Corporate Financial Performance vs. Corporate Sustainability Performance, between Earnings Management and Process Improvement

Abstract

The main objective of the paper is to assess the relationship between firms’ financial resilience and firms’ strategic sustainable development vulnerabilities, in the context of implications of the COVID-19 pandemic on firms’ business environment. Background: The last decade has emphasized an increase in business models’ uncertainty and risk exposure. The COVID-19 pandemic has highlighted the awareness in this direction, especially in a changing context, that looks more and more for corporate sector operations’ orientation towards sustainable development. The question we would address in this paper is how the nexus between corporate sustainability performance and corporate financial resilience is affected by management decision through process improvements, product quality assurance, or managers’ preference to improve corporate financials by earnings management practice instead, especially in the context of specific corporate financial risk management. Methods: The data are extracted from the Refinitiv database. The sample is limited to 275 European Union listed firms, selected based on data availability. The empirical analysis consists of an OLS multiple regression. For robustness purposes, a quantile regression model is estimated as well. Results: The approach considers implications of the pandemic on firms’ business environment and earnings management accounting based policies and strategies as well. The result suggests that alignment to sustainability frameworks lead to the deterioration of firms’ financial resilience. Similar results show the negative impact of firms’ financial vulnerability (credit default risk) on firms’ financial resilience. Instead, the risk of bankruptcy, firms’ liquidity, or high product quality and business process improvement determine the positive impact on firms’ financial resilience. Conclusions: The study highlights several insights both for management and policy makers. First, the results underline the relevance of management’s choice for earnings management on ensuring firms’ financial resilience, which ask for better corporate governance and high-quality and effective institutional regulatory and enforcement mechanisms. Second, the paper brings evidence on the impact of the COVID-19 pandemic on firms’ financial sustainable development. Third, the study emphasizes the importance of the efforts of corporate process improvements and high-quality products on generating value-add, by looking on the relevance of those drivers on the level of corporate economic value-add, a measure that limits the impact of discretionary management accrual-based accounting choices on our discussion.

1. Introduction

The crisis caused by the emergence of the new coronavirus and the measures im-posed to limit its spread have called into question the ability of companies to grow, ensure sustainability, and demonstrate predictability in a disruptive, uncertain environment.

Hence, what makes a company resilient in the face of shifting “normal” business conditions? Due to the global spread of COVID-19 and the growing impact on the economy, many companies have experienced operational disruptions and significant changes in customer demand and behavior, events that have highlighted the need for companies to be prepared for unforeseen circumstances, the “new normal” being influenced by a number of separate but related issues created by chaos and change [1]. Thus, due to the pandemic context, the number of companies that have closed has increased; some faced financial and organizing difficulties or were forced to send their human resource into unemployment or implement telework as an opportunity to continue their activity somehow [2]. In this sense, in order to face the challenges and combat the effects of the pandemic, companies implemented fast “survival” solutions. But are these measures sustainable in time? Are companies prepared and capable of moving from fragile to resilient from a financial point of view after the pandemic period?

Our paper wants to emphasize that it is necessary to analyze the factors that amplify or reduce the ability of companies to recover financially in a sustainable manner after the pandemic period, by reaching organizational resilience. From this perspective, as noted by Bahmra [3], the companies had to gain new organizational capabilities [4,5] aimed to allow them to anticipate, cope, and adapt to a changing economic environment, characterized by a VUCA-BANI framework [6], that are reflected along robust and mature processes, systems, and tools, supported by dynamic capabilities addressing the changing environment [7], with a clear corporate purpose describing an organizational-resilience-oriented strategic management [8].

The purpose of this study is limited to the financial dimension of the organizational resilience, which represents an essential component of companies’ corporate organizational resilience by strengthening the function of risk management through digital financial, innovation, liquidity planning, debt management, customer management, mitigation of supply chain disruptions, cyber-threats addressing, social capital development, business continuity plan implementation and stress testing, and regular review of going concern, or through a CFO strategic approach of business leadership [9]. In those circumstances, the corporate financing policy mix firms adopt become essential in times of crisis, through the cost of capital component, that showed higher resilience in the case of listed companies [10], operational [11] or cash-flow management effectiveness and efficiency [12], the quality of financial reporting estimates, described during COVID-19 pandemic by numerous management guidance withdrawals [13], or supply chains disruptions with implications on the revenue function efficacy [14], all with a direct impact on companies’ financial performance [15,16,17], and corporate financial distress [6,18,19], despite the support provided by governments via different public policies aimed at supporting the economic sector [20], both linked to the industry-specific exposure to COVID-19 pandemic measures [19,21], or national governance quality [22].

As there is lack of literature discussing a robust framework for financial resilience measurement, the researchers have adopted different approaches on operationalizing the concept, mainly by assessing the amplitude of the variation on different financial ratios that relate to companies’ financial distress [23]. We remind the reader of the study of [24] that have addressed four pillars of companies’ long-term financial attractiveness, by measuring the real growth ratio, the companies’ ability to survive with self-financing, the acceptable overall level of risk exposure, and the attractiveness of the earnings risk profile on the market level. Therefore, we consider in this study a residual-income model type to measure for the financial resilience construct, assessing the relation between the variation on corporate economic value-added and different drivers depicted by the recent literature. This way, we focus the attention on the cost-related COVID-19 effects, rather than on the revenue-generation function effectiveness effects, to highlight the relevance of financial statements and the impact of potential earnings management practice [25,26], especially because of the high risk of creative (big-bath) accounting practices present during this crisis period [27,28], as managers tend in such contexts to attribute negative results to COVID-19 pandemic restrictions [29], in the absence of proper corporate governance mechanisms [28].

