Finance and innovation in British small independent firms

Abstract

This paper is concerned with the effects of internal and external capital investment funding patterns on the innovativeness of British small independent firms. By using a combined sample of firms from the relatively prosperous South East and the more problematic Scottish development region, an additional diverse regional economic perspective is given to data initially presented in a national context. Beyond a presentation of the extent of external borrowing, the paper seeks to establish the characteristics of firms obtaining external funds and to assess whether this external capital borrowing sub-sample is mainly comprised of low technology firms in decline, or of high technology firms fueling innovation-led expansion. Data is included on the role of both public and private loan agencies in the external funding process. Conclusions are based on the pattern of results and focus on ways in which the delivery of financial aid might be improved to assist expansion, particularly in fast growing high technology small firms.