Corporate Financial Resilience Under Incomplete Markets: A Theoretical Framework for Derivative-Constrained Emerging Markets

This paper develops a theoretical framework for corporate financial resilience under incomplete-market conditions, in which firm-specific equity derivatives are structurally unavailable or only weakly developed. Using the Romanian capital market and the Bucharest Stock Exchange (BSE) as a focal context rather than as the paper’s sole relevance, the study links Tobin’s q, liquidity policy, capital structure, ESG governance, and the domestic quasi-risk-free benchmark (RfROM) to explain how firms may partly support financial flexibility when direct hedging instruments are missing. This is a conceptual framework paper: it does not provide empirical tests or validated firm-level results but instead formulates empirically testable propositions (P1–P4) and a future empirical research agenda. Building on selective hedging theory, Tobin’s q investment theory ESG finance and organisational resilience research, the framework identifies six assumptions of the classical model that are violated and four limitations affecting q measurement on the BSE. Within thin and illiquid markets, Tobin’s q is treated as a noisy, imperfect valuation signal rather than as a precise decision threshold. The paper contributes by delimiting the scope conditions under which classical q-based and selective-hedging assumptions weaken in derivative-constrained markets by reframing financial flexibility as a conditional resilience mechanism rather than a hedge substitute and by specifying falsifiable propositions for future empirical testing in the Romanian capital-market context.