Firm Innovation in Emerging Markets: The Role of Finance, Governance, and Competition

TLDR

Existing finance literature on innovation focuses on large public firms in developed markets, whereas our database covers public and private firms, including SMEs, across 47 developing economies. We investigate which firm characteristics are linked to innovation among more than 19,000 firms in 47 developing economies. Innovation is defined broadly as the introduction of new products and technologies, knowledge transfers, and new production processes. Greater firm innovation is linked to access to external financing, highly educated managers, family/individual/manager ownership, and exposure to foreign competition.

Abstract

Abstract We investigate the firm characteristics associated with innovation in over 19,000 firms across 47 developing economies. While existing finance literature on innovation is limited to large public firms in developed markets such as the United States, our database includes public and private firms, and small and medium-sized enterprises. We define innovation broadly to include introduction of new products and technologies, knowledge transfers, and new production processes. We find that access to external financing is associated with greater firm innovation. Further, having highly educated managers, ownership by families, individuals, or managers, and exposure to foreign competition is associated with greater firm innovation.