The recent literature emphasizes that addressing the topic of financial resilience cannot be disconnected from companies’ strategic direction of aligning with sustainable development goals by redesigning their business model towards more sustainability and circular economy principles [19,30], with the support of measures of digitalization of companies’ operations [31], processes and tools [32,33], and process improvements [34], that lead to better ambidexterity in organizations in the area of business process management, allowing companies to increase their competitive advantage of coping, anticipating, and adapting to uncertain, volatile, complex, and ambiguous economic environment [35]. Additionally, we subscribe to the need for more structured management practices, representing a relevant channel of ensuring companies’ resilience [36], including through business corporate excellence (e.g., TQM—total quality management, Lean and Agile management, Six Sigma, BPR—business process re-engineering, etc.) that supports, as well transition towards, sustainability business models, processes, systems, technologies, and people. Therefore, the analysis of companies’ financial resilience is highly conditioned by both efforts of corporate sustainable development and continuous (radical) process improvements (innovation, re-engineering, and drift) [37], that can generated a higher cost of capital to pay for more sustainable business operations, especially in industries with high ESG liability risk exposure [21], whereas synergy effects can be identified on the corporate level between the economic, social, and environmental pillars of corporate sustainable development that can lead to positive financial performance effects in the long run [38], with a partial focus on either the social or environmental pillar, depending on the country- or industry-specific characteristics [39].

However, this potential positive outcome on corporate financial performance is highly conditioned by companies’ ability to identify (by adequate market prediction), learn (by the development of effective knowledge creation systems), integrate (by the development of effective knowledge management tools), and coordinate (by proper and continuous monitoring frameworks) new dynamic capabilities, aimed to strengthen the synergy effects between all those pillars along the time and under the shocks administered by the economic environment and provide agile organizational processes, systems, and tools supporting organizational resilience [40]. Those dynamic capabilities are essential to the economics of corporate crisis management, especially in turbulent times, such as the COVID-19 pandemic [41], which can generate a significant competitive advantage for those companies [42], supporting firm-level eco-efficiency, firm-level transformations, supply chain eco-efficiency, or systemic transformations [43], with a special focus on managerial capabilities, systemic view, emerging technologies (including Industry 4.0), business process management, stakeholders engagement, innovation, corporate governance, risk management, human resources management, total quality management, organizational flexibility, or strategic scenario planning [4,7,8,44]. Instead, it is not the purpose of this study to identify the marginal effects of each such dynamic capability on companies’ financial resilience, but just to highlight that the transition towards sustainability and process improvements are behind an overall effect of those dynamic capabilities, most of which represent key success factors for corporate total quality management model implementation [45,46,47].

Currently, there are mixed results related to the relationship between corporate financial performance and corporate sustainability performance [48,49,50,51]. Therefore, this study also comes to address the question of what the nature of the relationship between companies’ financial resilience and the cost of sustainability or the cost business process management and total quality management actually is.

The COVID-19 pandemic crisis has forced companies to learn how to gain cost savings through business process improvements and through a significant redesign of major operational processes and business models. In this sense, we consider that a major topic of interest is represented by the cash flows that have become essential for firms’ resilience plan because they greatly affect the operating activity; thus, optimal cash management is an important factor in order to enhance financial recovery. The central issue firms are facing in these pandemic times is the uncertainty in terms of the business environment, inefficient public policies, and precautionary consumers’ behavior that have drastically reduced the aggregate demand and firms’ revenues with a direct impact on business development. In this context, the focus of our paper is related to:

• the influence of earnings management financial reporting practice on the variation in firms’ economic value added;
• the financial risks firms are dealing with;
• the efforts made in order to achieve sustainability;
• quality management and business process improvements and their impact on firms’ resilience capabilities and the development of new abilities to face future crises.

Our research adds to the growing literature on the effects of COVID-19 on the real economy and highlights several insights both for management and policy makers. First, the results provide evidence on the impact of the COVID-19 pandemic crisis on companies’ ability to create value for shareholders, considering for the purpose of analysis the measure of economic value-add. Second, we underline that this study consists of a cross-country empirical study, which adds to the literature addressing the implications of the COVID-19 pandemic on the process of shareholders’ value creation, that, as per our knowledge, is the first one, as the rest of the studies are scattered and limited to one country, especially India. Third, the paper brings evidence on the relevance of the transition towards sustainable business models in times of crisis, such as the COVID-19 pandemic period. Forth, the study emphasizes the relevance of process orientation on ensuring corporate financial resilience and the moderating role of the total quality management approach and the related process improvement direction on the process of shareholders’ value creation. Fifth, we come with empirical evidence on the importance of earnings management on ensuring corporate financial resilience, a topic which is insufficiently addressed so far in the literature, concerning the period of the COVID-19 pandemic.

This study is structured in five sections. Thus, if this first section highlights the preliminary aspects of the undertaken scientific approach, the second section finds its correspondent in the analysis of the literature. The next two sections present the research methodology, respectively, the results obtained and a discussion on them. Finally, the fifth section draws the final conclusions of our research.

2. Literature Review

Over time, the literature evidenced that A company’s performance does not depend only on major corporate scenarios, being influenced also by various industry, macroeconomic, and global events [52]. In this sense, it seems that THE COVID-19 pandemic falls into this last category, namely, a major disruptive event with a severe impact both on the economy and stock markets [53]. Hence, COVID-19 pandemic outbreaks and the measures imposed in order to limit its spread decreased firms’ operating performance [54,55], causing considerable fluctuations in the equity, gold, energy, and cryptocurrency markets [56,57]. Baker et al. [58] also highlighted in their research the negative impact of COVID-19 on the economy, specifying that no prior infectious disease outbreak, including the Spanish Flu, had affected the stock market as forcefully as the novel coronavirus pandemic.

Starting as a health crisis, the novel coronavirus disease eventually affected, to a greater or lesser extent, all areas of activity, generating, rapidly, a global financial crisis. On a macroeconomic level, there are several literature review studies that have underlined the negative socioeconomic outcomes generated by COVID-19 pandemic restrictions.

In this context, companies have become extremely fragile and have had to draw up recovery plans to overcome difficult moments and achieve, in time, sustainable development even in pandemic times. But this is not an easy process. Ref. [59] highlighted that, in times marked by uncertainty, the level of stock market liquidity, increasing overall risk, is influenced by non-fundamental pandemic news propagated into the media. Moreover, the authors stated that COVID-19 shocks act on the investors’ pessimism, which also impacts the level of cash flows and volatility.

