Credit constraints and open innovation strategies

We examine how credit constraints influence firms’ use of open innovation. Analyzing data from 7000 Italian small and medium-sized enterprises, we find that credit-rationed firms are 26% more likely to collaborate on innovation. This applies to both product and process innovators. However, credit rationing negatively impacts open innovation when introducing entirely new products, suggesting that opportunity costs become crucial in choosing between internal and open innovation under credit constraints. We investigate the role of innovation partners and discover that credit constraints increase the chances of innovation with suppliers. Moreover, we establish that credit’s effect on innovation collaborations varies with the innovation environment and province socio-economic conditions.