Financial markets crucial for funding innovation, relationship lending not enough.
The financial system plays a crucial role in funding research and development (R&D) activities for firms. In Italy, firms use various sources like internal funds, bank loans, and financial markets to finance their R&D projects. Firms with strong relationships with banks tend to focus more on innovation, while those using bonds and outside equity invest more in R&D. This shows that both relationship lending and financial markets are important for funding innovation.