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Firms, Finance and Sustainable Transitions

The Financial Constraints of Eco-Innovation Companies

Edgardo Sica

This thought-provoking book introduces a financial economics perspective to the topic of eco-innovations and, more generally, sociotechnical transitions. It develops a model that illustrates how financial constraints can prevent the development of eco-innovations within companies and hinder the transition process towards a more sustainable regime. Edgardo Sica presents a review of the state of the art, as well as new data from original surveys aimed at testing the impact of financial constraints on eco-innovative decisions at radical and niche levels.
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Chapter 3: Eco-innovations and finance theory

The Financial Constraints of Eco-Innovation Companies

Edgardo Sica

Extract

Although the importance of finance for innovations has been recognised by Schumpeter since 1912, literature on EIs does not take into account the role of financial resources as a possible driver/barrier to the companies’ eco-innovative decisions. In this framework, this chapter discusses the relevance of finance for EIs. The chapter starts by analysing the capital structure of companies with particular reference to the financial options provided by the green finance to the eco-innovative enterprises. Then, it moves towards the analysis of the finance theory and the corresponding empirical findings, by focusing on two main bodies of literature. The first includes literature on capital structure and the theory of hierarchy of finance. The second focuses upon the determinants of companies’ financial constraints, with particular reference to the role of different financial systems.

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