Skip to main navigation menu Skip to main content Skip to site footer

Formal sources of finance boost innovation: Do immigrants benefit as much as natives?



Objective: The article investigates the relative benefit of formality/informality of finance sources for innovation and compares this benefit amongst immigrant and native entrepreneurs. The authors investigate whether formal finance (here, bank loan) benefit innovation more than informal sources (personal savings and friend/family loan). Then, they explore whether an entrepreneur‘s status strengthens or weakens the benefit finance sources for innovation.

Research Design & Methods: This study applies a quantitative approach to conduct the research. The data of 15,850 entrepreneurs surveyed by Global Entrepreneurship Monitor in 2015 were analysed using the hierarchical linear modelling (HLM) technique.

Findings: Results indicated that formal finance benefits innovation more than informal sources, and this advantage is the same for both immigrant and native entrepreneurs.

Implications & Recommendations: Despite the prevalence of some stereotypes regarding the simplistic and repetitive nature of immigrants ‘ businesses, the study recommends that financial institutions and policymakers plan to enhance entrepreneurs ‘ access to formal financial resources irrespective of their migrant status. Policymakers also can plan to increase the immigrant entrepreneurs ‘ access to the formal sources of finance by tailored educations to boost innovation.

Contribution & Value Added: The results highlight that immigrant entrepreneurs benefit from formal finance towards innovation similarly to their native counterparts. Such a clarification informs the studies on the liability of foreignness and innovation finance that immigration status cannot be a barrier to innovation as portrayed and conceptualized by some studies.


immigrant entrepreneurs, native entrepreneurs, entrepreneurial financing, innovation, liability of foreignness

(PDF) Save

Author Biography

Shayegheh Ashourizadeh

Assistant Professor at Wageningen University and Research (Netherlands). Her research interests include nascent entrepreneurship and institutions.

Mehrzad Saeedikiya

HDR Scholar at the Centre for Future Enterprise, Queensland University of Technology, Australia. His research interests include entrepreneurship and innovation using an institutional perspective.

Zeynab Aeeni

Assistant Professor at University of Kurdistan. Her research interests include entrepreneurship and innovation using an institutional perspective.

Serdar Temiz

Associate Professor at Uppsala University. His research interests include entrepreneurship and open innovation.


