Innovation in the face of crisis: how substantive innovation helped firms thrive during COVID-19

Purpose This study investigates how different innovation strategies influenced firms’ stock market performance during the COVID-19 crisis. It examines whether substantive innovation, compared to strategic innovation, enhanced firms’ resilience and how this effect varied across technology intensity and ownership structure. Design/methodology/approach Using a dataset of Chinese-listed firms, we categorise innovation into substantive (invention patents) and strategic (utility and design patents) and apply the Event Study Method to assess stock performance before, during and after the COVID-19 crisis. We further explore firm heterogeneity across state-owned and private enterprises as well as high-tech and non-high-tech sectors. Findings Substantive innovation significantly improved stock performance during the pandemic, particularly in non-high-tech firms and state-owned enterprises (SOEs). However, this advantage did not persist post-pandemic; firms with high levels of substantive innovation faced greater short-term risks during recovery. Strategic innovation, by contrast, showed limited impact in either period. Research limitations/implications The study focuses on Chinese-listed firms, which may limit generalisability. Future research could extend the framework to other economies or explore qualitative aspects of innovation decisions during crises. Practical implications Firms and policymakers should prioritise substantive innovation for resilience during crises but recognise its potential downside in post-crisis periods. Investors may also consider innovation strategies as indicators of firm stability under external shocks. Originality/value This study offers novel insights into the time-varying impact of innovation types on financial performance and highlights the importance of aligning innovation strategies with firm characteristics and macroeconomic conditions.