Abstract
This study provides fresh empirical evidence on the influence of various financing sources on firms’ technology investments and exporting decisions using a panel of firms from the service sector in India during the period 1999–2010. Allowing both activities to be jointly determined, our results show that the source of finance matters for exporting and investing in technology. Moreover, the importance of different types of finance varies across industries in the service sector. Overall, we find that internal funds and non-conventional sources of finance play an important role for exporting and investing in technology in both modern and traditional services. However, funding from conventional financial markets exerts divergent effects across service industries: while traditional service firms use resources from the banking sector to fund their technological investments, firms in the modern service sector rely more on funds raised through equity markets to support their exporting and technological efforts. These results contribute to the academic literature and policy debate on the importance of financial mechanisms to promote firms’ strategic investment decisions.
Highlights
Technology investment and exporting have been commonly associated with manufacturing firms, while their importance for service firms have received much less attention in the literature
As mentioned in the introduction, the aim of this paper is to evaluate the role of different financing sources for exporting and technology investments amongst Indian service firms
Our results suggest that various financing sources play a heterogeneous role in supporting different types of firms’ investment decisions and that their role varies across industries
Summary
Technology investment and exporting have been commonly associated with manufacturing firms, while their importance for service firms have received much less attention in the literature. Despite the growing magnitude and importance of technology investment and international trade in services, we know very little about the factors enabling services firms to invest in technology and exporting. The role of finance to support these investments has been largely underexplored in the literature. This contrasts with a rich body of work for the manufacturing sector, which has recognized the crucial importance of finance to support firms exporting and technological investments.
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