Based on 9,281 firm‐level survey data on micro, small, and medium enterprises (MSMEs) in India, this study investigates the firm‐level characteristics, that is, finance, competition, and human capital on innovation. The proxy for innovation is: if the firm has introduced a new product in the market, introduced a new process in the organization, made some changes in the organization structure, or introduced a new marketing method. We find that firms, spending money on formal research and giving time to employees to innovate, have a higher number of competitors, sell at a national level, and have access to overdraft facilities are associated with higher firm innovation. We rely on firm‐level survey data from the World Bank Enterprise Survey (WBES) for this study.
In: Kaur N, Kaur P. Ownership structure, size, and interest income substitution by banks: An exploratory study in the Indian context. Aust Econ Pap. 2020;1–24. https://doi.org/10.1111/1467-8454.12181
Purpose Based on 9,281 firm-level survey data on micro, small and medium enterprises (MSMEs) in India, this study aims to investigate how access to different finance sources and collateral requirement facilitates the firm's innovation activity across industries.
Design/methodology/approach This paper used ordered logit regression models using Stata software for explanatory variables to measure the impact of explanatory variables on firm innovation performance. Firms' innovation performance is measured through the aggregate innovation index obtained by adding up the no. of "new-to-firm" activities.
Findings The empirical results reveal that external sources of funding impact innovation activity than other financing sources. Also, the requirement of collateral for financing impacts innovation performance significantly. This paper finds that firms funded by state-owned banks or government agency are more actively engaged in innovation activities. The firm's size, ownership structure and location of the firm also show the varying innovation performance. This paper found variation in innovation performance across industries as well.
Practical implications First, the present study underlines the significance of funding sources. Second, minimizing the need for collateral to obtain external finance boosts small firms' innovation activity and will also trigger overall economic growth. Finally, while making policies for ownership transformation of state-owned institutions, policymakers should discuss these policies' impact on innovative firms.
Originality/value What facilitates innovation performance in an emerging market is missing in the literature for MSMEs, largely due to lack of data. It is reasonable not to generalize innovation knowledge in large firms to small firms because of the constraints, particularly MSMEs face.
