Firm performance in times of crisis: does an innovative business strategy matter?
DOI: https://doi.org/10.3846/jbem.2025.24216Abstract
This study examines whether a firm’s business strategy – innovative vs. conservative – determines the extent to which a crisis impacts its performance. To explore this, the study calculates business strategy scores as a composite measure of six variables, where a high (low) score indicates an innovative/prospective (conservative/defensive) strategy. The COVID-19 pandemic (2020–2021) serves as the crisis context for the analysis. Using a sample of 7,143 firm-year observations in the U.S., the study finds that while the sample firms experienced a decline in their performance during the COVID-19 crisis period compared to the pre-crisis level (2018–2019), the decline was less pronounced for firms following innovative strategies. This finding suggests that a firm’s business strategy is a crucial determinant of its performance during a crisis. The study enhances theoretical understanding that business strategy is particularly important when operating conditions are abnormal.
Keywords:
business strategy, innovation, prospectors, defenders, COVID-19, firm performanceHow to Cite
Share
License
Copyright (c) 2025 The Author(s). Published by Vilnius Gediminas Technical University.
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
Ahmad, M., Bashir, R., & Waqas, H. (2022). Working capital management and firm performance: are their effects same in COVID-19 compared to financial crisis 2008? Cogent Economics & Finance, 10(1), Article 2101224. https://doi.org/10.1080/23322039.2022.2101224
Allaire, Y., & Firsirotu, M. E. (1989). Coping with strategic uncertainty. MIT Sloan Management Review, 30(3), Article 7.
Amimakmur, S. A., Saifi, M., Damayanti, C. R., & Hutahayan, B. (2024). Assessing the moderating effect of IT innovation on the interplay among company size, financial performance, and company value. Journal of Open Innovation: Technology, Market, and Complexity, 10(3), Article 100318. https://doi.org/10.1016/j.joitmc.2024.100318
Arora, A., Belenzon, S., & Sheer, L. (2021). Matching patents to compustat firms, 1980–2015: Dynamic reassignment, name changes, and ownership structures. Research Policy, 50(5), Article 104217. https://doi.org/10.1016/j.respol.2021.104217
Bentley, K. A., Omer, T. C., & Sharp, N. Y. (2013). Business strategy, financial reporting irregularities, and audit effort. Contemporary Accounting Research, 30(2), Article 780–817. https://doi.org/10.1111/j.1911-3846.2012.01174.x
Biswas, S. (2022). Can R&D investment reduce the impact of COVID‐19 on firm performance? – Evidence from India. Journal of Public Affairs, 22, 1–13. https://doi.org/10.1002/pa.2773
Blumentritt, T., & Danis, W. M. (2006). Business strategy types and innovative practices. Journal of Managerial Issues, 18(2), 274–291. https://www.jstor.org/stable/40604538
Chen, Y., Eshleman, J. D., & Soileau, J. S. (2017). Business strategy and auditor reporting. Auditing: A Journal of Practice & Theory, 36(2), 63–86. https://doi.org/10.2308/ajpt-51574
Cui, L., Kent, P., Kim, S., & Li, S. (2021). Accounting conservatism and firm performance during the COVID‐19 pandemic. Accounting & Finance, 61(4), 5543–5579. https://doi.org/10.1111/acfi.12767
Dovbischuk, I. (2022). Innovation-oriented dynamic capabilities of logistics service providers, dynamic resilience and firm performance during the COVID-19 pandemic. The International Journal of Logistics Management, 33(2), 499–519. https://doi.org/10.1108/IJLM-01-2021-0059
Dreyer, B., & Grønhaug, K. (2012). Coping with unpredictable supply: The role of flexibility and adaptation. European Journal of Marketing, 46(10), 1268–1282. https://doi.org/10.1108/03090561211248026
El Chaarani, H., Vrontis, P. D., El Nemar, S., & El Abiad, Z. (2022). The impact of strategic competitive innovation on the financial performance of SMEs during COVID-19 pandemic period. Competitiveness Review: An International Business Journal, 32(3), 282–301. https://doi.org/10.1108/CR-02-2021-0024
