The finance of innovation in Africa

2019 ◽  
Vol 23 (3) ◽  
pp. 348-382 ◽  
Author(s):  
Misraku Molla Ayalew ◽  
Zhang Xianzhi ◽  
Demis Hailegebreal Hailu
Keyword(s):  
Developing Countries ◽  
Trade Credit ◽  
Innovation Process ◽  
Medium Size ◽  
African Countries ◽  
Firm Level ◽  
Content Type ◽  
Significant Difference ◽  
Innovative Firms ◽  
Finance Innovation

Purpose The purpose of this paper is to investigate how firms in developing countries finance innovation. Notably, the study seeks to investigate whether innovative firms exhibit financing patterns different from those of non-innovative ones. It also examines the effect of financing sources on firm’s probability to innovate. Design/methodology/approach The study utilizes firm-level data from the World Bank Enterprise Survey. From 28 African countries, 11,173 firms have been included in the sample. A statistical t-test is used for two independent samples and logistic regression models. Findings The results show that innovative firms, specifically innovative small- and medium-size firms exhibit financing patterns different from non-innovative peers. Further analysis indicates that there is no statistically significant difference between the financing patterns of innovative and non-innovative large firms. In Africa, innovation is mostly financed using internal sources and bank finance. Equity finance and bank finance have shown a higher effect followed by internal finance, finance from non-bank financial institutions and trade credit finance on firms’ probability to innovate. Practical implications The management of innovative firms should reduce dependency on short-term and retained earning financing and increase the use of long-term instruments improve innovation performance. Social implications A pending policy task for African leaders is to design and evaluate reforms to create a strong financial sector that willing to support the innovation process. Originality/value This study contributes to the existent literature on finance of innovation by examining how firms finance innovation activities in developing countries. This study provides evidence on how innovative firms exhibit financing patterns different from non-innovative ones from developing countries.

Access to finance and firm innovation

2018 ◽  
Vol 10 (1) ◽  
pp. 73-94 ◽  
Author(s):  
MccPowell Sali Fombang ◽  
Charles Komla Adjasi
Keyword(s):  
South Africa ◽  
Trade Credit ◽  
Microfinance Institutions ◽  
African Countries ◽  
Access To Finance ◽  
Firm Level ◽  
Firm Innovation ◽  
Content Type ◽  
Level Data ◽  
Firm Level Data

Purpose The study aims to examine the importance of access to finance in firm innovation by using firm-level data from the World Bank enterprise survey (WBES) on selected African countries. Design/methodology/approach This study utilises firm-level data from the WBES database and computes aggregate innovation index by using multiple correspondent analysis. The authors then apply instrumental variable models (to control for possible endogeneity between innovation and finance) to assess the link between finance and innovation. Findings The research finds that finance in the form of overdraft overwhelmingly drives innovation in all selected countries – Cameroon, Kenya, Morocco, Nigeria and South Africa. Trade credit enhances innovation among firms in Nigeria, South Africa and Cameroon, while asset finance drives innovation amongst firms in Cameroon, Nigeria and South Africa. Practical implications Policy incentives such as tax breaks could be put in place for financial intermediaries that have shown proof of extending loans to financially constraint firms to enable them to innovate. Furthermore, different financial institutions such as microfinance institutions can be supported to increase credit to enterprises. Partnerships with organisations willing to fund firms and support start-ups should be encouraged. One of such support mechanisms could be specialised schemes such as a credit guarantee scheme to encourage and secure lending to enterprises to promote innovation. Originality/value This paper provides empirical insights into how finance enhances innovation in African enterprises. It also shows how different finance structures (overdraft, asset finance and trade credit) affect firm innovation in different African countries.

The effect of financial constraints on innovation in developing countries

2019 ◽  
Vol 28 (3) ◽  
pp. 273-308
Author(s):  
Misraku Molla Ayalew ◽  
Zhang Xianzhi
Keyword(s):  
Adverse Effect ◽  
Developing Countries ◽  
Firm Size ◽  
Financial Constraints ◽  
Age Groups ◽  
Probit Model ◽  
African Countries ◽  
Firm Level ◽  
Content Type ◽  
Recursive Bivariate Probit

