Share:


The efficiency of financing and R&D in technology-based SMEs and impact of financial regulation

    Yongqi Feng Affiliation
    ; Haolin Zhang Affiliation
    ; Yung-ho Chiu Affiliation
    ; Tzu-Han Chang Affiliation

Abstract

Technological innovation is a long-term activity with highly unpredictable returns on investment, which makes SMEs with information problems and lack of collateral value be vulnerable to financing constraints when engaging in innovation activities. This study incorporates financing and R&D activities into the evaluation of innovation efficiency and further considers the impact of financial regulation as an external factor in technology-based SMEs in China. This study puts forward a three-stage dynamic DDF-DEA model to explore the overall innovation efficiency as well as the efficiency of each stage in technology-based SMEs by dividing the innovation process into three stages, namely the financing stage, R&D stage and operating stage. The study reveals that the overall efficiency of innovation are higher in non-coastal areas of China than in coastal areas. Non-coastal regions have higher efficiency in the financing and operating stages, while coastal regions have higher efficiency in the R&D stage. Strengthening financial regulation could improve the financing and R&D efficiency both in coastal and non-coastal areas, but it has different effect on the operating efficiency in coastal and non-coastal areas. The results of this study could provide some reference for China and other emerging economies to formulate policies in improving the efficiency of financing and R&D.


First published online 30 August 2022

Keyword : financing efficiency, R&D efficiency, innovation, SMEs, financial regulation, three-stage dynamic DDF-DEA

How to Cite
Feng, Y., Zhang, H., Chiu, Y.- ho, & Chang, T.-H. (2022). The efficiency of financing and R&D in technology-based SMEs and impact of financial regulation. Technological and Economic Development of Economy, 28(5), 1439–1475. https://doi.org/10.3846/tede.2022.17309
Published in Issue
Sep 12, 2022
Abstract Views
104
PDF Downloads
108
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

References

Alam, A., Uddin, M., & Yazdifar, H. (2019). Financing behaviour of R&D investment in the emerging markets: the role of alliance and financial system. R & D Management, 49(1), 21–32. https://doi.org/10.1111/radm.12303

An, H., Yang, R. B., Ma, X. J., Zhang, S. Q., & Islam, S. M. N. (2021). An evolutionary game theory model for the inter-relationships between financial regulation and financial innovation. North American Journal of Economics and Finance, 55, 101341. https://doi.org/10.1016/j.najef.2020.101341

Anarfo, E. B., Abor, J. Y., & Osei, K. A. (2020). Financial regulation and financial inclusion in Sub-Saharan Africa: Does financial stability play a moderating role? Research in International Business and Finance, 51, 101070. https://doi.org/10.1016/j.ribaf.2019.101070

Assarzadeh, A. H., & Aberoumand, S. (2018). FinTech in Western Asia: Case of Iran. Journal of Industrial Integration and Management-Innovation and Entrepreneurship, 3(3), 1850006. https://doi.org/10.1142/s2424862218500069

Badertscher, B., Shroff, N., & White, H. D. (2013). Externalities of public firm presence: Evidence from private firms’ investment decisions. Journal of Financial Economics, 109(3), 682–706. https://doi.org/10.1016/j.jfineco.2013.03.012

Banker, R. D., Charnes, A., & Cooper, W. W. (1984). Some models for estimating technical and scale inefficiencies in data envelopment analysis. Management Science, 30(9), 1078–1092. https://doi.org/10.1287/mnsc.30.9.1078

Barasa, L., Vermeulen, P., Knoben, J., Kinyanjui, B., & Kimuyu, P. (2019). Innovation inputs and efficiency: manufacturing firms in Sub-Saharan Africa. European Journal of Innovation Management, 22(1), 59–83. https://doi.org/10.1108/ejim-11-2017-0176

Battese, G. E., Rao, D. S. P., & O’Donnell, C. J. (2004). A metafrontier production function for estimation of technical efficiencies and technology gaps for firms operating under different technologies. Journal of Productivity Analysis, 21(1), 91–103. https://doi.org/10.1023/b:Prod.0000012454.06094.29

Baumann, J., & Kritikos, A. S. (2016). The link between R&D, innovation and productivity: Are micro firms different? Research Policy, 45(6), 1263–1274. https://doi.org/10.1016/j.respol.2016.03.008

