Determinants of Firms’ Efficiency: Do Innovations and Finance Constraints Matter? The Case of European Smes

42 Pages Posted: 13 Jun 2020

See all articles by Graziella Bonanno

Graziella Bonanno

University of Salerno

Annalisa Ferrando

European Central Bank (ECB)

Stefania P. S.

University of Trieste

Date Written: June, 2020

Abstract

This paper aims at investigating the relationship between firms’ profit efficiency, access to finance and innovation activities. We enrich our understanding on firms’ performance by adopting the stochastic frontier approach (SFA), which allows us to estimate profit functions and to obtain efficiency scores for a large sample of European firms. We pioneer the use of a novel dataset that merges survey-based data derived from the ECB Survey on access to finance for enterprises (SAFE) with balance sheet information. Our evidence documents that credit constrained firms display an incentive to improve their efficiency in order to increase profitability. Among firms that have embarked in product innovation, those in the industry and high-tech sectors see their effort translated in higher profit efficiency. From a policy perspective, our results could help to better understand the link between innovation, financial constraints and efficiency, which goes beyond the idea that easier access to finance is the panacea to get higher profit efficiency.

Keywords: access to finance, innovation, stochastic frontier approach, survey data

JEL Classification: D22, D24, L23, O31, C33

Suggested Citation

Bonanno, Graziella and Ferrando, Annalisa and S., Stefania P., Determinants of Firms’ Efficiency: Do Innovations and Finance Constraints Matter? The Case of European Smes (June, 2020). ECB Working Paper No. 20202419, Available at SSRN: https://ssrn.com/abstract=3625535 or http://dx.doi.org/10.2139/ssrn.3625535

Graziella Bonanno

University of Salerno ( email )

Via Giovanni Paolo II, 132
Fisciano, Salerno 84084
Italy

Annalisa Ferrando (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Stefania P. S.

University of Trieste ( email )

Piazzale Europa, 1
Trieste, Trieste 34100
Italy

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