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Innovation and SME Finance
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Innovation and SME Finance

A special issue of Journal of Risk and Financial Management (ISSN 1911-8074). This special issue belongs to the section "Business and Entrepreneurship".

Deadline for manuscript submissions: closed (31 August 2020) | Viewed by 34275

Special Issue Editors

Dr. Nirosha Hewa Wellalage

E-Mail Website
Guest Editor
School of Accounting, Finance & Economics, Waikato Management School, University of Waikato, Private Bag 3105, Hamilton 3240, New Zealand
Interests: SME finance; emerging markets and quantitative analysis
Dr. Sazali Abidin

E-Mail Website
Guest Editor
Faculty of Agribusiness and Commerce, Lincoln University, P.O. Box 85084, Lincoln 7647, New Zealand
Interests: investment; fund management; governance; corporate finance; Islamic finance

Special Issue Information

Dear Colleagues,

The phase of introducing a new product, process, organisational or marketing method is the most critical in the firm’s lifecycle. During this period, uncertainty and finance requirements are at the maximum level (Giudici and Paleari 2000). Thus, the accessibility of external finance is one of the critical factors that has a significant impact on firm-level innovation (Hajivassiliou and Savignac 2008; Wellalage and Fernandez 2019). In particular, the availability of external finance is seen to be more beneficial to the development of small firms, which usually face cash constraints (Aghion et al. 2007; Guiso et al. 2004). However, accessibility to financing for small and medium enterprises (SMEs) is not uniformly available in all economies (Hewa Wellalage et al. 2019; Lee et al. 2015; Wellalage and Reddy 2018).

Small firms encounter difficulties in collecting external finance due to greater information problems. For small innovative firms, whose activity is more difficult to evaluate, the cost of external finance could be even higher. This Special Issue aims to shed light on special features in the financial structures of small innovative firms, compared with firms of similar size that do not innovate. Several theories, including agency theory (Jensen and Meckling 1976), pecking order theory (Myers 1984) and signalling theory (Myers and Majluf 1984) provide explanations of the finance ‘gap’ in small innovative firms.

This Special Issue will contribute to the development of a thorough and interdisciplinary understanding of the key underlying themes and issues associated with firm-level innovation of SMEs and finance. We welcome both theoretical and empirical contributions rooted in different fields, as long as the focus is on SME finance and innovation. Research methodologies may include qualitative, quantitative and mixed method approaches. Papers adopting novel methodological approaches, for example, based on data analytics, are particularly welcome.

Some broad topics that might be addressed include, but are not limited to, the following:

  • Innovation and SME financing in an emerging market context: old problems and new solutions;
  • Informality, innovation and SME external finance;
  • Capital structure and financing of innovative SMEs;
  • The effect of venture capital on the growth of firm-level innovation of SMEs;
  • Digital business models and different sources of entrepreneurial financing for start-up firms;
  • Financing limitations and innovative entrepreneurship;
  • The new way to raise capital for innovative SMEs;
  • International perspectives on changing entrepreneurial financing options for innovative SMEs.
Dr. Nirosha Hewa Wellalage
Prof. Sazali Abidin
Guest Editors

References

Aghion, Philippe, Thibault Fally, and Stefano Scarpetta. 2007. Credit constraints as a barrier to the entry and post-entry growth of firms. Economic Policy 22: 732–79. doi:10.1111/j.1468-0327.2007.00190.x.

Giudici, Giancarlo, and Stefano Paleari. 2000. The provision of finance to innovation: A survey conducted among Italian technology-based small firms. Small Business Economics 14: 37–53. doi:10.1023/A:1008187416389.

Guiso, Luigi, Paola Sapienza, and Luigi Zingales. 2004. The role of social capital in financial development. The American Economic Review 94: 526–56. doi:10.1257/0002828041464498.

Hajivassiliou, Vassilis, and Frederique Savignac. 2008. Financing Constraints and a Firm's Decision and Ability to Innovate: Establishing Direct and Reverse Effects. Rochester: SSRN.

Hewa Wellalage, Nirosha, Stuart Locke, and Helen Samujh. 2019. Firm bribery and credit access: Evidence from Indian SMEs. Small Business Economics Forthcoming. doi:10.1007/s11187-019-00161-w.

Jensen, Michael C., and William H. Meckling. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3: 305–60. doi:10.1016/0304-405X(76.90026-X.

