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Innovation and Borrower Discouragement in SMEs

Brown, Ross and Linares Zegarra, Jose and Wilson, John OS (2022) 'Innovation and Borrower Discouragement in SMEs.' Small Business Economics. ISSN 0921-898X

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Abstract

In this paper, we investigate whether innovative small and medium sized enterprises (SMEs) are more likely to be discouraged from applying for external finance than non-innovators. These so-called discouraged borrowers are credit worthy SMEs who choose not to apply for external finance despite the fact that this is needed. We find that SMEs undertaking pure product and joint product and process innovation have a significantly higher incidence of borrower discouragement than non-innovative counterparts. Moreover, radical and incremental product innovators are more likely to be discouraged relative to non-innovative counterparts. Innovative activity can increase borrower discouragement for a myriad of reasons including fear of rejection, reluctance to take on additional risk, negative perceptions of the funding application process and perceived negative economic conditions. Overall, our results suggest a need for targeted policy interventions in order to alleviate borrower discouragement of innovative SMEs, as well as a closer alignment between innovation and SME finance policy.

Item Type: Article
Uncontrolled Keywords: Innovation; SMEs; Discouraged Borrowers; Access to Finance; Public Policy
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 21 Nov 2021 17:02
Last Modified: 04 Feb 2022 12:21
URI: http://repository.essex.ac.uk/id/eprint/31565

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