Abstract:

This study not only examines the relationship between firms' innovation effectiveness and financial constraints, but also considers the efficiency dimension of innovation rather than just measuring the effect of innovation. The study is far from just referring to firm's obligation to innovate, it is built on finding out whether the reasons of no innovation by the firms are due to financial constraints or not. In this way, innovation efficiency criteria are created by using inputs and outputs used in the measurement of innovation. The financial constraint is measured by three different techniques: SA index, WW index and firm size measures. Innovation efficiency measures are created through the use of R&D expenditures from innovation inputs and patents from innovation outputs. Findings reveal that the financial constraint of the firm, which is valid for three techniques, affects the innovation activity negatively. As a result, the increase in the financial constraint of the firm negatively affects innovation efficiency, and as the constraint increases, innovation efficiency decreases.

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