Financing Open Innovation: Equity or Debt?

The internal innovation activities of firms often encounter obstacles (i.e., factors hampering innovation activities) such as economic constraints and lack of skilled employees within enterprises, prompting them to adopt an Open Innovation (OI) approach as a means to overcome the obstacles and thus to achieve innovation performance, intended as Innovation Industrial Performance (IIP) and Innovation Financial Performance (IFP). Using data from the Community Innovation Survey (CIS), the study firstly investigates whether OI is able to exert this mediation role. Second, the study investigates the moderating role of financing techniques, specifically debt and equity, on the relationship between OI and firm Innovation Industrial Performance (IIP) and Innovation Financial Performance (IFP). It explores whether equity and debt support OI in enhancing such performance types. Our results show that, while OI proves effective in overcoming innovation hurdles, it does not mediate the relationship between the factors hampering innovation activities and IFP, suggesting a temporal lag between innovation and its financial outcomes. The findings of this study suggest that equity enhances both IIP and IFP by bolstering competencies and financial capacity. In contrast, debt primarily benefits IFP by providing readily available resources. Notably, debt does not influence IIP, indicating its limited contribution to cognitive and knowledge resources essential for innovation. However, the study acknowledges limitations, including the lack of longitudinal data, which hinders the assessment of time lag effects between innovation and financial performance.