Stakeholder pressure and innovation capacity of SMEs in the COVID-19 pandemic: Mediating and multigroup analysis.

ABSTRACT

During environmental crises, it has always been particularly interesting to investigate how companies, specifically small- and mid-sized enterprises (SMEs), find solutions to survive and learn how to act in adverse situations. We conducted our study during the current coronavirus pandemic to analyse how stakeholder pressure affects both the innovation capabilities of SMEs and their firm performance. On the one hand, we examine whether the market and financial performance are better in the presence of less stakeholder pressure. On the other hand, we analyse whether SMEs implement internal mechanisms that enhance their innovation capacity to solve external problems caused by greater stakeholder pressure, which in turn affects firm performance. Our main findings show that during the pandemic, stakeholder pressure is related to the innovative capacity of SMEs; therefore, the higher the pressure, the more important the innovative response of SMEs. However, with higher pressure, the company's performance would be directly reduced in the short term, as the conditions set would be more unfavourable. Innovation capacity also plays a mediating role in preventing poor business performance because of increased stakeholder pressure. Owing to the importance of the chief executive officer (CEO) in SMEs, we test, through multigroup analysis, the differences based on the CEO's educational level. For example, commitment to innovation in SMEs may be more important for managers with higher education. Finally, our findings show how managers can learn to face new challenges in unfavourable environments.