How does the source of funding impact on company performance in an emerging economy?
This issue is critical to those wanting to stimulate innovation within an economy. Although the effectiveness of funding support on company performance has been studied since the early 1980s, existing literature fails to differentiate the impacts of different types of funding support on company performances. Additionally, where the performance outcomes are measured the studies are narrow in scope, for example focussed on employment growth.
The aim of this research was to provide a policy guide to give insights into which funding scheme would be effective to foster what outcomes.
The research focus of this paper were 188 Brazilian software companies, with data captured about the types of funding support received across eight types of company performances measured in binary scales.
A multivariate probit model was estimated to assess the impacts of different funding schemes on company performances – controlling for other confounding effects.
The study revealed:
- Companies that used public funds were more likely to become nationally competitive
- Those that used loans from commercial banks were less likely to become nationally and internationally competitive;
- Companies where revenues were reinvested were more likely to gain market share, and increase the number of employees
- Organisations not aware of support from public funding schemes were less likely to invest on research, development, and innovation.
Overall the findings suggested that innovation funds have a positive impact on company performance. Underlying the crucial importance of public funding – in the form of both public funds and incentives – for supporting software companies’ RDI activities.
Public funds were shown to increase the competitiveness of companies – national level competitiveness in the case of Brazil – and this can be encouraging evidence particularly for public authorities that are hesitant to allocate larger amounts of financial resources due to the higher risk of return from innovation business.
Impact of funding sources on innovation: evidence from Brazilian software companies
Tan Yigitcanlar, Jamile Sabatini‐Marques, Md. Kamruzzaman, Francisco Camargo, Eduardo Moreira da‐Costa, Giuseppe Ioppolo, Fernanda Elisa, Demore Palandi
The authors thank ABES (Associação Brasileira das Empresas de Software) is the national professional body of the software sector, with around 1,900 members in 23 Brazilian states and the Federal district. Member companies generate over 120,000 jobs and an annual revenue of around US$20 billion