Impacts of credit constraints on innovation propensity and innovation performance: evidence from China and India

Abstract

In the literature, researchers generally focus on the impact of credit constraints on innovation activities as a whole. In this study, we investigated how a firm’s financial status affects its adoption of product, process, or organizational innovations and the contribution of the individual innovation activities to innovation performance. Our empirical results indicate that financial constraints restrain Chinese firms’ engagement in all types of innovation, reduce Indian firms’ motivation to engage in product innovation, and force Indian firms to undertake organizational innovation. Consistency between the impacts of financial status on innovation propensity and innovation performance is further discussed.