Industrial Districts and Financial Constraints to Innovation

Informational frictions between borrowers and lenders are particularly acute for innovative firms undertaking high-risk projects. As a consequence, banks may end up denying credit to them. However, the literature on relationship finance predicts that a closer relationship between credit suppliers and obligors is deemed to alleviate information asymmetries, hence preventing credit rationing from occurring. The question of whether such situation also applies to innovative firms has so far remained relatively unexplored. Using a cross-section of Italian manufacturing firms, I find that credit constraints appear to be more severe for firms undertaking innovative activities, although such effects are weaker when measures of Ramp;D intensity are included. The empirical analysis also shows that firms located in an industrial district have an easier access to external finance. If I move to consider firms engaged in substantial Ramp;D activities located in a district area, the empirical analysis does not seem to provide robust results that they can benefit of better financial conditions