Q. No 02 (b)

Prepare a quantitative purpose statement for the following research problem (05) or gap based on Fombang et al. (2018) study

in this paper, we examine whether access to finance enhances form wnovation Innovation, which comprises the introduction of new preduris, process, quality certification, activities, knowledge wansfers and technologies, amp on the organization of a firm's business activities (Bloch, 2007) Evidence shows that finance affects the mnovation abilities of all types of firms, large or smail (Benfrarello al, 2008). Access to finance therefore key iu driving innovation However, the empirical literature is not certain on that direction at the effect of finance on innovation. For example, Ayyagari et al (2011) and Nonde and Nicholas 17011) find a positive relationship between finance and innovation, whereas Fang et al. (2014) and Corneggia et al (2012) sw negative relationalup. It is argued that equsty finance from pabse markets to fand innovation can be costly to managers because of law tolerance for failure in the public matiats (Ferreita et al, 2011) A debt contract might ahu tot he sated to finance innocation that has uncertain retums (Atanasios et al, 2009 Stiglitz, 1985)Nonetheless, Beck and Demirg-Kunt (2006, 2012) show that financially constrained firms find it difficult to engage in innovative pathways. Demirgc kunt and Klapper (2012) further emphasise that the ability of firms in Africa to Innovate is severely constrained by the lack of access to finance. Kerr and Naranda (2014) also note that the capital structure, and in particular, access to bank finance, plays a key role in innovation outcomes of firms. Equally, although the literature observes the differing impact of capital structure on innovation, it is limited to debt and equity effects and does not give insights into different debt financing instruments and their effect on innovation. For instance, Kerr and Naranda (2014) show the imporalice of bank finance but they do not articulate the effect of different types of bank finance on innovation. It is therefore clear that one ought to be specific on the type of Tinance and its effect on innovation. Furthermore, though there is a clear endogeneity between finance and innovation, this is hardly accounted for in the literature. Failure to control for endogeneity can yield bias estimates or produce inconsistent results. Again, the use of R&D expenditure to measure innovation has been heavily criticised in the literature (Beveren and Vandenbussche, 2010). R&D expenditures have a time lag and may not yield any meaningful output. Consequently, it is unsurprising that the empirical findings on finance and innovation are somewhat mixed and unclear. /

This study is relevant for developing countries, and Africa in particular, where innovation is low and access to finance remains a major problem facing enterprise (African Development Bank, 2011, p. 82). According to the African Development Bank (2008) and the Global Innovation Index (2015), African enterprises are ranked at the tail end of innovation compared to other countries. Yet, the finance literature is silent on how innovation is affected by access to finance in developing countries (Ayyagari et al., 2011). The empirical literature that establishes the link between finance and innovation is limited and skewed towards developed economies (Goldman and Peres, 2015; Chemmanur and Fulghier, 2014; Baumol, 2002; Guidici and Paleri, 2000). In terms of Africa, little is known about this relationship. Limited studies (Adeboye, 1997; Chipika and Wilson, 2006) have been conducted on innovation within firms in Africa. These studies tend to focus on technologies, models of innovation and issues related to networking, whereas a crucial and less examined issue is the importance of access to finance in firm innovation. Hence, there is a need for empirical investigation Into the imphet of finance on innovation. This is especially so for Africa, where firm innovation lags behind the global trend and access to finance remains a major challenge to firm productivity and growth (Himmelberg and Petersen, 1994; Adams, 1994; Hadjimanolis, 2000). Most studies on finance and innovation have been at macro level, whereas little is known at firm level and where available the firm-level knowledge is skewed towards often publicly traded firms in developed economies (Cameilli et al., 2006; Baumol, 2002). Equally, the empirical literature is also silent on the fact that innovation can be endogenous to bank finance. With access to firm-level data from emerging economies provided by the World Bank, this study seeks to close that gap.