Do Innovative Enterprises Need More Funding? Studying Russian Enterprises

Abstract

The availability of financial resources is of crucial importance for an enterprise. The enterprise can utilize these resources to introduce innovations that enhance its growth and competitiveness. The paper is dedicated to studying the relationship between the innovation activities of the enterprises and their demand for external financial resources. The considered innovation activities include introducing product innovation or process innovation and conducting research and development (R&D) activities. The analysis bases on data from the World Bank enterprise survey conducted for Russian enterprises. The authors define the enterprises that have a demand for external financial resources and utilize a quasi-binomial model to study the relationship. The results demonstrate that the relationship between the necessity for external funding and innovation outputs depends on the type of innovation output. This relationship differs by the enterprise size and industry type, as well. Nevertheless, enterprises that seek external funding tend to conduct fewer R&D activities. The importance of the current research stems from the fact that mainstream literature has concentrated on studying the relationship between innovation activities and financial constraints. In contrast, the relationship between these activities and the demand of the enterprise for additional financial resources is still unclear.