The Signaling Effect of Green Innovation in Accessing Bank Credit. Evidence From Italian Entrepreneurial Ventures

This study examines whether green innovation (GIN) helps newly established small and medium-sized enterprises (SMEs) ease credit constraints and strengthen their debt repayment capacity. Drawing on signaling and stakeholder theories, it conceptualizes GIN as a credible signal that mitigates information asymmetries and aligns firms with the rising expectations of sustainability oriented financial stakeholders. The analysis uses a longitudinal sample of 7,027 Italian entrepreneurial ventures founded in 2013. GIN is measured through patent-based indicators obtained by matching International Patent Classification (IPC) codes with the WIPO Green Inventory. Panel regression models assess the effects of GIN on short- and long-term bank debt and the Interest Coverage Ratio (ICR), accounting for firm lifecycle heterogeneity and the pre and post-EU Taxonomy periods. Green innovative firms show greater access to bank financing and stronger debt-servicing capacity. The positive impact on credit access is strongest for early-stage ventures but weakens as firms mature. Conversely, the association between GIN and ICR strengthens over time. However, the signaling power of GIN appears to be reduced following the EU Taxonomy. The study provides novel evidence on the signaling role of GIN in facilitating bank finance for young ventures – an underexplored area in sustainable entrepreneurial finance research. Financial institutions are encouraged to incorporate GIN into credit assessment frameworks while considering firm lifecycle and evolving regulatory contexts. The study shows that the signaling relevance of GIN varies across the corporate life cycle and institutional developments, extending signaling theory to sustainable entrepreneurship.