FINANCIAL RESILIENCE AND INNOVATION INVESTMENT IN TIMES OF CRISIS

Abstract

This paper investigates how financial resilience influences the intensity of innovation investment among firms that are already innovative. Using firm-level data for more than 32,000 Croatian enterprises with positive innovation records between 2014 and 2023, we estimate random-effects panel models linking innovation intensity—proxied by intangible asset investment—to liquidity, leverage, and crisis conditions. Results show that both liquidity and leverage positively affect innovation under normal circumstances, reflecting the enabling role of financial depth. During the COVID-19 crisis, however, leverage turned from a facilitator into a constraint, as indebted firms significantly reduced innovation, while liquidity retained its positive but stable influence. These findings contribute to the crisis–innovation literature by showing that liquidity and leverage play asymmetric roles during periods of systemic stress, revealing resilience as a conditional capability shaped not only by access to finance but also by the structure and flexibility of financial resources. The study provides new micro-level evidence from a small open economy and highlights policy implications for promoting balanced, crisis resilient financing systems.