On the one hand, researchers like [60] state that the resilience to pandemic shocks is driven by both internally generated and externally acquired intangible assets, considering that this category of assets provides competitive advantages and enhance firms’ productivity and efficiency. Ref. [61] also provides the same evidence, highlighting that firms with top brands experience higher stock returns, lower systematic risk, and lower idiosyncratic risk in the COVID-19 crash than other firms.

In the next sub-sections, we summarize some of the main empirical studies revealing the effects of COVID-19 pandemic restrictions on the economy, on a macroeconomic and company level. There are studies (still insufficient) addressing the financial implications of COVID-19 pandemic restrictions at the corporate level, providing early evidence mainly limited to single countries. As noted by the literature, there are significant gaps across countries and industries on the impact made by the COVID-19 pandemic restrictions on the economy, highly conditioned by the national governance and fiscal policy [62] with a different outcome of the public policies attained for the mitigation of the expected negative effects [63]. With these considerations, we consider more relevant for this research the focus on studies providing insights at the international level that captures a better overall image of the economics of COVID-19 pandemics, including the effects on corporate financial performance.

2.1. Corporate Resilience during Crisis Periods

It seems that the novel coronavirus disease and the social measures imposed negatively impacted firms’ performance, and companies, in order to overcome the crisis, must rethink their operational processes and business models; namely, business processes need to be standardized, streamlined, and automated where appropriate to reduce human dependencies [64]. In this context, business process management plays an important role in allowing companies to rapidly react to contingencies and challenging issues and risks.

Resilience thus becomes a desideratum for the vast majority of companies in these pandemic times. But what does resilience mean and how can it be achieved, knowing the crucial role that it plays in the survival of organizations [65]? Some authors [66] believe that resilience means the ability for enterprises to return to their pre-crisis state, while others consider that “resilience refers to the ability of an organization to carry out its functions and return to a stable state after major disturbance or stress by considering the before and during” [67,68]. We believe that resilience means the company’s ability to return to its stable state with lessons learned and business models created to face other crisis like the one generated by the novel coronavirus with less impact on performance. This outbreak showed that companies must be flexible and creative in mitigating the negative effects and that adaptability to the new normal is the success key in overcoming crises, even after a pandemic context.

In a volatile environment, resilience represents an increasingly essential prerequisite for corporate performance. According to [69], financial resilience represents the ability of a company to withstand events that affect their capital structure, liquidity, revenue, and assets, in the absence of which operational and reputational resilience cannot be maintained. But empirical evidence highlights that resilience and sustainability are correlated and influence each other greatly [70], since sustainability can enhance the resilience of a company and support its growth [71]. In this sense, the research conducted by [66] highlights the positive impact that resilience has on sustainability, showing that a sustainable and resilient company recovers from the pandemic crisis without compromising its sustainable value.

The pandemic context highlighted that mankind must be prepared to reset the global economies in a second and to adapt its behavior when it is required to do so in order to face the conditions of the “new normal”. Moreover, the reaction to the threats of the novel coronavirus disease showed that resilient systems are only as strong as their weakest links [72], so managers must improve their companies’ resilience to systemic shocks, with a focus on the SMEs which are perceived to have a high risk of financial distress in the short run [73].

In this context, the following questions arise: how much resilience must be created, and to what extent? In this sense, the main objective of our paper is to assess the relation between firms’ financial resilience and firms’ strategic sustainable development vulnerabilities, in the context of the implications of the COVID-19 pandemic on firms’ business environment.

2.2. COVID-19 Pandemic Crisis and Macroeconomic Effects

Brodeur et al. [74] look at the changes determined by the COVID-19 pandemic on the labor market, with a focus on the orientation of jobs’ design for remote work, or the effects on employees’ mental health and their impact on the higher overload of the health services system. Instead, the same study highlights the positive implications on the environmental protection efforts, as the economic activity has been restricted during the pandemic period.

Anyfantaki et al. [75] and Padhan and Prabheesh [76] or Rathnayaka et al. [77] limit their study on the macroeconomic effects of the COVID-19 pandemic, making reference to three fundamental channels of influence that governments are expected to use on supporting the national economy resilience, aiming for public policy: i. supply-side effects (labor productivity, labor unemployment, labor shortages, and supply chain shortages); ii. demand-side effects (monetary policy—rate of interest/exchange rates, fiscal policy—public and private investment support, aggregate consumption, and savings curve); iii. financial systems effects (adequate and effective financial systems that reduce, or at least keep at an acceptable level, financial assets quality).

However, the COVID-19 pandemic restrictions generated differently negative effects on corporate performance; looking at a sectorial analysis, either we refer to stock markets’ volatility [61,78], or aggregate sectorial value added [30,59,79], showing significant differences between sectors such as the manufacturing or energy sector vs. ICT sectors, because of both the supply and demand changes.

All those considerations are at the basis of material and labor cost increases through different mechanisms, related to the specific country or industry characteristics, with indirect negative implications on companies’ financial resilience, as the public policies have proven to be insufficient to compensate for the negative effects generated by the COVID-19 pandemic on the corporate financial performance, but just mitigate them [63,80]. Therefore, the country effects have been confirmed to be significant in empirical cross-country studies, showing that the negative economic effects differ between countries, mainly in relation with the efficiency of governments’ public policies and national governance qua-lity, with a focus on the actions of national and regional coordination, emphasizing the financial constraints emerging economies were facing during the COVID-19 pandemic crisis period [58,81,82,83,84].

2.3. Corporate Financial Resilience during COVID-19 Pandemic

The negative effects of the COVID-19 pandemic restrictions on the economy have been confirmed along the literature on every level of analysis, including on the level of corporate financial performance. So far, there is little international evidence on the impact on corporate financial performance [85].