Erdem, O. (2020). Freedom and stock market performance during Covid-19 outbreak. Finance Research Letters, 36, Article 101671. https://doi.org/10.1016/j.frl.2020.101671
Fama, E. F., & French, K. R. (1992). The cross‐section of expected stock returns. The Journal of Finance, 47(2), 427–465. https://doi.org/10.1111/j.1540-6261.1992.tb04398.x
Habib, A., & Hasan, M. M. (2017). Business strategy, overvalued equities, and stock price crash risk. Research in International Business and Finance, 39, 389–405. https://doi.org/10.1016/j.ribaf.2016.09.011
Habib, A., & Hasan, M. M. (2021). Business strategy and labor investment efficiency. International Review of Finance, 21(1), 58–96. https://doi.org/10.1111/irfi.12254
Hambrick, D. (2003). On the staying power of miles and snow’s defenders, analyzers, and prospectors. Academy of Management Executive, 17(4), 115–118. https://doi.org/10.5465/ame.2003.11851883
Hambrick, D. C. (1983). Some tests of the effectiveness and functional attributes of Miles and Snow’s strategic types. Academy of Management Journal, 26(1), 5–26. https://doi.org/10.5465/256132
Haque, M. R. (2024). From disruption to recovery: A multi-country analysis of tourism and hospitality firms’ performance post-COVID-19. Tourism Recreation Research, 1–12. https://doi.org/10.1080/02508281.2024.2372969
Haque, M. R., Choi, B., Lee, D., & Wright, S. (2022). Insider vs. outsider CEO and firm performance: Evidence from the Covid-19 pandemic. Finance Research Letters, 47, Article 102609. https://doi.org/10.1016/j.frl.2021.102609
Haque, M. R., Rahman, M. L., & Mamun, M. A. A. (2024). Is one head better than two? Dual Leadership and firm performance during the COVID‐19 crisis. Abacus, 60(2), 236–271. https://doi.org/10.1111/abac.12319
Higgins, D., Omer, T. C., & Phillips, J. D. (2015). The influence of a firm’s business strategy on its tax aggressiveness. Contemporary Accounting Research, 32(2), 674–702. https://doi.org/10.1111/1911-3846.12087
Homroy, S., & Slechten, A. (2019). Do board expertise and networked boards affect environmental performance? Journal of Business Ethics, 158, 269–292. https://doi.org/10.1007/s10551-017-3769-y
Hu, S., & Zhang, Y. (2021). COVID-19 pandemic and firm performance: Cross-country evidence. International Review of Economics & Finance, 74, 365–372. https://doi.org/10.1016/j.iref.2021.03.016
Jutidharabongse, J., Imjai, N., Pantaruk, S., Surbakti, L. P., & Aujirapongpan, S. (2024). Exploring the effect of management control systems on dynamic capabilities and sustainability performance: The role of open innovation strategy amidst COVID-19. Journal of Open Innovation: Technology, Market, and Complexity, 10(1), Article 100224. https://doi.org/10.1016/j.joitmc.2024.100224
Ketchen Jr, D. J., Thomas, J. B., & McDaniel Jr, R. R. (1996). Process, content and context: Synergistic effects on organizational performance. Journal of Management, 22(2), 231–257. https://doi.org/10.1177/014920639602200203
Kong, D., Yang, X., Liu, C., & Yang, W. (2020). Business strategy and firm efforts on environmental protection: Evidence from China. Business Strategy and the Environment, 29(2), 445–464. https://doi.org/10.1002/bse.2376
Lee, C. C., Lee, C. C., & Wu, Y. (2023). The impact of COVID‐19 pandemic on hospitality stock returns in China. International Journal of Finance & Economics, 28(2), 1787–1800. https://doi.org/10.1002/ijfe.2508
Lee, F.-H., Lee, T.-Z., & Wu, W.-Y. (2010). The relationship between human resource management practices, business strategy and firm performance: Evidence from steel industry in Taiwan. The International Journal of Human Resource Management, 21(9), 1351–1372. https://doi.org/10.1080/09585192.2010.488428
Liu, H., Yi, X., & Yin, L. (2021). The impact of operating flexibility on firms’ performance during the COVID-19 outbreak: Evidence from China. Finance Research Letters, 38, Article 101808. https://doi.org/10.1016/j.frl.2020.101808
Mansour, M., Saleh, M. W., Marashdeh, Z., Marei, A., Alkhodary, D., Al-Nohood, S., & Lutfi, A. (2024). Eco-innovation and financial performance nexus: Does company size matter? Journal of Open Innovation: Technology, Market, and Complexity, 10(1), Article 100244. https://doi.org/10.1016/j.joitmc.2024.100244