Belo, F., Lin, X. J., & Yang, F. (2019). External equity financing shocks, financial flows, and asset prices. Review of Financial Studies, 32(9), 3500–3543. https://doi.org/10.1093/rfs/hhy128

Beneito, P., Rochina-Barrachina, M. E., & Sanchis, A. (2015). The path of R&D efficiency over time. International Journal of Industrial Organization, 42, 57–69. https://doi.org/10.1016/j.ijindorg.2015.07.001

Brancati, E. (2015). Innovation financing and the role of relationship lending for SMEs. Small Business Economics, 44(2), 449–473. https://doi.org/10.1007/s11187-014-9603-3

Bustos-Contell, E., Labatut-Serer, G., Ribeiro-Navarrete, S., & Climent-Serrano, S. (2019). Beyond subsidies: A study of sustainable public subordinated debt in Spain. Sustainability, 11(4), 1049. https://doi.org/10.3390/su11041049

Charnes, A., Cooper, W. W., & Rhodes, E. (1978). Measuring efficiency of decision-making units. European Journal of Operational Research, 2(6), 429–444. https://doi.org/10.1016/0377-2217(78)90138-8

Chen, P. C., Yu, M. M., Chang, C. C., Hsu, S. H., & Managi, S. (2015). The enhanced Russell-based directional distance measure with undesirable outputs: Numerical example considering CO2 emissions. Omega-International Journal of Management Science, 53, 30–40. https://doi.org/10.1016/j.omega.2014.12.001

Chen, X. Q., Liu, X. W., Gong, Z. W., & Xie, J. T. (2021). Three-stage super-efficiency DEA models based on the cooperative game and its application on the R&D green innovation of the Chinese high-tech industry. Computers & Industrial Engineering, 156, 107234. https://doi.org/10.1016/j.cie.2021.107234

China National Intellectual Property Administration. (2019). IP5 statistics report 2018 edition. Retrieved April 9, 2020, from https://www.cnipa.gov.cn/art/2021/12/21/art_90_172310.html

Chung, Y. H., Fare, R., & Grosskopf, S. (1997). Productivity and undesirable outputs: A directional distance function approach. Journal of Environmental Management, 51(3), 229–240. https://doi.org/10.1006/jema.1997.0146

Colombelli, A., Grilli, L., Minola, T., & Mrkajic, B. (2020). To what extent do young innovative companies take advantage of policy support to enact innovation appropriation mechanisms? Research Policy, 49(10), 103797. https://doi.org/10.1016/j.respol.2019.05.006

Conte, A., & Vivarelli, M. (2014). Succeeding in innovation: key insights on the role of R&D and technological acquisition drawn from company data. Empirical Economics, 47(4), 1317–1340. https://doi.org/10.1007/s00181-013-0779-1

Demir, A., Pesque-Cela, V., Altunbas, Y., & Murinde, V. (2022). Fintech, financial inclusion and income inequality: A quantile regression approach. European Journal of Finance, 28(1), 86–107. https://doi.org/10.1080/1351847x.2020.1772335

Duan, J. S., & Zhuang, X. D. (2020). The effectiveness of local financial supervision in improving bank loan quality — Empirical evidence from China’s provincial panel data. Finance Forum, 25(01), 28–37. https://doi.org/10.16529/j.cnki.11-4613/f.2020.01.005

Färe, R., Grosskopf, S., & Whittaker, G. (2007). Network DEA. In J. Zhu & W. D. Cook (Eds.), Modeling data irregularities and structural complexities in data envelopment analysis. Springer Press. https://doi.org/10.1007/978-0-387-71607-7_12

Färe, R., & Grosskopf, S. (2010). Directional distance functions and slacks-based measures of efficiency. European Journal of Operational Research, 200(1), 320–322. https://doi.org/10.1016/j.ejor.2009.01.031

Feng, W., Zhao, L., & Chen, Y. (2022). Research on collaborative innovation mode of enterprise group from the perspective of comprehensive innovation management. Sustainability, 14(9), 5304. https://doi.org/10.3390/su14095304

