The Basel II reform and the provision of finance for R & D activities in SMEs: An analysis of a sample of Italian companies

Abstract

In this article, we investigate the issue of the financing of R & D investments in SMEs in Italy with respect to the changes in the banking system, which are driven by the adoption of the new version of the Basel Capital Accord. Results from an instrumental variable (IV) probit model show a significant and large marginal effect of both indicators of R & D activity and R & D intensity on the probability that firms report unsatisfied credit needs. We find that the introduction of the new rules is likely to have a moderate impact on the capital requirements of banks when considering the possibility for a bank to pool together all the companies in its portfolio. However, we obtain an increase in capital requirements when we focus on the sub-sample of firms performing product innovation. In particular, the analysis suggests that the new rules on regulatory capital requirements might have a negative impact on lending conditions for those SMEs that are relatively younger, smaller and showing positive R & D expenditures.