Planning and Budgeting

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Today, knowledge and innovation as one of the most important factors of economic growth and development is very important. In this way the various factor are effective for innovation that most important of them is finance which should provide at the right time, enough amount and correct method for the firms. Set the correct mechanism for financing innovation in the financial system requires a suitable framework for policy in this area. For this we review financial system and economics of information and incentive literature with emphasis on pecking order theory and financial growth cycle model to provide appropriate framework for financing innovative firm based on theories and model. Then, using a case study strategy based on reports from organizations and experts interview that framework used for analyzing finance of innovation in Iran. The results show that the Iranian financial system does not fully and effectively in all aspects of financial policy, financial markets, financial instruments and financial institutions sensitive to the innovation development and these institutions financing criteria does not match with requirements to develop innovation.

Keywords: financial System, Innovation, Firm, information economics, Pecking Order Financing

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