Lee, Neil, Hiba Sameen, and Marc Cowling. 2015. Access to finance for innovative SMEs since the financial crisis. Research Policy 44: 370–80. doi:10.1016/j.respol.2014.09.008.

Myers, Stewart C. 1984. The capital structure puzzle. The Journal of Finance 39: 574–92. doi:10.1111/j.1540-6261.1984.tb03646.x.

Myers, Stewart C., and Nicholas S. Majluf. 1984. Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics 13: 187–221. doi:10.1016/0304-405X(84)90023-0.

Hewa Wellalage, Nirosha, and Viviana Fernandez. 2019. Innovation and SME finance: Evidence from developing countries. International Review of Financial Analysis doi:10.1016/j.irfa.2019.06.009.

Hewa Wellalage, Nirosha, and Krishna Reddy. 2018. Determinants of profit reinvestment undertaken by SMEs in the small island countries. Global Finance Journal In Press. doi:10.1016/j.gfj.2017.11.001.

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Journal of Risk and Financial Management is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1400 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • Small and medium enterprises (SMEs)
  • Innovation
  • Financing
  • Emerging markets
  • Qualitative and quantitative analysis

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Published Papers (5 papers)

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Research

14 pages, 256 KiB  
Article
Investor Sentiment, Portfolio Returns, and Macroeconomic Variables
by Azilawati Banchit, Sazali Abidin, Sophyafadeth Lim and Fareiny Morni
J. Risk Financial Manag. 2020, 13(11), 259; https://doi.org/10.3390/jrfm13110259 - 29 Oct 2020
Cited by 8 | Viewed by 4551
Abstract
Investor sentiment is an important aspect of behavioural finance, which provides explanation of anomalies to the asset’s intrinsic values. Sentiments can easily affect individual investors. Historically, Australia is regarded as rich in resources but poor in capital, and this motivates the paper to [...] Read more.
Investor sentiment is an important aspect of behavioural finance, which provides explanation of anomalies to the asset’s intrinsic values. Sentiments can easily affect individual investors. Historically, Australia is regarded as rich in resources but poor in capital, and this motivates the paper to further study and compare the effects of investor sentiment on performance returns. Aggregate and cross-sectional effects, as well as predictive regression analysis to forecast the relationships, while controlling for the macroeconomic variables, are used by employing Consumer Confidence Index (CCI) and trade volume as sentiment proxies. Contrary to some studies with aggregate stock markets, it is discovered that in the short term, investor sentiment poses a positive impact with strong predictive power on the forecast of portfolio returns but not so much in the long run, which supports the classical theories of rational investors. In both Australian and New Zealand markets, the sentiment proxies also cannot predict the returns portfolios with dividends in the long/short portfolio and book-to-market ratio long/short portfolio. Full article
(This article belongs to the Special Issue Innovation and SME Finance)
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15 pages, 316 KiB  
Article
Small Family Businesses: Innovation, Risk and Value
by Samir Harith and Ruth Helen Samujh
J. Risk Financial Manag. 2020, 13(10), 240; https://doi.org/10.3390/jrfm13100240 - 14 Oct 2020
Cited by 5 | Viewed by 4178
Abstract
This article reviews the literature and applies principal-to-principal (PP) conflict theory to small family based businesses. The lack of accurate measurement and communication of risk leading to issues with innovation, is the primary cause of PP agency costs. Careful analysis of the risk [...] Read more.
This article reviews the literature and applies principal-to-principal (PP) conflict theory to small family based businesses. The lack of accurate measurement and communication of risk leading to issues with innovation, is the primary cause of PP agency costs. Careful analysis of the risk levels reflected in the cost of debt and opportunity cost of equity provides a theoretically robust and empirically estimable process for ascertaining the true PP agency cost. Awareness of the constraining governance structures and the suggested method, based on the cost of capital, to assess small business risk can assist SME owners and financiers to SMEs to promote business efficiency and innovation. Full article
(This article belongs to the Special Issue Innovation and SME Finance)
19 pages, 750 KiB  
Article
Formal Finance Usage and Innovative SMEs: Evidence from ASEAN Countries
by Muhammad Arif, Mudassar Hasan, Ahmed Shafique Joyo, Christopher Gan and Sazali Abidin
J. Risk Financial Manag. 2020, 13(10), 222; https://doi.org/10.3390/jrfm13100222 - 23 Sep 2020
Cited by 3 | Viewed by 3358
Abstract
This paper provides evidence on the likelihood of formal finance usage among innovative small and medium enterprises (SMEs) operating in ASEAN countries. To this end, the SMEs are classified into four categories, namely non-innovators and product, process, and product-and-process innovator SMEs. Subsequently, a [...] Read more.
