Technological Innovations and the Cost of Debt Capital of Small and Medium-Sized Enterprises : Empirical Evidence from South Korea

This study examines the effect of SME innovation activities on the cost of capital using longitudinal panel data from the Korean stock market (KSE and KOSDAQ). We find that SME patents, a proxy of innovation activities, significantly reduce the cost of debt capital, and such effects are accentuated when the firm age is young. These findings suggest that innovation activities play a vital role in mitigating information asymmetry and uncertainty in the capital market, which in turn helps SMEs alleviate their cost of debt. The results of this study provide several theoretical and practical implications