Purpose The purpose of this paper is to investigate the effect of financial constraints on innovation in developing countries. It also examines how the effect of financial constraints varies by sector and with main firm characteristics such as size and age. Design/methodology/approach The study utilizes matched firm-level data from two sources; the World Bank Enterprise Survey and the Innovation Follow-Up Survey. From 11 African countries, 4,720 firms have been included in the sample. A recursive bivariate probit model is used. Findings The result shows that financial constraints adversely affect a firm’s decision to engage in innovative activities and the likelihood to have product innovation and process innovation. The results point out that the extent of the adverse effect of financial constraints on innovation differs across the sectors, firm size and age groups. A firm’s innovation is also explained by firm size, R&D, cooperation/alliance, the human capital of the firm, staff training, public financial support and export. At last, the probability of encountering financial constraints is explained by firms’ ex ante financing structure, amount of collateral, accounting and auditing practices and group membership. Practical implications Managers should strengthen the internal and external financing capacity to reduce financing constraints and their adverse effect on innovation. Social implications A pending policy task for African leaders is to design and evaluate reforms that reduce the adverse effects of financial constraints on innovation. Originality/value This study contributes to the existing literature on financing of innovation by examining how and to what extent financial constraints affect innovation across various sectors, size and age groups.

scholarly journals Women’s Economic Empowerment in Vietnam: Performance and Constraints of Female-Led Manufacturing SMEs

2021 ◽  
Vol 14 (6) ◽  
pp. 255
Author(s):  
MinhTam Bui ◽  
Trinh Q. Long
Keyword(s):  
Labor Productivity ◽  
Small And Medium Enterprises ◽  
Manufacturing Sector ◽  
Value Added ◽  
Medium Size ◽  
Formal Sector ◽  
Firm Level ◽  
Average Value ◽  
Significant Difference ◽  
Medium Enterprises

This paper identifies whether there was a performance difference among micro, small and medium enterprises (MSMEs) led by men and by women in Vietnam during the period 2005–2013 and aims to provide explanations for the differences, if any, in various performance indicators. The paper adopts a quantitative approach using a firm-level panel dataset in the manufacturing sector in 10 provinces/cities in Vietnam in five waves from 2005 to 2013. Fixed effect models are estimated to examine the influence of firm variables and demographic, human capital characteristics of owners/managers on firms’ value added, labor productivity and employment creation. We found that men led MSMEs did not outperform those led by women on average. Although the average value added was lower for female-led firms in the informal sector, the opposite was true in the formal sector where women tend to lead medium-size firms with higher value added and labor productivity. The performance disparity was more envisaged across levels of formality and less clear from a gender perspective. Moreover, while firms owned by businessmen seemed to create more jobs, firms owned by women had a higher share of female employees. No significant difference in business constraints faced by women and by men was found.

Impact of corruption on Chinese investment in African countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shilin Yuan ◽  
Haiyang Chen ◽  
Wei Zhang
Keyword(s):  
Developing Countries ◽  
Developing Country ◽  
Host Country ◽  
Practical Implication ◽  
Host Countries ◽  
African Countries ◽  
Control Variables ◽  
Content Type ◽  
The Impact ◽  
New Evidence

Purpose This paper aims to examine the impact of host country corruption on foreign direct investment (FDI) from China to developing countries in Africa. With the opposing arguments that corruption is detrimental to or instrumental in FDI and mixed empirical evidence, this paper contributes to the literature by providing new evidence on the issue. Additionally, little research has been done on the impact of corruption on FDI made by developing country multinationals to developing countries. This paper fills a void in this area. Design/methodology/approach Based on the published literature, as well as China and Africa contexts, the authors develop hypotheses that host countries with low corruption receive more FDI and resource-seeking investments weaken the relationship. The annual stock of Chinese FDI in 35 African countries, host country corruption data and other control variables from 2007 to 2015 are collected. Feasible generalized least squares models are used to test the hypotheses. Additional robustness tests are also conducted. Findings The findings support the hypotheses. Specifically, Chinese investors make more investments in host countries with low corruption except for resource-seeking investments in resource-rich host counties. The results are statistically significant accounting for various control variables. The results of the robustness tests show that the main findings are robust. Originality/value First, this study provides new evidence on the impact of corruption on FDI. Second, this study also fills a void by examining FDI from a developing country, China to other developing countries in Africa. Finally, this study also has a practical implication for Chinese multinationals investing in Africa.

Do generous trade credit terms provide a competitive edge?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Dmytro Osiichuk ◽  
Paweł Wnuczak
Keyword(s):  
Product Differentiation ◽  
Trade Credit ◽  
Negative Relationship ◽  
Growth Enhancement ◽  
Firm Level ◽  
Supplier Relationships ◽  
Content Type ◽  
Segmented Markets ◽  
Industry Competition ◽  
Dynamic Panel Regression

PurposeThe authors document a persistent negative link between contemporaneous trade credit provision and subsequent firm-level operating performance.Design/methodology/approachTextual analysis of firms' profile descriptions is used to study the role of market segmentation and product differentiation in intermediating the nexus between trade credit and corporate performance. The paper relies on dynamic panel regression modeling to investigate the postulated empirical relationships. This approach allows to address endogeneity issues and to test a number of different model specifications.FindingsDespite fueling short-term sales growth, the more generous trade credit terms are found to be associated with lower post hoc margins and declining overall business profitability. The market share is not affected by firms' proclivity to provide trade credit suggesting that the latter may not be effectively used as a long-term growth enhancement strategy. Firms' similarity to their competitors is found to play a salient role in altering the magnitude of the discovered negative relationship.Originality/valueThe authors find that the intensity of intra-industry competition measured by firms' similarity to their competitors magnifies the discovered negative trade credit-performance nexus. Therefore, generous trade credit may play a more important role in solidifying client–supplier relationships on the more segmented markets with a higher degree of product differentiation.

