Does Capital Structure of Firms Influence their Innovation Strategies? Evidences from the European Agri-Food Sector

by Rustam Abduraupov


The paper investigates the relationship between companies’ innovation strategies and their financing strategies. Innovation strategies are distinguished as in-house and outsourcing. A bivariate probit model is implemented using cross-section data on 1,393 agri-food firms in seven EU countries. Results show that: (1) agri-food firms with a higher proportion of fixed asset are more likely to innovate, both in-house and through outsourcing: fixed assets can also be used by the firm as collateral and hence facilitate long-term loans, (2) agri-food firms that have larger sales volumes are more likely to organise their innovation processes in-house; (3) profitability and working capital increase the likelihood to observe outsourcing of innovation activities; finally, (4) long-term leverage is negatively related to R&D outsourcing. R&D activities increase a firm’s risk level.