The mediating effect of innovation during the COVID-19 pandemic on Ibero-American MSMEs

Purpose Our study examines how a comprehensive innovation framework (including product, process, managerial, and marketing innovation) mediates the impact of COVID-19 shocks on the financial and operational performance of MSMEs in Ibero-America. /methodology/approach. We conducted a cross-sectional online survey of 8,456 MSMEs across 14 Ibero-American countries. Through the application of a survey, the respondents provided data on revenue, profitability, productivity, liquidity, and leverage. Pandemic impact was assessed through disruptions to customers, suppliers, operations, and strategic planning. Four innovation dimensions served as mediators, with firm size and family ownership included as control variables. Partial least squares structural equation modeling (PLS-SEM) with bootstrapping was used to estimate direct and indirect effects. The results revealed that the impact of the COVID-19 pandemic negatively affected the performance levels of the organizations studied. Similarly, it stimulated innovation, which consequently positively impacted organizational performance. Finally, company size contributed positively to performance, while family ownership had a negative effect. This large-scale quantitative study is among the first to investigate multiple innovation types as mediators between complex COVID-19 shocks and multi-dimensional performance in resource-constrained firms operating within emerging institutional contexts. MSMEs should implement coordinated, multifaceted innovation strategies rather than standalone initiatives to build robust crisis resilience. Policymakers and development agencies should design targeted support programs to strengthen firms’ capacity for diverse innovations, especially for microenterprises and family-controlled businesses with limited resources. By enhancing resilience through innovation, stakeholders can help preserve employment and stabilize local economies. Improved MSME survival supports community welfare, social cohesion, and inclusive recovery during and after systemic crises.