R&D innovation and sme performance in the age of fintech

Abstract

This paper studies the influence of research and development (R&D) innovation on the performance of small and medium enterprises (SMEs) in 33 developing countries over the period 2012–2020. The study also investigates the impacts of ownership structure on the relation between R&D and firm performance. Using the generalised method of moments (GMM) approach to estimate the performance of 9,060 SMEs, we find that R&D innovation is positively associated with SME performance. Regarding the effect of ownership structure on ROA, we find out that increased R&D is associated with worse performance in state-owned SMEs, whereas foreign-owned SMEs can better utilise R&D investment to maximise their profit. By contrast, our results reveal that foreign ownership SMEs can be susceptible to the firm financial fragility when boosting R&D investment while increased R&D appears to improve the degree of financial stability for state-owned SMEs.