Financing Innovation in New Small Firms: New Evidence from Canada
Statistics Canada Analytical Studies Series 11F0019MIE, Working Paper No. 190
49 Pages Posted: 20 Jul 2002
Date Written: May 2002
This paper investigates the financial characteristics of new small firms. The analysis develops a representative, small-firm financial profile, and evaluates the extent to which the proportionate use of different instruments and sources is correlated with industry-level and firm-specific characteristics. Multivariate methods are then used to examine relationships between financial structure, R&D-intensity and innovation.
Our results suggest that relationships between knowledge-intensity and capital structure are bi-directional. After controlling for a range of industry- and firm-level covariates, firms that devote a higher percentage of their investment expenditure to R&D also exhibit less debt-intensive structures. Conversely, debt-intensive structures also act to constrain investments in R&D. These relationships, however, depend upon the type of debt in the asset mix. It is the share of long-term debt to total assets that is negatively related to investments in knowledge.
Keywords: small-firm financing, innovation, research and development
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