The impact of innovation on SMEs financial dynamics and performance.

This thesis contributes to the research on small and medium innovative firms’ characteristics. The three research questions examined are (i) Do innovative young firms have different preferences for the sources of finance than non-innovative firms? (ii) Do innovative activities affect small firms’ ratings? (iii) Do patents impact on SMEs business performance? These questions are relevant to academic literature, managers and policy makers. Despite noteworthy theoretical developments, empirical evidences trying to answer to these questions is still contrasting or limited. Such scarcity of studies can be partly imputed to the lack of datasets including innovation and financial data. In this study, three different datasets are used, namely the Mannheim start-up Panel and two unique datasets of Italian firms. The last three chapters of this thesis correspond to each one of the three stand-alone papers that have been written during the Ph.D. course. The first paper shows that different levels of innovative activities influence the pecking order of innovative start-ups and then suggests further research towards an extension of the classic pecking order theory, with the aim to integrate other sources of informed finance. The second paper finds that small firms that undertake innovative activities suffer from a lower reduction of credit ratings even if the financial system is subjected to an external shock, such as the recent financial crisis; the benefits of innovation seem are therefore relevant also in a time of crisis. The third paper tries to shed light on the effects of innovative activities on firms’ performance and growth, applying a novel methodology that combines nearest neighbour matching and differences-in-differences. The results show that innovative efforts have a strong impact on sales growth and then that policy efforts that support innovation can be fruitful.