We aim to address the existing gap regarding the impact of context on the effectiveness of public financial support (PFS), particularly in SMEs, and seek to identify how sector and innovation radicalness influence the relationship between PFS and the performance of SMEs. To develop the theoretical framework and hypotheses, the research draws from literature on innovation policy, industrial policy, and sectoral innovation systems, focusing on market and capability failures. To test the research hypotheses, panel data from 5,309 unique knowledge-based (KB) SMEs active in three sectors was analyzed. These SMEs were categorized into two levels of innovation radicalness from 2014 to 2021. The analysis utilized a two-way fixed effects regression method, controlling for firm-specific and year-specific variables. The results show significant variation in output additionality resulting from direct and indirect support. Performance indicators, such as total and KB sales for SMEs, are differentially affected by PFS, with no notable impact based on the level of radicalness. The results suggest that to optimally allocate public resources and maximize the additionality effect of financial support output. policymakers should pay special attention to the various heterogeneities caused by sectoral and policy instrument characteristics and not rely on average effects, which can be misleading.