  1. Abbasian, S., & Yazdanfar, D. (2013). Exploring the financing gap between native born women-and immigrant women-owned firms at the start-up stage: Empirical evidence from Swedish data. International Journal of Gender and Entrepreneurship, 5(2), 157-173.
  2. Abd Hamid, H., Ayob, A. H., Sidek, F., & Senik, Z. C. (2021). Capturing Transnational Entrepreneurial Opportunities through Dual Identification: Immigrant Entrepreneurs and Transnational Activities. Entrepreneurship Research Journal.
  3. Ahlin, B., Drnovšek, M., & Hisrich, R. D. (2014). Entrepreneurs ‘ creativity and firm innovation: the moderating role of entrepreneurial self-efficacy. Small Business Economics, 43(1), 101-117.
  4. Aldén, L., & Hammarstedt, M. (2016). Discrimination in the Credit Market? Access to Financial Capital among Self‐employed Immigrants. Kyklos, 69(1), 3-31.
  5. Aliaga-Isla, R., & Rialp, A. (2013). Systematic review of immigrant entrepreneurship literature: Previous findings and ways forward. Entrepreneurship & Regional Development, 25(9-10), 819-844.
  6. Altinay, L., & Altinay, E. (2008). Factors influencing business growth: the rise of Turkish entrepreneurship in the UK. International Journal of Entrepreneurial Behavior & Research, 14(1), 24-46.
  7. Anthony, D. (2005). Cooperation in microcredit borrowing groups: Identity, sanctions, and reciprocity in the production of collective goods. American Sociological Review, 70(3), 496-515.
  8. Anwar, M. N., & Daniel, E. M. (2017). Ethnic entrepreneurs and online home-based businesses: an exploratory study. Journal of Global Entrepreneurship Research, 7(1), 1-21.
  9. Arif, M., Hasan, M., Shafique Joyo, A., Gan, C., & Abidin, S. (2020). Formal finance usage and innovative SMEs: Evidence from ASEAN countries. Journal of Risk and Financial Management, 13(10), 1-19.
  10. Armendáriz, B., & Morduch, J. (2007). The economics of microfinance. Cambridge: MIT press.
  11. Ashourizadeh, S. & Saeedikiya, M. (In Press). Immigrant and natives ‘ export benefiting from business collaborations: A Global Study. European Journal of International Management,
  12. Ashourizadeh S. (2017) Iranian Entrepreneurs at Home and in Diaspora: Entrepreneurial Competencies, Exporting, Innovation and Growth-Expectations. In: S. Rezaei, L.P. Dana, V. Ramadani (eds), Iranian Entrepreneurship (pp. 249-262). Springer, Cham.
  13. Atiyet, B. A. (2012). The pecking order theory and the static trade off theory: comparison of the alternative explanatory power in French Firms. Journal of Business Studies Quarterly, 4(1), 1-14.
  14. Autio, E., Kenney, M., Mustar, P., Siegel, D., & Wright, M. (2014). Entrepreneurial innovation: The importance of context. Research Policy, 43(7), 1097-1108.
  15. Baptista, R., Karaöz, M., & Mendonça, J. (2014). The impact of human capital on the early success of necessity versus opportunity-based entrepreneurs. Small Business Economics, 42(4), 831-847.
  16. Bartzokas, A., & Mani, S. (2004). Financial systems, corporate investment in innovation, and venture capital. Cheltenham: Edward Elgar Publishing.
  17. Basu, A., & Goswami, A. (1999). Determinants of South Asian entrepreneurial growth in Britain: A multivariate analysis. Small Business Economics, 13(1), 57-70.
  18. Bates, T. (1997). Financing small business creation: The case of Chinese and Korean immigrant entrepreneurs. Journal of Business Venturing, 12(2), 109-124.
  19. Beck, T., & Demirguc-Kunt, A. (2006). Small and medium-sized enterprises: Access to finance as a growth constraint. Journal of Banking & Finance, 30(11), 2931-2943.
  20. Belleflamme, P., & Lambert, T. (2014). Crowdfunding: Some empirical findings and microeconomic underpinnings. Revue Bancaire et Financi`ere, 4, 288-296,
  21. Berge, L. I. O., Bjorvatn, K., & Tungodden, B.( 2014). Human and financial capital for microenterprise development: Evidence from a field and lab experiment. Management Science, 61(4), 707-722.
  22. Bosma, N., Coduras, A., Litovsky, Y., & Seaman, J. (2012). GEM Manual: A report on the design, data and quality control of the Global Entrepreneurship Monitor. GEM Concersume. Retrieved from: On January 10, 2022.
