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Innovation, SMEs and the liability of distance: the demand and supply of bank funding in peripheral UK regions

Lee, Neil ORCID: 0000-0002-4138-7163 and Brown, Ross (2016) Innovation, SMEs and the liability of distance: the demand and supply of bank funding in peripheral UK regions. Journal of Economic Geography, 17 (1). pp. 233-260. ISSN 1468-2702

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Identification Number: 10.1093/jeg/lbw011


This paper considers geographical variations in the demand and supply of bank finance for innovative firms in the UK. It uses a detailed survey on the finances of almost 40,000 UK Small and Medium Sized Enterprises for 2011 – 2013 to investigate both the extent and type of applications for bank finance by innovative firms in peripheral regions, whether funders accept their applications and whether acceptance rates reflect objective criteria, such as credit scores, or their location. The paper finds evidence of higher demand for bank finance for innovative firms in peripheral areas, but that these firms are more likely to be discouraged from applying. However, there is strong evidence that innovative firms in peripheral regions are more likely to have their applications for finance rejected, even when controlling for factors such as credit score. The findings suggest that geography matters in the financing of innovative firms and firms in peripheral areas may suffer a “liability of distance” which potentially reinforces regional disparities. The implications of these findings for public policy are outlined.

Item Type: Article
Official URL:
Additional Information: © 2016 The Authors
Divisions: Geography & Environment
Subjects: G Geography. Anthropology. Recreation > G Geography (General)
G Geography. Anthropology. Recreation > GE Environmental Sciences
JEL classification: M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration > M13 - Entrepreneurship
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O31 - Innovation and Invention: Processes and Incentives
R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R30 - General
Date Deposited: 25 Apr 2016 13:42
Last Modified: 26 Jun 2024 19:18

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