Abstract
PurposeThe purpose of this study is to shed light on the relationship between patent applications and long-term risk for small firms across the global financial crisis of 2008. During a crisis, firm risk often skyrockets, and small and medium enterprises face significant dangers to their business continuity. However, managers have a set of strategies that could be implemented to increase a firm’s resilience, sustaining competitive advantages and improving access to financial resource. The authors focused on the investigating the impact of patenting activities on small business risk in a time of crisis.Design/methodology/approachThis is a quantitative study based on a sample of Italian firms that applied for a patent in 2005. The changes in corporate credit ratings over a five-year period are related to different proxies of patent activity using multivariate regression analysis.FindingsFirms that filed for a patent were more resilient, compared to the control sample, during the financial crisis. Innovative activities resulting in patent application seem to deliver strategic resources useful to tackle the crisis rather than increase riskiness. The moderating effect of patents on risk sensitivity is stronger for small firms and when the number of patents or the patent intensity is larger.Originality/valueLimited evidence is available on how patent applications are related to risks for small firms during an economic crisis. The authors highlight that the innovative efforts resulting in patent applications can support small business resilience. The authors also point out that the implementation of patent information in small firms' credit score modeling is still an uncommon practice, while it is useful in estimating firm risk in a way more robust to exogenous credit shocks.
Highlights
The recent pandemic has highlighted the fragility of small and medium enterprises (SMEs) to the impact of macroeconomic shocks
We empirically test these conjectures with a sample of 3,954 Italian firms that filed for a patent in 2005, using the evolution of their credit ratings as a proxy of their business risk
We argue that all these activities result in increased learning and Patents and small business risk organizational knowledge and contribute to the firm’s competitive advantages
Summary
The recent pandemic has highlighted the fragility of small and medium enterprises (SMEs) to the impact of macroeconomic shocks. At the start of the pandemic, the frequency of capital rationing for SMEs peaked again at 17% (European Central Bank, 2020), highlighting once more the imperative need to investigate risk factors and business strategies that can improve the likelihood of surviving crises. The extant literature investigates the impact of macroeconomic shocks on startup creation (Davidsson and Gordon, 2016) and small firms’ performance during a financial crisis. The authors thank the editor and the two anonymous reviewers for their constructive comments and insights
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