Basing their research design on the crisis theory and stakeholders’ theory, ref. [86] confirms the negative impact of COVID-19 on companies’ profitability measured by ROA, ROE, and EPS, looking at 19 industries, for the period of 2016–2021, to provide a compa-rative analysis on the pre- and during-COVID-19 pandemic period figures. Instead, their study emphasizes the positive moderating and mediating effects of ESG corporate performance, showing the achievement of sustainable firms to limit those COVID-19 pandemic effects. However, those results are inconclusive on the relevance of companies’ ESG orientation, as the study does not control for the marginal effect excluding the costs inquired for achieving the ESG corporate performance.

Starting from the World Bank Enterprise Survey (WBES) dataset and looking only for emerging economies, ref. [12] has focused its empirical analysis on the financing constraints companies have been faced with during the COVID-19 pandemic, showing that companies disclosing higher leverage before the pandemic crisis were more likely to be faced with financing and liquidity issues, as banks have limited their access to regular financing solutions. Therefore, companies’ financial resilience was extremely low in the case of those firms, with implications on the capacity to recover from the external shocks, such as ensuring the minimum cash flow to finance the regular operations. In those circumstances, based on the pecking order theory, companies have to choose alternative financing sources, with the equity issuance solution as a last option. However, only 34% of the companies analyzed have chosen the solution of issuing new equity financial instruments, which shows that companies tried to solve their liquidity issues with other financing solutions. Despite subsidies received from governments, those firms had to cope with this challenging period, as bank-credit constraints have amplified the liquidity shortages of those firms, leading to liquidity issues along the entire finance supply chain of companies analyzed, as one of their alternative sources to bank credits was trade credit and the delay on suppliers’ payments. In the same vein, ref. [87] argues that the COVID-19 pandemic causes lower corporate liquidity with a negative impact on firms’ performance in the long run, and asks for financial support from governments to help companies to survive the shock determined by the COVID-19 pandemic crisis.

A similar research design was used by ref. [20], which used the WBES dataset for 13 countries, looking for both companies’ characteristics, financial system constraints, industry-specific demand curve, and subsidies and government support. Based on the pecking order theory, the static trade-off theory, and the agency theory, the author has found that the equity financing solution has the highest marginal effect on corporate financial performance. Despite the negative impact of equity financing solutions on the corporate financial performance, the author emphasizes firms had to choose this solution as, during crisis periods, the corporate financial distress costs are much higher and exceed the savings that companies benefit from, from a higher leverage ratio determined by the interest tax deduction effect.

Considering the first three quarters of 2020 for 107 countries, ref. [88] reveals that firm performance deteriorates during the COVID-19 pandemic. Their research highlights as well the role of governments, as the adverse effects of COVID-19 on firm performance are less pronounced in countries that have better healthcare systems, more advanced financial systems, and better institutions, allowing them to support the private economic sector with efficient public policies aimed at mitigating the negative effects generated by the pandemic crisis. Instead, we highlight that the design of this study could generate some bias in the results, as the COVID-19 pandemic cases used for the econometric models estimation are the cumulative figures provided by the WHO, and, therefore, are not limited to the number of cases confirmed at the firm level to better emphasize the impact of the crisis on companies’ productivity and labor potential shortages.

Ref. [83] validates as well a significant reduction in the corporate profitability of companies operating in 36 European countries, for the period of 2020. Along with the positive lag effect of ROA, the companies’ profitability is impacted negatively during the COVID pandemic period, especially in the case of firms operating in countries that have not addressed adequately the expected negative macroeconomic effects of the COVID-19 pandemic restrictions. The results highlight as well, as in numerous other studies limited to single-country samples, that companies tend to reduce their leverage during the pandemic crisis, paying higher attention to better cash flow management. Nonetheless, in addition to the country effects generated by different responses of governments to the COVID-19 pandemic outcome, the results emphasize there are significant gaps across different industries included in the analysis, such as the Manufacturing or the Consumer Discretionary sector.

The study of Franco et al. [7] has outlined changes in companies’ financing policy, showing that, during the COVID-19 pandemic crisis, companies have reduced long-term investment, such as CaPex or capitalized R&D expenses, highlighting that ex ante corporate financial resilience (lower corporate financial leverage) was essential for how companies could have faced the crisis, by ensuring proper financial resources (better cash flow management) for coping and, afterwards, recovering the sales capabilities. Nonetheless, the authors have confirmed that, in spite of the government’s supporting policy measures (tax deferrals, debt moratorium, and operations subsidies), this was not sufficient to compensate for COVID-19 pandemic negative effects; they have mitigated them and helped many firms ensure their survival in the short term. Similar results were presented by Demmou et al. [89] and Athira et al. [84] who have emphasized the essential role of ex ante COVID-19 crisis companies’ financial resilience; otherwise, they were forced to find financing solutions, such as reversals of reserves incorporated already in the equity, or debt contracting, as long as they were not subject to drastic capital market financial constraints, with direct implications on the cost of capital and companies’ solvability and liquidity.

Apedo-Amah et al. (2020) [15] have found a significant negative impact of the COVID-19 pandemic crisis on corporate financial performance, emphasizing that the majority of those effects was reflected in the sales decrease, because of the changes in the aggregate demand and subsequent supply chain disruptions, especially in the case of smaller firms. In those circumstances, companies were forced to find solutions to keep an acceptable level of their margin, looking for labor cost reduction and the implementation of digitalization initiatives; otherwise, they were subject to a high probability of bankruptcy [31].

COVID-19 pandemic restrictions have impacted all companies, no matter their ownership structure, including family-owned companies. Miroshnychenko et al. [90] have validated the shock-absorber hypothesis, confirming that a long-term perspective on addressing the challenges raised by the pandemic crisis led to higher corporate financial performance in the case of non-family-owned companies, compared with the other companies, including during the COVID-19 pandemic crisis. However, as prescribed by the agency theory, the study underlined the fact that those results can be achieved as long as companies show a strong family involvement in management or both management and ownership. Therefore, those family companies act as absorbers of external shocks in a short-run position, looking rather to long-term solutions that allow them to consolidate their dynamic capabilities, including stable human capital or customers. Nonetheless, the study confirms once again the sectorial difference on the negative effects generated by the COVID-19 pandemic restrictions, showing that non-industrial companies are less impacted.

