D?
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