ICT adoption, innovation, and SMEs’ access to finance

Abstract This study examines the association between ICT adoption, innovation, and SMEs' access to finance by exploiting the World Bank Enterprise Survey (WBES) data of 171,000 SMEs from 149 countries between 2006 and 2020. We decompose SMEs' access to finance into two components, i.e., basic and advanced access to finance. Basic access to finance is captured from two indicators; namely, the firm's bank account and line of credit from a financial institution, while advanced access is captured by whether the firm's investments and working capital is financed by the bank. Consistent with the information asymmetry hypothesis, our findings confirm that ICT adoption reduces information asymmetry between SMEs and banks. Therefore, banks are more likely to grant credit and to finance projects and the working capital needs of innovative SMEs. Moreover, this study complements the argument of resource-based theory (RBT) and suggests that innovation can provide a competitive advantage with regard to a firm's access to credit. These results imply that SMEs with greater access to and use of new technologies are more likely to acquire financial resources from banks. The results hold to various robustness checks and identification strategies. Our findings provide important policy implications for SMEs around the globe.