Feng, Y. Q., Zhang, H. L., Chiu, Y. H., & Chang, T. H. (2021). Innovation efficiency and the impact of the institutional quality: A cross-country analysis using the two-stage meta-frontier dynamic network DEA model. Scientometrics, 126(4), 3091–3129. https://doi.org/10.1007/s11192-020-03829-3

Gupta, J., & Kashiramka, S. (2020). Financial stability of banks in India: Does liquidity creation matter? Pacific-Basin Finance Journal, 64, 101439. https://doi.org/10.1016/j.pacfin.2020.101439

He, X. H., Chiu, Y. H., Chang, T. H., Lu, L. C., & Chiu, S. Y. (2021). Analyzing hospital medical efficiency of administration and medical treatment in China. Managerial and Decision Economics, 42(6), 1564–1578. https://doi.org/10.1002/mde.3327

Hlaing, S. W., & Kakinaka, M. (2018). Financial crisis and financial policy reform: Crisis origins and policy dimensions. European Journal of Political Economy, 55, 224–243. https://doi.org/10.1016/j.ejpoleco.2017.12.005

Houmes, R., Jun, C. C., Capriotti, K., & Wang, D. (2018). Evaluating the long-term valuation effect of efficient asset utilization and profit margin on stock returns: Additional evidence from the DuPont identity. Meditari Accountancy Research, 26(1), 193–210. https://doi.org/10.1108/medar-12-2016-0104

Huang, D. J., Duan, H. B., & Zhang, G. P. (2020). Analysis on the enterprises’ innovation quality based on the patent value: A comparison between public and private enterprises in China. Sustainability, 12(8), 3107. https://doi.org/10.3390/su12083107

Igan, D., & Mirzaei, A. (2020). Does going tough on banks make the going get tough? Bank liquidity regulations, capital requirements, and sectoral activity. Journal of Economic Behavior & Organization, 177, 688–726. https://doi.org/10.1016/j.jebo.2020.04.025

Johnston, V. R. (2013). The struggle for optimal financial regulation and governance. Public Performance & Management Review, 37(2), 222–240. https://doi.org/10.2753/pmr1530-9576370202

Jungo, J., Madaleno, M., & Botelho, A. (2022). The effect of financial inclusion and competitiveness on financial stability: Why financial regulation matters in developing countries? Journal of Risk and Financial Management, 15(3), 122. https://doi.org/10.3390/jrfm15030122

Kang, T., Baek, C., & Lee, J. D. (2017). The persistency and volatility of the firm R & D investment: Revisited from the perspective of technological capability. Research Policy, 46(9), 1570–1579. https://doi.org/10.1016/j.respol.2017.07.006

Kern, A. (2019). Principle of banking regulation. Cambridge University Press.

Kodongo, O. (2018). Financial regulations, financial literacy, and financial inclusion: Insights from Kenya. Emerging Markets Finance and Trade, 54(12), 2851–2873. https://doi.org/10.1080/1540496x.2017.1418318

Kou, G., Chao, X. R., Peng, Y., & Wang, F. (2022). Network resilience in the financial sectors: Advances, key elements, applications, and challenges for financial stability regulation. Technological and Economic Development of Economy, 28(2), 531–558. https://doi.org/10.3846/tede.2022.16500

Kou, M. T., Yang, Y. Q., & Chen, K. H. (2020). The impact of external R&D financing on innovation process from a supply-demand perspective. Economic Modelling, 92, 375–387. https://doi.org/10.1016/j.econmod.2020.01.016

Lagna, A., & Ravishankar, M. N. (2022). Making the world a better place with fintech research. Information Systems Journal, 32(1), 61–102. https://doi.org/10.1111/isj.12333

Lai, K. P. Y., & Samers, M. (2021). Towards an economic geography of FinTech. Progress in Human Geography, 45(4), 720–739. https://doi.org/10.1177/0309132520938461

Lee, J., Kim, C., & Choi, G. (2019). Exploring data envelopment analysis for measuring collaborated innovation efficiency of small and medium-sized enterprises in Korea. European Journal of Operational Research, 278(2), 533–545. https://doi.org/10.1016/j.ejor.2018.08.044

Li, Y., Chi, Y. H., & Lin, T. Y. (2019). Coal production efficiency and land destruction in China’s coal mining industry. Resources Policy, 63, 101449. https://doi.org/10.1016/j.resourpol.2019.101449