A distinct approach on assessing the role of the COVID-19 pandemic crisis, either as a catalyst for structural changes on the business operations, such as digitalization or innovation boosting, on companies’ likelihood of survival is provided by Muzi et al. (2021) [31]. The authors highlight the negative implications of this pandemic crisis on companies’ productivity, measured both in reference to labor productivity and to the corporate value creation potential, emphasizing that companies’ resilience can be achieved and consolidated through improvements in innovation and digitalization, with the support of high-quality governance and more agile institutional regulation framework.

If the previous studies have focused on the impact of COVID-19 pandemic restrictions on companies’ disclosed traditional accounting performance, Ullah (2023) [91] confirms the negative implications on companies’ stock market daily returns, looking for the 30 most affected capital markets for the period of 2020. However, in case of this study, of higher importance for our study is the fact that the author has underlined the importance of efficient communication conducted by governments in order to ensure investors’ confidence in the capital markets. In the same vein, ref. [9] argues that the COVID-19 pandemic causes lower stock market liquidity, highlighting as well the significant gaps between different industries from this perspective. For instance, firms’ stock market liquidity over-performs the overall market performance in the case of the healthcare and communications industries, whereas industries such utilities, basic materials, consumer discretionary, or manufacturing are described by a lower liquidity level.

Similar results are confirmed by Guedhami et al. (2022) [92] in terms of the negative implications of the COVID-19 pandemic crisis on stock market returns. Additionally, this study emphasizes the effect of globalization, showing that multinational listed corporations suffer more during the COVID-19 pandemic crisis period, compared with domestic listed companies, especially in sectors with a high exposure to the mutations on the demand curve, such as Manufacturing or Oil & Gas. Instead, the authors identify that companies operating in the Healthcare industry outperform their related domestic listed companies. Nonetheless, their study confirms once again the relevance of the efficiency of public policies addressing the expected negative COVID-19 pandemic crisis outcomes, especially in the case of multinational corporations that operate across various countries which are subject to different governments’ public policy approaches. Overall, this study underlines that there are several differences between the previous financial crisis and the COVID pandemic crisis, related to the mechanisms of influence of the corporate financial performance, such as the positive impact of financial systems, or the adverse effects of supply chains, human capital, and CaPex investment on stock market returns.

Another important impact of the COVID-19 pandemic restrictions on the economy is related to the level of companies’ labor productivity, including in terms of labor costs and corporate financial profitability. From this perspective, Bruhn et al. (2023) [93] have noted that, beyond the financial constraints imposed on companies by the capital markets during COVID, companies have witnessed as well an increase in the reallocation activity from less productive to more productive, especially in the case of countries with a stronger competition environment. If we add to this finding the authors’ conclusion that government subsidies were not distributed adequately to the companies in need, we realize that the smaller companies, with a lower pre-COVID-19 pandemic productivity, had low changes to properly address the shocks generated by the economic environment, with indirect implications on the corporate cost structure and corporate profitability.

However, we draw attention to the fact that all those early evidence studies are limited to short periods of analysis, excluding, therefore, the effects of the overlapping crisis that have followed in the COVID-19 pandemic recovery period, such as the energy crisis, the supply chain disruptions, or the war regional crisis.

2.4. Corporate Financial Resilience and Earnings Management

The topic of earnings management has become, in the last decade, of great interest among scholars [94,95]. The reasons behind this are various, starting from the agency problem claimed at the corporate level between shareholders and managers, which continue with the changes in accounting regulation or changes in the complexity and structure of economic transactions. Over time, significant deterioration of financial information value relevance disclosed by financial statements has been confirmed, which determines the poor matching between contemporary revenues and expenses, with implications on lower earnings quality, such as higher earnings volatility, lower earnings persistence, or negative autocorrelation along time [96]. Instead of the income statement losses from value relevance, a stable evolution of the balance-sheet value relevance is found, which is mainly caused by the standard-setters capacity to align financial reporting standards to emerging issues, such as the use of fair value in financial reporting, or the recognition of intangible assets which become more important in a knowledge economy, or by the accounting harmonization efforts at the international level that hamper country- or industry-specific challenges [97,98,99]. An essential aspect derived from all those empirical papers is that accounting standard-setters prove to be unable so far to provide a timely and efficient response to the changes in the economic environment, raising awareness on the limitations of the current accounting standards and related requirements of assets, equity, and liabilities recognition, classification, and evaluation, which generate a window for managers to proceed to creative accounting and earnings management practice, with direct implications on companies’ solvability and liquidity [100,101].

Based on the agency theory, it is well-known that managers choose to improve corporate financial performance, either through accruals earnings management techniques, or using real activities earnings management, in order to maximize their utility function, as long as there are in place effective corporate governance mechanisms and adequate contractual incentives for management [94,95]. Based on the signaling theory, managers work on ensuring confidence among investors by transmitting in the capital markets positive signals concerning the financial health of the companies they are leading; the reason why there are visible motivations for earnings smoothing is to show stable evolution over time [100,101]. Therefore, no matter the type of earnings management techniques used, or the trade-off between accruals vs. real-activities-based earnings management approaches, there is obvious evidence that financial performance can be artificially modelled in order to maximize managers’ financial compensations and reputation.

Habib et al. (2022) [101] outlined the effect of real activities earnings management (REM) on companies’ future financial performance, as is the case of the R&Ds which were once reduced only for financial reporting purpose, and, in the longer term, affect companies’ innovation capabilities. Therefore, REM can lead to a deterioration in cash flow forecasting accuracy and an increase in the credit risk, that generate an implicit increase in the cost of capital. Instead, Greusard (2022) [100] emphasizes the effect of accruals-based earnings management (AEM) on the contemporary corporate financial performance, aimed to transmit positive signals to the capital markets in the short run. Therefore, the choice for REM or AEM is essential as the first is expected to generate more profound effects on the business model and related operations. Such a decision is extremely important in times of crisis, as structural changes on business operations raise a high risk of negative long-term effects, which would be less likely to be compensated by managerial ability or market context, leading to potential firm financial distress.

