Do financial constraints and corruption limit firms' innovation capability? Evidence from developing economies

This study examines the effects of financial constraints and corruption on product and process innovation of firms in developing nations. We contribute to the existing literature by analyzing the singular and joint effects of financial constraints and corruption on firms' innovation activities. We examine firm-level data for 74 developing nations for the period 2015-2020. Our findings show that (a) financial constraints have an adverse impact on firms' innovation, (b) corruption has a positive outcome on the innovation of firms, (c) positive effects of corruption on their innovation decisions are dampened when firms are subjected to high financial constraints, (d) larger, older, and exporting firms that are equipped with foreign technology are more prevalent in innovation schemes than smaller, younger, nonexporting, and technologically disrupted firms.