Product Innovation and Trade Credit Demand and Supply: Evidence from European Countries

Abstract

This chapter addresses the relationship between product innovation and the demand for and supply of trade credit. It is argued that introducing a product innovation is positively linked with trade credit demand as well as the availability of trade credit from business partners. Using a sample covering SMEs from 24 European countries this relationship is tested empirically. Basically the estimation results confirm both hypotheses. First, SMEs introducing a product innovation have a higher probability to demand for trade credit. Second, the availability of trade credit from business partners is also higher compared to non-innovative SMEs. This relationship is found to be stronger for small and young firms. Hence, this study points to the role of trade credit as a source of short-term finance for small and young innovative firms.