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.