This paper provides evidence on the likelihood of formal finance usage among innovative small and medium enterprises (SMEs) operating in ASEAN countries. To this end, the SMEs are classified into four categories, namely non-innovators and product, process, and product-and-process innovator SMEs. Subsequently, a propensity score weighting (PSW) analysis is performed to adjust for diversity existing across innovative SMEs. The resulting propensity scores are further used to perform the causal effect analysis based on the average treatment effect (ATE) approach, which measures the likelihood of formal finance usage among different types of innovative SMEs. Our ATE results reveal that SMEs simultaneously engaged in product and process innovation show a higher likelihood of using formal finance than non-innovators. However, formal finance usage of SMEs perusing only product/service or process innovation is not any different from non-innovators. Furthermore, our pairwise analysis shows that product and process innovators also exhibit a higher likelihood of formal finance usage than product/service or process innovators. Besides, younger and medium-size product and process innovating SMEs are more likely to use formal finance. These results are robust for different subsamples and firm- and country-level controls. Full article
(This article belongs to the Special Issue Innovation and SME Finance)
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35 pages, 1678 KiB  
Article
Firm Size Does Matter: New Evidence on the Determinants of Cash Holdings
by Efstathios Magerakis, Konstantinos Gkillas, Athanasios Tsagkanos and Costas Siriopoulos
J. Risk Financial Manag. 2020, 13(8), 163; https://doi.org/10.3390/jrfm13080163 - 27 Jul 2020
Cited by 12 | Viewed by 8484
Abstract
We study the financial determinants of cash holdings and discuss the importance of firm size in the post-crisis period. We employ panel data regression analysis on a sample of 6629 non-financial and non-utility listed companies in the United Kingdom from 2010 to 2018. [...] Read more.
We study the financial determinants of cash holdings and discuss the importance of firm size in the post-crisis period. We employ panel data regression analysis on a sample of 6629 non-financial and non-utility listed companies in the United Kingdom from 2010 to 2018. We focus on the comparative analysis of large, medium, and small size firms in terms of cash holdings. Our findings indicate that cash levels are higher for firms with riskier cash flows, more growth opportunities, and higher R&D expenditures. In contrast, the firms’ cash holdings decrease when the substitutes of cash, cash flows, and capital expenditures increase. We show that small-sized firms tend to hold more cash than their larger counterparts due to precautionary motives. Further, we confirm a significant and varying association between managerial ownership and cash holdings. The study is robust to different regression specifications, additional analyses, and endogeneity tests. Overall, we add to the prior literature by identifying the effect of firm-level attributes and governance characteristics on cash policy during the post-crisis period. To the best of the authors’ knowledge, this is the first work that provides insights on the way that firm characteristics impact cash holdings, considering the differences among firm size groupings. Full article
(This article belongs to the Special Issue Innovation and SME Finance)
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15 pages, 849 KiB  
Article
Innovation and Firm Performance: The Moderating and Mediating Roles of Firm Size and Small and Medium Enterprise Finance
by Ploypailin Kijkasiwat and Pongsutti Phuensane
J. Risk Financial Manag. 2020, 13(5), 97; https://doi.org/10.3390/jrfm13050097 - 15 May 2020
Cited by 65 | Viewed by 12748
Abstract
This study examines the moderating effect of firm size on the relationship between innovation and firm performance of small and medium enterprises in 29 countries in Eastern European and Central Asia. The study also investigates whether the impact of innovation in products and [...] Read more.
This study examines the moderating effect of firm size on the relationship between innovation and firm performance of small and medium enterprises in 29 countries in Eastern European and Central Asia. The study also investigates whether the impact of innovation in products and processes on firm performance is affected by financial capital. The method applied is partial least square structural equation modelling. The findings indicate that firm size and the financial capital both moderate and mediate the impact of innovation on firm performance, positively or negatively. The findings have implications for decision makers by highlighting the significance of firm size and financial sources when planning to introduce innovations to enhance firm performance. Full article
(This article belongs to the Special Issue Innovation and SME Finance)
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