Access to skilled labor, institutions and firm performance in developing countries

2019 ◽  
Vol 40 (2) ◽  
pp. 328-355 ◽  
Author(s):  
Charilaos Mertzanis ◽  
Mona Said
Keyword(s):  
Developing Countries ◽  
Firm Performance ◽  
Technological Progress ◽  
Skilled Labor ◽  
Firm Level ◽  
Content Type ◽  
Country Level ◽  
Wide Range ◽  
Development Institutions

Purpose The purpose of this paper is to examine the role of access to skilled labor in explaining firms’ sales growth subject to the controlling influence of a wide range of firm-specific characteristics and country-level economic and non-economic factors. Design/methodology/approach The analysis uses a consistent and large firm-level data set from the World Bank’s Enterprise Surveys that includes 138 developing countries. An instrumental variables model with a GMM estimator is used for estimating the impact of access to skilled labor on firm performance. In order to obtain more robust estimators, the analysis introduces country-level controls reflecting the influence of economic and institutional factors, such as economic and financial development, institutional governance, education and technological progress. Findings The results document a significant and positive association between access to skilled labor and firm performance in the developing world. The explanatory power of access to skilled labor remains broadly robust after controlling for a wide range of firm-specific characteristics: sectoral and geographical influences matter. The results also show that the association between labor skill constraints and firm performance is mitigated by country-level factors but in diverse ways. Development, institutions, education and technological progress exert various mitigating effects on firm-level behavior regarding access to skilled labor. Originality/value The paper’s novel contribution is threefold: first, it uses joint firm, sector and country-level information to analyze the role of access to skilled labor on firm performance; second, it uses consistently produced information at the firm level from 138 developing countries; and, third, it considers the controlling impact of a wide range of country-level factors that reflect a country’s overall development, institutions and evolution.

scholarly journals Religion, national culture and cross-country differences in the use of trade credit

2019 ◽  
Vol 15 (3) ◽  
pp. 350-370
Author(s):  
Markus Mättö ◽  
Mervi Niskanen
Keyword(s):  
Cultural Values ◽  
National Culture ◽  
Trade Credit ◽  
Cultural Dimensions ◽  
Firm Level ◽  
Content Type ◽  
Cross Country ◽  
New Evidence ◽  
The Relationship ◽  
Practical Implications

Purpose The purpose of this paper is to investigate whether religion or national culture can explain previously observed cross-country variation in trade credit. Design/methodology/approach Using the firm-level SME data from 35 European countries, religion and cultural factors of Hofstede and Schwartz, the authors provide new evidence on the determinants of the cross-country variation in trade credit. Findings The results indicate that religion and national culture are associated with trade credit. The authors find that the levels of trade credit are higher in Catholic countries than in Protestant ones and that peoples’ religiousness has an impact on trade credit only in Catholic countries. The authors also find that Hofstede’s cultural dimensions, such as power distance and uncertainty avoidance, are positively associated with trade credit. Practical implications Overall, authors’ findings indicate that religion and national culture are important determinants of trade credit management, and that the association between commonly used cultural values and trade credit depends on the religious, legal, and financial environment. Originality/value To the best of authors’ knowledge, this is the first study to research the relationship between national culture and trade credit.

Technical assistance for innovation development from and to developing country

2019 ◽  
Vol 18 (3) ◽  
pp. 353-365
Author(s):  
Ahmad Hidayat ◽  
Asra Virgianita
Keyword(s):  
Developing Countries ◽  
Technical Assistance ◽  
Innovation Process ◽  
High Standard ◽  
Innovation Development ◽  
Developed Country ◽  
Content Type ◽  
Assistance Programs ◽  
Private Sector Development ◽  
Timor Leste

