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.