March, J. G. (1991). Exploration and exploitation in organizational learning. Organization Science, 2(1), 71–87. https://doi.org/10.1287/orsc.2.1.71
Mazur, M., Dang, M., & Vega, M. (2021). COVID-19 and the march 2020 stock market crash. Evidence from S&P1500. Finance Research Letters, 38, Article 101690. https://doi.org/10.1016/j.frl.2020.101690
Menguc, B., & Auh, S. (2008). The asymmetric moderating role of market orientation on the ambidexterity–firm performance relationship for prospectors and defenders. Industrial Marketing Management, 37(4), 455–470. https://doi.org/10.1016/j.indmarman.2007.05.002
Miles, R. E., & Snow, C. C. (1978). Organizational strategy, structure, and process. McGraw-Hill. https://doi.org/10.2307/257544
Miles, R. E., & Snow, C. C. (2003). Organizational strategy, structure, and process. Stanford University Press. https://doi.org/10.1515/9780804767170
Miroshnychenko, I., Vocalelli, G., De Massis, A., Grassi, S., & Ravazzolo, F. (2024). The COVID-19 pandemic and family business performance. Small Business Economics, 62(1), 213–241. https://doi.org/10.1007/s11187-023-00766-2
Navissi, F., Sridharan, V., Khedmati, M., Lim, E. K., & Evdokimov, E. (2017). Business strategy, over-(under-) investment, and managerial compensation. Journal of Management Accounting Research, 29(2), 63–86. https://doi.org/10.2308/jmar-51537
Ngo, Q.-H. (2023). The effectiveness of strategic alignment between open innovation and generic strategies: Empirical evidence from restaurant SMEs in Vietnam. Journal of Open Innovation: Technology, Market, and Complexity, 9(1), Article 100016. https://doi.org/10.1016/j.joitmc.2023.100016
Popescu, A. I. (2021). Business formation during the coronavirus pandemic: A regional analysis considering knowledge and technological intensity. Economic Computation & Economic Cybernetics Studies & Research, 55(4). https://doi.org/10.24818/18423264/55.4.21.13
Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. The Free Press.
Schuler, R. S., & Jackson, S. E. (1987). Linking competitive strategies with human resource management practices. Academy of Management Perspectives, 1(3), 207–219. https://doi.org/10.5465/ame.1987.4275740
Shen, H., Fu, M., Pan, H., Yu, Z., & Chen, Y. (2020). The impact of the COVID-19 pandemic on firm performance. Emerging Markets Finance and Trade, 56(10), 2213–2230. https://doi.org/10.1080/1540496X.2020.1785863
Snow, C. C., & Hambrick, D. C. (1980). Measuring organizational strategies: Some theoretical and methodological problems. Academy of Management Review, 5(4), 527–538. https://doi.org/10.5465/amr.1980.4288955
Valdez-Juárez, L. E., Castillo-Vergara, M., & Ramos-Escobar, E. A. (2022). Innovative business strategies in the face of COVID-19: An approach to open innovation of SMEs in the Sonora Region of Mexico. Journal of Open Innovation: Technology, Market, and Complexity, 8(1), 47. https://doi.org/10.3390/joitmc8010047
Wade, J. B., O’Reilly III, C. A., & Pollock, T. G. (2006). Overpaid CEOs and underpaid managers: Fairness and executive compensation. Organization Science, 17(5), 527–544. https://doi.org/10.1287/orsc.1060.0204
Wang, G. Y. (2010). The impacts of free cash flows and agency costs on firm performance. Journal of Service Science and Management, 3(04), 408–418. https://doi.org/10.4236/jssm.2010.34047
Watkins, K., Spronk, J., & Van Dijk, D. (2009). Corporate governance and performance during normal and crisis periods: evidence from an emerging market perspective. International Journal of Corporate Governance, 1(4), 382–399. https://doi.org/10.1504/IJCG.2009.032726
Yuan, Y., Lu, L. Y., Tian, G., & Yu, Y. (2020). Business strategy and corporate social responsibility. Journal of Business Ethics, 162(2), 359–377. https://doi.org/10.1007/s10551-018-3952-9
View article in other formats
CrossMark check
Published
Issue
Section
Copyright
Copyright (c) 2025 The Author(s). Published by Vilnius Gediminas Technical University.
License
This work is licensed under a Creative Commons Attribution 4.0 International License.