  23. Brieger, S. A., & Gielnik, M. M. (2020). Understanding the gender gap in immigrant entrepreneurship: a multi-country study of immigrants ‘ embeddedness in economic, social, and institutional contexts. Small Business Economics, 56 (3), 1007-1031.
  24. Brixiová, Z., Kangoye, T., & Yogo, T. U. (2020). Access to finance among small and medium-sized enterprises and job creation in Africa. Structural Change and Economic Dynamics, 55, 177-189.
  25. Bruton, G., Khavul, S., Siegel, D., & Wright, M. (2015). New financial alternatives in seeding entrepreneurship: Microfinance, crowdfunding, and peer-to-peer innovations. Entrepreneurship Theory and Practice, 39(1), 9-26.
  26. Brzozowski, J., Cucculelli, M., & Surdej, A. (2017). The determinants of transnational entrepreneurship and transnational ties ‘ dynamics among immigrant entrepreneurs in ICT sector in Italy. International Migration, 55(3), 105-125.
  27. Buyinza, F., Tibaingana, A., & Mutenyo, J. (2018). Factors affecting access to formal credit by micro and small enterprises in Uganda (ICAE Working Papers No. 83). Johannes Kepler University Linz. Retrieved from: on January 10, 2022.
  28. Cassar, G. (2004). The financing of business start-ups. Journal of Business Venturing, 19(2), 261-283.
  29. Cavalluzzo, K. S., Cavalluzzo, L. C., & Wolken, J. D. (2002). Competition, small business financing, and discrimination: Evidence from a new survey. The Journal of Business, 75(4), 641-679.
  30. Chrysostome, E. (2010). The success factors of necessity immigrant entrepreneurs: In search of a model. Thunderbird International Business Review, 52(2), 137-152.
  31. Conning, J. (1999). Outreach, sustainability and leverage in monitored and peer-monitored lending. Journal of Development Economics, 60(1), 51-77.
  32. Cooper, A. C., Gimeno-Gascon, F. J., & Woo, C. Y. (1994). Initial human and financial capital as predictors of new venture performance. Journal of business venturing, 9(5), 371-395.
  33. Dabić, M., Vlačić, B., Paul, J., Dana, L. P., Sahasranamam, S., & Glinka, B. (2020). Immigrant entrepreneurship: A review and research agenda. Journal of Business Research, 113, 25-38.
  34. Dang, C. M., & Harima, A. (2020). Dual Embeddedness and Entrepreneurial Activities of Second-Generation Ethnic Entrepreneurs: Multiple Case Studies with Vietnamese Entrepreneurs in Germany. Journal of Entrepreneurship and Innovation in Emerging Economies, 6(1), 84-113.
  35. De Jong, A., Verbeek, M., & Verwijmeren, P. (2011). Firms ‘ debt-equity decisions when the static tradeoff theory ad the pecking order theory disagree. Journal of Banking & Finance, 35(5), 1303-1314.
  36. Degryse, H., Lu, L., & Ongena, S. (2016). Informal or formal financing? Evidence on the co-funding of Chinese firms. Journal of Financial Intermediation, 27, 31-50.
  37. Dheer, R. J., & Lenartowicz, T. (2018). Career decisions of immigrants: Role of identity and social embeddedness. Human Resource Management Review, 28(2), 144-163.
  38. DESA, U. (1998). Recommendations on Statistics of International Migration, Revision 1. United Nations Department of Economic and Social Affairs, New York.
  39. Dimov, D., Schaefer, R., & Pistrui, J. (2021). Look who is talking… and who is listening: Finding an integrative “we” voice in entrepreneurial scholarship. Entrepreneurship Theory and Practice, 45(5), 1176-1196.
  40. Drucker, P. (2014). Innovation and entrepreneurship. London: Routledge.
  41. Dzadze, P., Aidoo, R., & Nurah, G. K. (2012). Factors determining access to formal credit in Ghana: A case study of smallholder farmers in the Abura-Asebu Kwamankese district of central region of Ghana. Journal of Development and Agricultural Economics, 4(14), 416-423.
  42. Fairlie, R. (2013). Minority and immigrant entrepreneurs: Access to financial capital. In A. Constant & K. Zimmermann (eds.), International handbook on the economics of migration (pp. 153-175). Cheltenham: Edward Elgar.
  43. Giudici, G., & Paleari, S. (2000). The provision of finance to innovation: a survey conducted among Italian technology-based small firms. Small Business Economics, 14(1), 37-53.
  44. Goedhuys, M., Janz, N., & Mohnen, P. (2014). Knowledge-based productivity in low-tech industries: evidence from firms in developing countries. Corporate Change, 23(1), 1-23.
