External Financial Constraints, Human Capital, and Innovation - Evidence from Southern and Eastern European SMEs and Larger Firms

This study’s goal is to explore the relationship between external financial constraints and innovation, among Southern and Eastern European SMEs and larger firms, using data from the Business Environment and Enterprise Performance Survey (BEEPS). To this day, there is a widespread notion that difficulties accessing to credit negatively impact firm innovation, however some studies present evidence that these constraints do not impose and can even enhance innovation. Based on a logistic model, the results indicate that financial constraints partially enforce a negative influence on innovative output, however as the perceived restriction of access to finance grows, no statistical evidence is found. Furthermore, human capital is also considered as a possible mitigator of the hypothesized negative relationship which is significantly confirmed.