Li, Y., Chiu, Y. H., Wang, L. H., Zhou, Y., & Lin, T. Y. (2020). Dynamic and network slack-based measure analysis of China’s regional energy and air pollution reduction efficiencies. Journal of Cleaner Production, 251, 119546. https://doi.org/10.1016/j.jclepro.2019.119546

Liu, D., Li, Z. Y., He, H. B., & Hou, W. X. (2021a). The determinants of R&D smoothing with asset sales: Evidence from R&D-intensive firms in China. International Review of Economics & Finance, 75, 76–93. https://doi.org/10.1016/j.iref.2021.03.013

Liu, D., Zhou, Q. Z., Chen, S. Q., Wan, H., & He, H. B. (2021b). Capital market access and innovation efficiency: A natural experiment from China’s pilot VAT reform in 2012. International Review of Economics & Finance, 71, 549–566. https://doi.org/10.1016/j.iref.2020.09.026

Liu, F. Y., Yu, J. R., Shen, Y. F., & He, L. Y. (2022). Does the resource-dependent motivation to disclose environmental information impact company financing? Evidence from renewable energy companies of China. Renewable Energy, 181, 156–166. https://doi.org/10.1016/j.renene.2021.09.032

Ma, S. C. & Peng, Y. C. (2019). Improvement of banking supervision and enterprises’ “industrialization and definancialization”: The evidence from listed companies from 2006 to 2015. Journal of Central University of Finance & Economics, 11, 28–39. https://doi.org/10.19681/j.cnki.jcufe.2019.11.003

Malhotra, D. K., Malhotra, R., & Campbell, K. T. (2015). A frontier analysis approach to analyze the operating efficiency of cable and satellite companies in the United States. In Applications of Management Science (vol. 17, pp. 107–126). Emerald Group Publishing Limited. https://doi.org/10.1108/s0276-897620140000017007

Minnis, M., & Shroff, N. (2017). Why regulate private firm disclosure and auditing? Accounting and Business Research, 47(5), 473–502. https://doi.org/10.1080/00014788.2017.1303962

Mintz, J. (2004). Conduit entities: Implications of indirect tax-efficient financing structures for real investment. International Tax and Public Finance, 11(4), 419–434. https://doi.org/10.1023/b:Itax.0000033986.95921.99

Møen, J. (2019). Corporate returns to subsidised R&D projects: Direct grants vs. tax credit financing. International Journal of Technology Management, 79(1), 84–101. https://doi.org/10.1504/IJTM.2019.096550

O’Donnell, C. J., Rao, D. S. P., & Battese, G. E. (2008). Metafrontier frameworks for the study of firm-level efficiencies and technology ratios. Empirical Economics, 34(2), 231–255. https://doi.org/10.1007/s00181-007-0119-4

Pan, X. F., Guo, S. C., & Chu, J. H. (2021). P2P supply chain financing, R&D investment and companies’ innovation efficiency. Journal of Enterprise Information Management, 34(1), 578–597. https://doi.org/10.1108/jeim-07-2020-0258

Rizwan, M. S., Moinuddin, M., L’Huillier, B., & Ashraf, D. (2018). Does a one-size-fits-all approach to financial regulations alleviate default risk? The case of dual banking systems. Journal of Regulatory Economics, 53(1), 37–74. https://doi.org/10.1007/s11149-017-9340-z

Roychowdhury, S., Shroff, N., & Verdi, R. S. (2019). The effects of financial reporting and disclosure on corporate investment: A review. Journal of Accounting & Economics, 68(2–3), 101246. https://doi.org/10.1016/j.jacceco.2019.101246

Shen, C. Y. (2021). Strengthen the protection of intellectual property and promote the innovation and development of small and medium-sized enterprises. Retrieved April 22, 2021, from https://www.sohu.com/a/462224987_120127418

Shinkle, G. A., & Suchard, J. A. (2019). Innovation in newly public firms: The influence of government grants, venture capital, and private equity. Australian Journal of Management, 44(2), 248–281. https://doi.org/10.1177/0312896218802611

Shroff, N., Verdi, R. S., & Yost, B. P. (2017). When does the peer information environment matter? Journal of Accounting & Economics, 64(2–3), 183–214. https://doi.org/10.1016/j.jacceco.2017.03.005

Schumpeter, J. A. (1934). The theory of economic development. Harvard University Press.

