Examining the impact of adaptive financial strategies on SME performance: insights from the COVID-19 pandemic

Abstract

Smaller businesses are notably sensitive to fluctuations in their external operating environment. Characterized as a “liability of volatility,” this inherent susceptibility can result in a lack of adequate resources, including financial reserves, to withstand unforeseen challenges. However, small businesses possess the capability to respond with greater flexibility, as their leaders make resource allocation decisions tailored to their specific needs. In this study, we delve into the role of the crisis entrepreneur and examine the financial actions they take while navigating the intricate landscape shaped by the global COVID-19 Pandemic (Pandemic). Our exploration is centered on the Canadian context, drawing insights from a dataset comprising 530 entrepreneurs. Our findings underscore the pivotal role of financial actions taken by small businesses in response to crises. These measures emerged as primary drivers, propelling these businesses toward the adoption of innovative strategic directions. Furthermore, our study demonstrates that these strategic shifts significantly increased the likelihood of these enterprises warding off exit and achieving heightened revenue growth in the post-Pandemic period.