The Linkages Between Investments in Innovation and Business Performance in Serbia

Abstract

Motivation: Driven by an increasingly competitive marketplace, the savviest businesses invest heavily in corporate innovation as a kind of competitive intelligence that gives a business what it needs to operate with poise and precision. The strategy of investments in innovation by firms can potentially explain the heterogeneity of their income increase based on market success. Such a stimulus for growth has been a motivation for the research question being examined in this paper, namely the link between corporate financing and investment decisions of Serbian firms based on the bank loans as sources of innovation and hence improved enterprise performance. The paper is based on the research of Hottenrott et al. (2014), together with Ferrando & Preuss (2017) and Aerts & Schmidt (2008) concerning the relationship between external finance and business innovation activities. This paper provides information about a bank loan as a financing source that firms use to fund their innovative activities, with the research question whether that has the subsequent impact on the company's performance. The idea of the paper is that investments of enterprises in innovation significantly affect their revenue. Data: Empirical research has been provided by a survey in Serbia in 2017. The sample comprised 152 enterprises, mostly privately owned, of all sizes. Descriptive statistics: Cronbach's Alpha coefficient, regression analysis is used as the research tool and method. The link between business finance and innovation, and furthermore the link between innovation and income of Serbian firms have been investigated. Three groups of factors show that the degree of income and market success of the enterprise increases with the level of investment in innovative activities. These are:  sources of financing and financing conditions as independent variables, and company's income revenues, as the dependent variable. Findings: Firms that use bank loans as financial instruments for innovation activities and investments are more likely to develop new products, methods and processes, and successfully increase their revenues and income based on developing this kind of added value. The findings indicate that tangible asset investment of SME’s is positively related to the use of bank finance, to new product development and to enterprise performance improvement. Contribution: Results of the research show that financial investments in business innovation directly contribute to the business sector performance improvement. It also demonstrates the theory of innovative enterprise, the significance of financing, and the impact of banking on the overall development of the economy. The results point to the need for further research in the area of​​ access to finance, as well as the parallel development of non-banking sources of financing.