This discussion becomes even more complex, looking on the emerging themes drawn along the earnings management literature, such as the relevance of technological advancements, behavioral aspects, or sustainability reporting on managers’ choice for earnings management approaches [93]. In those circumstances, it is essential to understand if crisis periods act as additional catalysts for such practices [25,102]. This concern was addressed in the past, reviewing financial statements disclosed during the recent global financial crisis and the COVID-19 pandemic crisis [94]. Those review studies have emphasized that, during crisis periods, managers are susceptible either to proceeding to earnings management and big-bath accounting, or simply using various forms of impression management techniques in corporate reporting, such as blaming the negative results on the COVID-19 pandemic [29], strongly associated with managerial ability [94]. Instead, these same studies underline that, during crisis periods, managers acknowledge that they are subject to higher monitoring, which determine their choices to be highly conservative [25]. Overall, an essential point is that the literature shows a preference for accruals-based earnings management in times of economic growth, whereas real-activities-based earnings management techniques are preferred during crisis periods, choices that are highly conditioned by the country’s institutional framework, the accounting regulation, and the quality of corporate governance mechanisms [100,102].

Currently, there is little evidence in the literature concerning the topic of earnings management and the impact of the COVID-19 pandemic crisis, and most of them relate to a single country or single industry, which reduce the relevance of the insights from the generalization point of view [25,26]. However, we have found several regional and international studies addressing this topic.

Blazek et al. (2023) [103] have confirmed the influence of creating accounting techniques, reviewing the Beneish M-score for a sample of companies from Visegrad countries, respectively, Czech Republic, Poland, Slovakia, and Hungary. Similar results on the positive association between earnings quality and corporate financial performance during the COVID-19 pandemic crisis are confirmed by Aqabna et al. (2023) [104], who analyzed a sample of companies listed from nine MENA countries. Therefore, both regions characterized by significant differences in culture, institutional framework, and economic development show that earnings management practice should be considered a potential issue on the evaluation of the impact of COVID-19 on business performance. Another study that confirmed that managers tend to engage in earnings management practice during the COVID-19 pandemic period is published by Lassoued and Khanchel (2021) [25], who have observed in a sample of companies listed in 25 European countries that managers try to reduce the level of losses by income smoothing, in order to establish confidence among investors. Similar results on managers’ preferences for income smoothing during the COVID-19 pandemic crisis are presented by Yasar and Yalcin (2024) [26], who have focused their analysis on an international basis, on four European countries, for the period of 2016–2020.

Instead, reviewing companies’ financial statements from a sample of G-12 countries, Ali et al. (2022) [105] show that managers engage less in earnings management in times of crisis, especially in the case of jurisdictions with stronger investor protection regulations.

2.5. Corporate Financial Resilience and Corporate Sustainability Performance

Discussing about companies’ organizational resilience without addressing the implications of business models’ transition towards sustainability principles is nonproductive, as both corporate sustainability and organizational performance could be transformed into corporate dynamic capabilities that confer companies a competitive advantage on the market, as long as managers establish an adequate corporate strategic vision and purpose [8]. Therefore, the corporate purpose should consolidate the interconnection between corporate sustainability and corporate organizational resilience, through improvements on human resources, stakeholder engagement, or strategic resource business process management, that should be moderated by boosting corporate innovation, following a systemic and rigorous approach to process design, and ensuring high-quality governance mechanisms designed to engage stakeholders in decision-making [33]. The nature itself of the association between the two dynamic capabilities depends on companies’ business strategy, as long as this strategy is set up in order to differentiate them on the markets from their competitors, not through cost orientation, but rather through the reputational and synergy effects approach that strengthens companies’ competitive advantage and weakness ESG and organizational resilience concerns, which generated a positive impact on corporate financial performance [106]. However, this relationship seems to be highly conditioned by additional external factors, such as the institutional framework quality, or the macroeconomic context of the period analyzed, whether they used accounting-based or capital-market-based financial performance measures [107].

On the relation between corporate sustainability performance (CSP) and corporate financial performance (CFP), throughout the last decade, numerous studies have been published, both quantitative and qualitative. Thus far, mixed results have been provided on the nexus between CSP and CFP [47,49,108]. However, those meta-analysis studies point out that accounting-based financial performance measures are more strongly related to CSP, compared with the capital-market-based measures, as they reflect better the corporate internal capabilities. However, the small gap between those measures shows the distortion generated on the market on this nexus relationship, highlighting that CSP can generate a surplus on the market value, in addition to the one generated by the synergy effects indicated by corporate reputation and compliance to which every manager is paying attention [48,49]. However, ref. [108] points out that a positive association exists in the long term. Instead, the results show gaps in the implications of CSP on CFP, based on the dimension of corporate sustainability (environmental, social, and governance), and the industry-specific, the country-specific, and the business model particularities [48,109].

The COVID-19 pandemic crisis has determined some changes as well in the relationship between corporate financial performance and corporate sustainability performance. For instance, Bongiovanni and Fiandrino (2024) [110] provide international evidence on the relation between corporate environmental performance and companies’ stock market returns volatility, showing a significant positive sign for the early phases of the COVID-19 pandemic crisis. Therefore, investors seem to penalize firms investing in environment protection initiatives, as they most probably appreciate that those costs are not opportune in times of crisis. Instead, Al Amosh and Khatib (2022) [86] noted, from the analysis as well of a G-20 international sample of companies, that higher corporate sustainability performance can reduce the negative effect of the COVID-19 pandemic restriction on the corporate financial performance, as a reward from the stakeholders’ side that legitimizes managers’ actions.

Similar results on the positive association between the CSP and CFP during the COVID-19 pandemic are reported by Huang and Ye (2021) [111] who have identified that companies with high financial leverage are faced with higher financial constraints during the COVID-19 pandemic crisis. However, if those companies prove to be ESG-responsible, they gain some financial flexibility as they address better various emerging risks they cope with during the pandemic crisis, leading to a lower cost of capital. Nonetheless, it seems that companies benefit from an alignment with ESG principles, not only though higher financial flexibility, but also through better capital market performance, as evidenced by how the firm value declined less during the pandemic crisis in the case of companies that are socially and environmentally responsible [112].