Purpose Innovation is a fundamental element for developing countries’ development. For instance, the innovation process should be integral to a country’s development plan for it to achieve high standard socio-economic development. For this reason, the global development agenda in the contemporary era underline innovation as a crucial issue to be addressed within development assistance programs. The Global North as traditional donors predominantly contend that innovation should be supported by high private sector development (PSD), and therefore, emphasizes this agenda to be delivered through their foreign aid schemes. However, this character differs considerably as compared to new emerging donors with insufficient PSD capacity, such as Indonesia. This paper aims to examine Indonesia’s technical assistance (TAC) to Timor-Leste and scrutinizes whether or not it supports the innovation development of the receiving country. Design/methodology/approach This study used a qualitative method by conducting a literature review, document tracing and depth interview with Indonesia’s South–South Cooperation National Coordinating Team. Findings Based on this study, it can be proven that Indonesia’s TAC has the ability to support innovation development in Timor-Leste as a least developed country. This is because Indonesia’s TAC is directed toward knowledge sharing and technology transfer that are needed by Timor-Leste. Other supporting conditions, such as similarity in the process of development, shared principles and solidarity ties among developing countries, have also created a more decent environment for aid delivery. Thus, aid initiatives among developing countries must remain to be supported as key to attain mutual progress and collective self-reliance. Originality/value This study shows that Indonesia as an emerging economic has the capability to support innovation development of other developing countries. It was a new area of study but has a lot of potential to be explored such as effectiveness and interests.

scholarly journals Testing the self-selection theory in high corruption environments: evidence from African SMEs

2018 ◽  
Vol 35 (5) ◽  
pp. 733-759 ◽  
Author(s):  
Emanuel Gomes ◽  
Ferran Vendrell-Herrero ◽  
Kamel Mellahi ◽  
Duncan Angwin ◽  
Carlos M.P. Sousa
Keyword(s):  
Developing Economies ◽  
The Self ◽  
Future Research ◽  
African Countries ◽  
Firm Level ◽  
Content Type ◽  
Selection Theory ◽  
Self Selection ◽  
Cluster Networks ◽  
Strategic Factors

Purpose Whilst substantial evidence from low-corruption, developed market environments supports the view that more productive firms are more likely to export, there has been little research into analysing the link between productivity and exports in high corruption, developing market environments. The purpose of this paper is twofold. First, to test the premise of self-selection theory whether the association between productivity and export is maintained in high-corruption environments, and second to identify other variables explaining export activity in high-corruption contexts, including cluster networks and firms’ competences. Design/methodology/approach The authors draw on the World Bank Enterprise survey to undertake a cross-section analysis including 1,233 small- and medium-sized enterprises (SMEs) located in nine African countries. The advantage of this database is that it contains information about the level of perceived corruption at firm level. Logistic regressions are performed for the full sample and for subsamples of firms in high- and low-corruption environments. Findings The findings demonstrate that the self-selection theory only applies to low-corruption environments, whereas in high-corruption environments, alternative factors such as cluster networks and outward-looking competences (OLC) exert a stronger influence on the exporting activity of African SMEs. Research limitations/implications This research contributes to the theory as it provides evidence that contradicts the validity of self-selection theory in high-corruption environments. The findings would benefit from further longitudinal investigation. Practical implications African SMEs need to consider cluster networks and OLC as important strategic factors that might enhance their international competitiveness. Originality/value The criticism of the self-selection theory is distinctive in the literature and has important implications for future research. The authors show that the contextualisation of existing theories matters and this opens a research avenue for further more sensitive contextualisation of existing theories in developing economies.

scholarly journals Value creation and value appropriation in innovation process in publicly-traded family firms

2015 ◽  
Vol 53 (9) ◽  
pp. 1921-1952 ◽  
Author(s):  
Esra Memili ◽  
Hanqing Chevy Fang ◽  
Dianne H.B. Welsh
Keyword(s):  
Family Business ◽  
Value Creation ◽  
Generational Differences ◽  
Family Firms ◽  
Innovation Process ◽  
Family Ownership ◽  
Publicly Traded ◽  
Value Appropriation ◽  
Content Type ◽  
Significant Difference

Purpose – The purpose of this paper is to examine the generational differences among publicly traded family firms in regards to value creation and value appropriation in the innovation process by drawing upon the knowledge-based view (KBV) and family business literature with a focus on socioemotional wealth perspective. Design/methodology/approach – The authors tests the hypotheses via longitudinal regression analyses based on 285 yearly cross-firm S & P 500 firm observations. Findings – First, the authors found that family ownership with second or later generation’s majority exhibits lower levels of value creation capabilities compared to non-family firms, whereas there is no difference between those of the firms with family ownership with a first generation’s majority and non-family firms. Second, the authors also found that family owned firms with a first generation’s majority have higher value appropriation abilities compared to nonfamily firms, while there is no significant difference in value appropriation between the later generation family firms and non-family firms. Research limitations/implications – The study help scholars, family business members, and investors better understand family involvement, and how it impacts firm performance through value creation and value appropriation. Originality/value – The paper contributes to the family business, innovation, and KBV literature in several ways. While previous family business studies drawing upon resource-based view and KBV often focus on the value creation in family governance, the authors investigate both value creation and value appropriation phases of innovation process.

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