  45. Gurău, C., Dana, L. P., & Light, I. (2020). Overcoming the liability of foreignness: A typology and model of immigrant entrepreneurs. European Management Review, 17(3), 701-717.
  46. Hottenrott, H., & Peters, B. (2012). Innovative capability and financing constraints for innovation: More money, more innovation?. Review of Economics and Statistics, 94(4), 1126-1142.
  47. Hunt, J., & Gauthier-Loiselle, M. (2010). How much does immigration boost innovation?. American Economic Journal: Macroeconomic, 2(2), 31-56.
  48. Kloosterman, R., & Rath, J. (2006). Mixed embeddedness as a conceptual framework for exploring immigrant entrepreneurship. Eurex Lecture, 8, 111-135.
  49. Kloosterman, R.C., & Rath, J. (2001). Immigrant Entrepreneurs in Advanced Economies. Mixed Embeddedness Further Explored. Journal of Ethnic and Migration Studies, 27(2), 189-202.
  50. Kloosterman, R.C., & van der Leun, J. (1999). Just for starters: commercial gentri® cation by immigrant entrepreneurs in Amsterdam and Rotterdam neighbourhoods. Housing Studies, 14(5), 659- 76.
  51. Kortum, S., & Lerner, J. (2000). Assessing the contribution of venture capital to innovation. RAND Journal of Economics, 31(4), 674-692.
  52. Lee, W., & Black, S. L. (2017). Small business development: Immigrants ‘ access to loan capital. Journal of Small Business & Entrepreneurship, 29(3), 193-209.
  53. Marlow, S., & Patton, D. (2005). All credit to men? Entrepreneurship, finance, and gender. Entrepreneurship Theory and Practice, 29(6), 717-735.
  54. McCulloch, C. E., & Neuhaus, J. M. (2011). Prediction of random effects in linear and generalized linear models under model misspecification. Biometrics, 67(1), 270-279.
  55. Meeus, M. T., & Oerlemans, L. A. (2000). Firm behaviour and innovative performance: An empirical explora-tion of the selection–adaptation debate. Research policy, 29(1), 41-58.
  56. Moghaddam, K., Aidov, A., DuVal, C., & Azarpanah, S. (2017). High-growth entrepreneurial firm funding: a qualitative study of native-born and immigrant entrepreneurs. Venture Capital, 19(1-2), 75-94.
  57. Muller, E., & Peres, R. (2019). The effect of social networks structure on innovation performance: A review and directions for research. International Journal of Research in Marketing, 36(1), 3-19.
  58. Nanda, R., & Rhodes-Kropf, M. (2016). Financing risk and innovation. Management Science, 63(4), 901-918.
  59. Nylund, P.A., Arimany-Serrat, N., Ferras-Hernandez, X., Viardot, E., Boateng, H., & Brem, A. (2019). Internal and external financing of innovation: Sectoral differences in a longitudinal study of
  60. European firms. European Journal of Innovation Management, 23(2), 200-213.
  61. O ‘brien, J. P. (2003). The capital structure implications of pursuing a strategy of innovation. Strategic Management Journal, 24(5), 415-431.
  62. Osano, H. M., & Languitone, H. (2016). Factors influencing access to finance by SMEs in Mozambique: Case of SMEs in Maputo central business district. Journal of Innovation and Entrepreneurship, 5(1), 1-16.
  63. Ostrovsky, Y., Picot, G., & Leung, D. (2019). The financing of immigrant-owned firms in Canada. Small Business Economics, 52(1), 303-317.
  64. Oyebamiji, F. F. (2020). The Role of Financial Inclusion in Women Entrepreneurs in Small and Medium Enterprises: Evidence from South Western Nigeria. Asian Journal of Education and Social Studies, 8(4), 16-23.
  65. Ozgen, C., Peters, C., Niebuhr, A., Nijkamp, P., & Poot, J. (2014). Does Cultural Diversity of Migrant Employees Affect Innovation?. Internationam Migration Review, 48(1), 377-S416.
  66. Phills, J. A., Deiglmeier, K., & Miller, D. T. (2008). Rediscovering social innovation. Stanford Social Innovation Review, 6(4), 34-43.
  67. Ram, M., Smallbone, D., Deakins, D., & Jones, T. (2003). Banking on ‘break-out ‘: Finance and the develop-ment of ethnic minority businesses. Journal of Ethnic and Migration Studies, 29(4), 663-681.
  68. Reagans, R., & Zuckerman, E. W. (2001). Networks, diversity, and productivity: The social capital of corporate R&D teams. Organization science, 12(4), 502-517.
  69. Robb, A. M., & Robinson, D. T. (2014). The capital structure decisions of new firms. The Review of Financial Studies, 27(1), 153-179.
