Financing Innovation in New Small Firms: New Evidence from Canada Baldwin, John R. (John Russel)

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Baldwin, John R. (John Russel)
New business enterprises - Canada - Statistics.; Research - Canada - Finance - Statistics.; Technological innovations - Canada - Finance - Statistics.
This paper investigates the financial characteristics of new small firms. The analysis develops a representative, small-firm financial profile and evaluates the extent to which the proportionate use of different instruments and sources is correlated with industry-level and firm-specific characteristics. Multivariate methods are then used to examine relationships among financial structure, R&D intensity, and innovation. Our results suggest that relationships between knowledge intensity and capital structure are bidirectional. After a range of industry- and firm-level covariates are controlled for, firms that devote a higher percentrage of their investment expenditure to R&D also exhibit fewer debt-intensive structures. Conversely, debt-intensive structures also act to constrain investments in R&D. These relationships, however, depend upon the type of debt in the asset mix. It is the share of long-term debt to total assets that is negatively related to investments in knowledge.
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