Tang, S., Wu, X. C., & Zhu. J. (2020). Digital finance and enterprise technology innovation: Structural feature, mechanism identification and effect difference under financial supervision. Management World, 36(05), 52–66. https://doi.org/10.19744/j.cnki.11-1235/f.2020.0069

Tone, K. (2001). A slacks-based measure of efficiency in data envelopment analysis. European Journal of Operational Research, 130(3), 498–509. https://doi.org/10.1016/s0377-2217(99)00407-5

Tone, K., & Tsutsui, M. (2009). Network DEA: A slacks-based measure approach. European Journal of Operational Research, 197(1), 243–252. https://doi.org/10.1016/j.ejor.2008.05.027

Tone, K., & Tsutsui, M. (2014). Dynamic DEA with network structure: A slacks-based measure approach. Omega-International Journal of Management Science, 42(1), 124–131. https://doi.org/10.1016/j.omega.2013.04.002

Wang, Q. W., Hang, Y., Sun, L. C., & Zhao, Z. Y. (2016). Two-stage innovation efficiency of new energy enterprises in China: A non-radial DEA approach. Technological Forecasting and Social Change, 112, 254–261. https://doi.org/10.1016/j.techfore.2016.04.019

Wang, R., Zhang, J. Q., & He, Q. (2019). Will financial regulation hurt financial efficiency? Financial Economics Research, 34(06), 93–104.

Wu, R. R., Liu, Z. Y., Chen, X. F., & Liao, S. Q. (2021). Certification effect of R&D subsidies on debt financing: do institutional forces matter? R & D Management, 51(5), 538–550. https://doi.org/10.1111/radm.12465

Xiang, E. W., Gasbarro, D., Cullen, G., & Ruan, W. J. (2020). Does R&D expenditure volatility affect stock return? Journal of Contemporary Accounting & Economics, 16(3), 100211. https://doi.org/10.1016/j.jcae.2020.100211

Yang, Z. B., Shao, S., Li, C. Y., & Yang, L. L. (2020). Alleviating the misallocation of R&D inputs in China’s manufacturing sector: From the perspectives of factor-biased technological innovation and substitution elasticity. Technological Forecasting and Social Change, 151, 119878. https://doi.org/10.1016/j.techfore.2019.119878

Yi, Z. L., Wang, Y. L., & Chen, Y. J. (2021). Financing an agricultural supply chain with a capital-constrained smallholder farmer in developing economies. Production and Operations Management, 30(7), 2102–2121. https://doi.org/10.1111/poms.13357

Zhao, C. W., Chen, C. F., & Tang, Y. K. (2009). Sci-tech Finance. Science Press.

Zhang, A. L., Wang, S. Y., Liu, B., & Liu, P. (2022). How fintech impacts pre- and post-loan risk in Chinese commercial banks. International Journal of Finance & Economics, 27(2), 2514–2529. https://doi.org/10.1002/ijfe.2284

Zhang, B., Luo, Y., & Chiu, Y. H. (2019). Efficiency evaluation of China’s high-tech industry with a multi-activity network data envelopment analysis approach. Socio-Economic Planning Sciences, 66, 2–9. https://doi.org/10.1016/j.seps.2018.07.013

Zeng, W., Chen, S., & Zhou, Z. B. (2016). The impact of financial supervision on commercial bank’s product innovation—the research based on two-stage DEA model. Chinese Journal of Management Science, 24(05), 1–7. https://doi.org/10.16381/j.cnki.issn1003-207x. 2016.05.001

Zheng, C. J., Rahman, M. M., Begum, M., & Ashraf, B. N. (2017). Capital regulation, the cost of financial intermediation and bank profitability: Evidence from Bangladesh. Journal of Risk and Financial Management, 10(2), 9. https://doi.org/10.3390/jrfm10020009

Zhu, W. D., Tian, Y. F., Hu, X., Ku, Q., & Dai, X. Y. (2020). Research on relationship between government innovation funding and firms value creation using clustering-rough sets. Kybernetes, 49(2), 578–600. https://doi.org/10.1108/k-03-2019-0208