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Financial Flexibility and Innovation Efficiency: Pathways and Mechanisms in Chinese A-Share Listed Firms (2013–2022)

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  • Yemeng Sun

    (Center for Quantitative Economics, Jilin University, Changchun 130012, China
    School of Business and Management, Jilin University, Changchun 130012, China)

  • Guitong Zhang

    (School of Business and Management, Jilin University, Changchun 130012, China)

Abstract

Applying the resource-based view and dynamic capability theory, this study employs panel data analysis to examine how financial flexibility influences corporate innovation efficiency from an integrated resource-capability perspective. Analyzing data from Chinese A-share listed companies during 2013–2022, we discovered three key results. First, as an organizational liquidity buffer, financial flexibility reduces transaction costs, enhances incentives for technical talent retention, and better aligns executive compensation with innovation objectives. Second, as a manifestation of financial dynamic capabilities, financial flexibility significantly boosts a firm’s overall dynamic capabilities, thereby increasing innovation efficiency. Third, institutional investor engagement positively moderates this relationship through enhanced governance oversight. These investors strengthen governance oversight and reduce information asymmetry. Our findings advance the financial flexibility literature and offer actionable strategies to optimize innovation resource allocation and sustain R&D competitiveness. Companies should strategically build financial reserves to enhance innovation efficiency and achieve sustainable development.

Suggested Citation

  • Yemeng Sun & Guitong Zhang, 2025. "Financial Flexibility and Innovation Efficiency: Pathways and Mechanisms in Chinese A-Share Listed Firms (2013–2022)," Sustainability, MDPI, vol. 17(13), pages 1-25, June.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:13:p:5787-:d:1685828
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