The relationship between CSP and CFP during the COVID-19 pandemic crisis is highly times related in the literature to a higher level of compliance and ethical behavior, aimed to consolidate companies’ corporate reputation. However, Al Amosh and Khatib (2023) [16] have confirmed, on an international sample of companies analyzed for the period of 2016–2021, that corporate sustainability performance suffered a decline, which is mainly caused by the governance dimension that is related to weakening management oversight on business operations and risk management, including an inadequate response to the challenges created by the COVID-19 pandemic restrictions via corporate policy, or corporate communication with the stakeholders. Instead, the authors confirm a positive impact of the pandemic crisis on environmental performance, which has been shown to be of general focus among managers along the last decade, and social performance, which was expected, especially because companies had to take measures to mitigate the virus spread and the negative effects on productivity. These results seem to be more obvious especially in the case of developed countries that had available financial resources and a high-quality institutional framework to support such efforts [16,98].

There are also studies that assess the meditating and the moderating effect of earnings management on the relationship between CSP and CFP. For instance, El-Feel et al. (2024) [113] analyze an international sample of companies along the period of 2014–2020, looking for the impact of CSP on the level of discretionary accruals and real-activities-based earnings adjustments. The results highlight that companies tend to engage more in accrual-based earnings management during the pandemic crisis. As with Al Amosh and Khatib (2022) [86], or Lu and Khan (2022) [98], the authors confirm that managers leading companies that are socially and environmentally responsible proceed less to earnings management, to prove ethical, honest, and transparent behavior. Additionally, the authors emphasize that those ESG-responsible companies’ that engage in earnings management avoid REM techniques, as those imply higher social costs in the long term for the companies.

2.6. Corporate Financial Resilience and Financing Policy

The financing policy plays a key role in the discussion of corporate financial resilience. Rawal et al. (2023) [114] have emphasized, in their empirical study analyzing the S&P constituents, that, between the debt ratio and the Altman Z-score, there is no significant causal relation. Therefore, based on this study, it seems that the level of corporate financial distress does not influence companies’ financing policy mix, which is somehow expected, as the financial distress scores sum up the impact of multiple financial ratios, including both the leverage level and companies’ capacity to cover the debt service [115].

As noted by Sreenivasan and Suresh (2023) [9], corporate financial resilience is related to the management strategic approach on the obtained synergy effects between several key dimensions, including liquidity planning, creditors management, business continuity plan, financial distress assessment, or the financial strategy of CFOs. Therefore, the corporate financial leverage and the corporate financial distress dimensions represent key parameters for companies on anticipating, coping, and adapting corporate strategy and policies to absorb or to adapt to the shocks from the economy.

On the one hand, corporate financial distress determines various direct or indirect costs for any company [91]. However, it is noted in the literature that the indirect costs are much higher and persist on longer time horizon, which is the reason why we focus on those ones for further discussion [116].

Some indirect effects relate to the deterioration of the financial reporting quality, mainly through earnings management or impression management techniques, with the purpose of reducing the dividend payments, hiding the violation of debt covenants, or avoiding an adverse going concern auditor opinion [115].

Other indirect effects are related to operational consequences, such as the higher likelihood of tax avoidance in the case of financially distressed companies, the reduced trade credit terms applied to their customer or claimed by their supplier, or even lower labor productivity [116]. There are also indirect effects on the corporate financial resilience, such as the limitation of managers’ liberty in taking strategic investment decisions, conditioned by creditors based on highly monitored debt covenants, the weakening of the corporate financial flexibility through higher costs of capital (via higher risk) or financing sources limited to internally generated cash flow, or the decrease in companies’ market value and stock returns.

Overall, all these influence channels just force companies to take pro-cyclical measures which deteriorate their financial resilience over time until they reach the moment to declare bankruptcy. The situation becomes even more serious during crisis periods as the shocks generated on firms’ operations deteriorate the companies’ capacity to generate cash flow for acquiring new dynamic capabilities which are essential for achieving financial resilience. After all, the dynamics capabilities (e.g., big data analytics, Industry 4.0, flexible and integrated supply chain management, firm innovation, organizational learning and knowledge management systems, integrated risk management, organizational culture, etc.) are the instruments to ensure systemic changes across the business model, concerning business process change management (improvement), which allow companies not just to react to shocks, but also to cope and adapt to the new economic context, translating rather into improvements in non-financial (operational) performance, and indirectly into better corporate financial performance.

Ahamed et al. (2023) [117] highlight as well a negative association between the corporate accounting financial performance and the corporate financial constraints, which are defined by different specific models, such as the KZ index, the SA index, the WW index, or the ACW index. Instead, the authors have found that, between those financial constraint constructs and the Tobin’s Q stock market measure, there is a positive relationship. Instead, this association seems to be significantly influenced by managerial ability [118], or the practice of earnings management (ref. [103]), with adverse indirect implications on the corporate capital structure and the cost of capital [88].

Also relevant to our discussion is the relation between both the corporate financial distress and the corporate financial constraints, respectively, and the corporate sustainability performance, especially in periods of crisis such as the COVID-19 pandemic crisis. The literature has unanimously confirmed significant negative effects on corporate financial performance [15,17,32,86], especially on the revenue generation function, which has led companies in the situation of liquidity distress [12,19,22,91]. However, those results could be the subject of indirect effects generated by the earnings management performed during the COVID-19 pandemic [25,26]. Instead, there are also opinions that, during the COVID-19 pandemic crisis, companies facing serious financial constraints have gained some benefits if they were, prior to the pandemic crisis, more sustainably responsible [16,103,116,119].

