How Does Financial Resilience Enable Firms To Survive Periods Of Hardship?

This study seeks to conduct a thorough investigation into the direct influence of financial resilience on firm survival, while also analysing the mediating role of innovation in this relationship. Firms have been confronted with a myriad of challenges during COVID-19, particularly in terms of financial viability. Scholars and stakeholders have increasingly recognized the paramount importance of financial resilience in ensuring firms’ survival. In the contemporary era marked by incessant transformations, innovation has emerged as an equally critical determinant of firms’ operational efficiency. Using a sample comprising 58,484 companies spanning 43 nations during the timeframe from 2020 to 2022, our results first show that financial resilience has a positive influence on firm survival. These results imply financial resilience should be prioritized by managers in constructing adaptable and resilient financial systems of a firm with effective risk management while regulators should adopt flexible credit policies and investors can consider integrating financial factors into their investment analysis strategies to anticipate business potential. Secondly, our research presents the findings related to the mediating role of innovation in the association between financial resilience and firm survival. Specifically, we observe that financial resilience contributes to increasing innovation activities, which, in turn, innovation impacts positively on firm survival. Therefore, it is also important to consider innovation factors in the process of building an enterprise’s operational framework. Regulators should also prioritize the implementation of supportive policies that facilitate innovation for businesses. Moreover, investors can apply innovation metrics to evaluate the investment value of a company. Research purpose: This study seeks to conduct a thorough investigation into the direct influence of financial resilience on firm survival, while also analysing the mediating role of innovation in this relationship. Research motivation: Firms have been confronted with a myriad of challenges during COVID-19, particularly in terms of financial viability. Scholars and stakeholders have increasingly recognized the paramount importance of financial resilience in ensuring firms’ survival. In the contemporary era marked by incessant transformations, innovation has emerged as an equally critical determinant of firms’ operational efficiency. Research design, approach, and method: To investigate the impact of financial resilience on firm survival and the mediating role of innovation in this relationship, this research integrates data from two sources: the World Bank Enterprise Survey (WBES) and the World Bank COVID-19 Enterprise Follow-up Surveys (CEFS). The World Bank Enterprise Survey (WBES) provides comprehensive information on the business environment in the 2005–2023 period, while the COVID-19 Enterprise Follow-up Surveys (CEFS) focuses on the impact of the COVID-19 pandemic through 2020 to 2022. The research model was built according to Özşuca (2023), Khan et al. (2022). Main findings: Using a sample comprising 58,484 companies spanning 43 nations during the timeframe from 2020 to 2022, our results first show that financial resilience has a positive influence on firm survival. Secondly, our research presents the findings related to the mediating role of innovation in the association between financial resilience and firm survival. Specifically, we observe that financial resilience contributes to increasing innovation activities, which, in turn, innovation impacts positively on firm survival. Practical/managerial implications: These results imply financial resilience should be prioritized by managers in constructing adaptable and resilient financial systems of a firm with effective risk management while regulators should adopt flexible credit policies and investors can consider integrating financial factors into their investment analysis strategies to anticipate business potential. It is also important to consider innovation factors in the process of building an enterprise’s operational framework. Regulators should also prioritize the implementation of supportive policies that facilitate innovation for businesses. Moreover, investors can apply innovation metrics to evaluate the investment value of a company.