The role of firm innovativeness in the time of Covid-19 crisis: Evidence from Chinese manufacturing firms

ABSTRACT

Can being innovative help firms to shield themselves from the detrimental effects of a crisis? This study employed a mixed-methods approach using empirical analysis based on firm-level secondary data of China’s manufacturing sector and multi-case analysis to provide evidence on whether and how innovativeness could help businesses to survive the Covid-19 crisis and thrive afterward. We find that innovativeness empowers firms to withstand the negative financial consequences of the crisis. The first quarter 2020 analysis based on a sample of 606 manufacturing firms reveal that innovative firms appear more efficient and profitable and have significantly higher chances of survival than less innovative firms. Furthermore, the second-quarter results based on a sample of 582 firms show that innovative firms exhibit higher operating efficiency and a greater probability of survival relative to others. The results remain consistent even after controlling for common firm characteristics and sector fixed effects. From additional analyses, we further find that the innovativeness-performance association is even stronger than the one found during pre-crisis periods, suggesting that a firm’s innovation capabilities have greater utility in the rapidly changing situation rather than a stable environment. The paper contributes to knowledge that will be of use to managers, researchers, and policymakers.

KEYWORDS:

• Covid-19
• innovativeness
• R&D
• manufacturing industry
• bankruptcy risk

JEL CODES:

• L25
• L60
• M10
• O32
• O33

Acknowledgements

The author gratefully acknowledges the intellectual and material contributions of the Chinese Academy of Sciences, China and the World Academy of Sciences, Italy (CAS-TWAS President’s Fellowship series no. 2016-147). I am very grateful to Professor Jingui Xie for his helpful comments on an earlier version of this paper. I would like to acknowledge suggestions provided by Professor Elena Cefis, Professor Francesco Quatraro, Professor Martin Andersson, and other participants of the 17th European Network on the Economics of the Firm (ENEF) Workshop on Innovation and Firms within the New Industrial Paradigm of the Digital Transformation. I also thank two anonymous reviewers and the editor for critically reading the manuscript and suggesting substantial improvements.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Haji Suleman Ali

Mr. Haji Suleman Ali is a Lecturer of finance in the Department of Management Sciences COMSATS University Islamabad, Vehari, Pakistan. He has also worked as a research associate in the Center for Digital Transformation, School of Management, Technical University of Munich (TUM), Germany. Suleman’s research areas include operations management, business value of information technology, business analytics, strategic and innovative uses of new digital technologies, and corporate finance. His current research focuses on analysing the effects of new technologies (such as blockchain, 3D printing, and robotics) on businesses. Event study method is his primary tool for analytical and research work. At present, he is finishing his Ph.D. dissertation at the School of Management, University of Science and Technology of China. He has been awarded the distinction in Ph.D., CAS-TWAS President's Ph.D. Fellowship from the Chinese Academy of Sciences (CAS), China and The World Academy of Sciences (TWAS), Italy