  70. Rosenbusch, N., Brinckmann, J., & Bausch, A. (2011). Is innovation always beneficial? A meta-analysis of the relationship between innovation and performance in SMEs. Journal of Business Venturing, 26(4), 441-457.
  71. Saxenian, A. (2002). Silicon Valley ‘s new immigrant high-growth entrepreneurs. Economic Development Quarterly, 16(1), 20-31.
  72. Schumpeter, J.A., (1934). The theory of economic development. An inquiry into profits, capital, credit, interest, and the business cycle. Cambridge: Harvard University Press.
  73. Schumpeter, J. A. (1934). The Theory of Economic Development. Harvard University Press: Cambridge.
  74. Smallbone, D., Ram, M., Deakins, D., & Aldock, R. B. (2003). Access to finance by ethnic minority businesses in the UK. International Small Business Journal, 21(3), 291-314.
  75. Storti, L. (2014). Being an entrepreneur: emergence and structuring of two immigrant entrepreneur groups. Entrepreneurship & Regional Development, 26(7-8), 521-545.
  76. Tavassoli, S., & Trippl, M. (2019). The impact of ethnic communities on immigrant entrepreneurship: evidence from Sweden. Regional Studies, 53(1), 67-79.
  77. Tengeh, R. K., & Nkem, L. (2017). Sustaining immigrant entrepreneurship in South Africa: The role of informal financial associations. Sustainability, 9(8).
  78. Tong, G. (2019). Ethnic churches as an important space of co-ethnic resources for immigrant entrepreneurs. Review of Religious Research, 61(2), 135-156.
  79. Turkina, E., & Thai, M. T. T. (2013). Social capital, networks, trust and immigrant entrepreneurship: a cross‐country analysis. Journal of Enterprising Communities: People and Places in the Global Economy, 7(2), 108-124.
  80. Ullah, B. (2019). Firm innovation in transition economies: The role of formal versus informal finance. Journal of Multinational Financial Management, 50, 58-75.
  81. Uzzi, B. (1999). Embeddedness in the making of financial capital: How social relations and networks benefit firms seeking financing. American Sociological Review, 64(4), 481-505.
  82. Varis, M., & Littunen, H. (2010). Types of innovation, sources of information and performance in entrepreneurial SMEs. European Journal of Innovation Management, 13(2), 128-154.
  83. Vasudeva, G., Zaheer, A., & Hernandez, E. (2013). The embeddedness of networks: Institutions, structural holes, and innovativeness in the fuel cell industry. Organization Science, 24(3), 645-663.
  84. Volery, T. (2007). Ethnic entrepreneurship: a theoretical framework. In L.P. Dana (ed.), Handbook of research on ethnic minority entrepreneurship (pp.30-41). Cheltenham: Edward Elgar.
  85. Wang, M. C., Chen, P. C., & Fang, S. C. (2018). A critical view of knowledge networks and innovation performance: The mediation role of firms ‘ knowledge integration capability. Journal of Business Research, 88, 222-233.
  86. Wellalage, N. H., & Fernandez, V. (2019). Innovation and SME finance: Evidence from developing countries. International Review of Financial Analysis, 66,
  87. Wu, J., Si, S., & Wu, X. (2016). Entrepreneurial finance and innovation: Informal debt as an empirical case. Strategic Entrepreneurship Journal, 10(3), 257-273.
  88. Yazdanfar, D., & Abbasian, S. (2014). Debt financing among native-and immigrant-owned firms: Empirical evidence from Swedish small business at start up stage. World Review of Entrepreneurship. Management and Sustainable Development, 10(4), 422-434.
  89. Zang, J. (2018). Structural holes, exploratory innovation and exploitative innovation. Management Decision, 56(8), 1682-1695.
  90. Zhang, Y. (2015). The contingent value of social resources: Entrepreneurs ‘ use of debt-financing sources in Western China. Journal of Business Venturing, 30(3), 390-406.
  91. Zhou, N., and Guillén, M. F. (2015). From home country to home base: A dynamic approach to the liability of foreignness. Strategic Management Journal, 36(6), 907-917.
  92. Zhuang, J.-c., Sha, K.-q., Cheng, L.-m., & Sun, H.-P. (2012). Study on Evolution Rules of Dual Embeddedness of Social Networks and Industrial Networks during the Growth of New Ventures—Cases of China Group and Wens Group [J]. China Industrial Economics, 8, 122-134.


Download data is not yet available.