2.7. Corporate Financial Resilience and Corporate Business Excellence

The objective to reach corporate financial resilience has become, in the past decades, a necessary condition for companies’ survival in the long term. Companies’ resilience can be achieved if management works on diversifying multiple forms and behaviors on the organization, if they find solutions of higher efficiency for the operations, if they reach a cohesion between processes, systems, technologies, and human capital, and if they improve the organizational flexibility related to business process management [29]. Therefore, there should be an adequate calibration between companies’ organizational behavioral dynamics, their dynamic capabilities, the corporate strategy, and the performance management systems, processes, and tools [4]. The same approach applies to companies’ financial resilience which focuses rather on solutions of avoiding financial constraints in the long term [11], and ensure a minimum level of liquidity necessary to achieve their strategic objectives, by gaining dynamic capabilities on anticipating the future shocks (e.g., mature financial risk management models, and effective business continuity management on financing sources), on coping with the external shocks such as the COVID-19 pandemic crisis by a combination of management decisions sense-making and acting (e.g., knowledge sharing, and management ability for leadership in times of crisis), and on adapting to the new context via dynamic capabilities aimed to support companies to reflect and learn from history and, afterwards, proceed to organizational change (e.g.,: business process management, business corporate excellence, total quality management, and lean and agile management). Therefore, the objective of financial resilience is strongly connected to the business processes, systems, tools, and people involved in decision making [33,34] and business process improvements [35]. With this approach, companies reduce organizational ambidexterity in the area of business process management, addressing the potential issues of future financial constraints in times of crisis, allowing companies to increase their competitive advantage of coping, anticipating, and adapting to an uncertain, volatile, complex, and ambiguous economic environment [36].

The literature outlines as well an interconnection between companies’ resilience, corporate sustainability, and digitalization, emphasizing the synergy effects on corporate financial performance generated through an integrated approach of multiple aspects of the business model to be considered in a dynamic environment [8,31,33,34,120]. Instead, [121] has underlined the fact that any change on the business models shall be addressed, only assessing the need for changes in the business processes behind those models. The business strategy refers to companies’ position in the market and to their competitive advantage against competitors; the business model describes the business architecture used for a strategic purpose, whereas the business process represents the operational level and the way the business models are implemented via process execution, monitoring and controlling, and process improvements. Therefore, companies’ financial resilience is highly conditioned by both efforts of corporate sustainable development and continuous (radical) process improvements (innovation, re-engineering, and drift) [37].

On one hand, the business process change management can generate a higher cost of capital in the long run, to pay for more sustainable lean and agile business operations, especially in industries with a high ESG liability risk exposure [21,122], and operations complexity [123,124]. This way, companies can gain a competitive advantage in the market, via two main directions. First, lean manufacturing implementation is aimed at the cost leadership strategy, which looks for the best cost structure on the market and higher operational margins. Second, agile manufacturing looks for a differentiation strategy, by improving production and supply chain processes for higher flexibility. Both strategies lead to a higher corporate financial performance and a more flexible cost structure, especially by the implementation of JIT, TQM, SixSigma, or Kaizen lean practice, including through top management commitment, continuous improvement, and business process management [125,126].

On the other hand, synergy effects can be identified at the corporate level between the economic, social, and environmental pillars of corporate sustainable development that can lead to positive financial performance effects in the long run [38], with a partial focus on either the social or environmental pillar, depending on the country- or industry-specific characteristics [39].

Similar results were identified when reviewing the evolution of corporate financial resilience during the COVID-19 pandemic. Bughin [127] emphasizes the positive impact of corporate dynamic capabilities, such as organizational agility, corporate innovation, sustainability orientation, or digitalization implementation, showing that the COVID-19 pandemic has played the role of a catalyst in developing those capabilities. Zahedi et al. (2022) [11] analyze several factors of corporate financial resilience during the COVID-19 pandemic crisis, highlighting the role of managerial ability, organizational learning culture, and efficiency in using the resources, via a process- and system-wise improvement approach, on the efforts companies make to adapt to the changing environment.

However, concern has been raised on the way lean, sustainability, and resilience practices are integrated into a sustainably responsible corporate strategy, as the lean approach is more suitable for a lower degree of uncertainty in the economic environment, whereas the resilience approach fits rather to a higher degree of uncertainty [124]. For instance, the JIT practice describes better the lean principles, but conflicts with the need for more agile (flexible) supply chains. This choice involves multiple dimensions of discussion, respectively, the way lean resilience is applied (implemented), the assessment of synergies and trade-offs generated, the way lean and resilience practice are integrated, or the impact of this approach on the corporate financial and non-financial performance [128]. Therefore, managerial ability and support for the implementation of emerging technologies, such as FinTech solutions and Industry 4.0 solutions, can reduce the potential negative impact of lean practice and business process management on corporate financial resilience [126]. Additionally, lean methods such as value stream mapping, continuous improvement, or Kaizen principles can positively influence companies’ resilience [129]. Otherwise, the expected positive outcome from implementing lean practice, redesigning business processes, and implementing continuous improvement initiatives would be lower, as both sustainability and resilience play a moderating role on the corporate financial performance [130].

2.8. Research Framework and Hypothesis Formulation

In this paper, we look for the assessment of the contribution of the four basic pillars of firms’ existence, on strengthening the firms’ resilience capabilities. Along the last decade, there has been a lengthy debate on the factors that influence firms’ ability to reduce the impact of different shocks on their performance, especially in short-term analysis [131]. However, in the literature, in a consistent way, several factors that influence firms’ resilience have been identified, such as firms’ financial characteristics, human capital, business processes, social capital, or the business environment [132].

Instead, [133] emphasized the essential inter-relational dimensions of vulnerability and resilience. While the vulnerability dimension highlights firms’ exposure to different types of risks, the resilience dimension underlines firms’ capacity to overcome the effects of shocks in the business model and the business environment. Therefore, firms’ objective to create value-add is conditioned by risk management models’ maturity and firms’ reactivity to drastic changes in business operations. From this perspective, our attention is more oriented toward cost-based value creation enablers, meaning firms could generate value-add in times of crisis rather that obtaining cost savings for the same quality of products and services.

Nonetheless, we subscribe to [76], or [134], who underline the need for incorporating more sustainability dimensions on the models of firms’ resilience assessment, as, currently, the focus is rather oriented towards the economic and governance aspects of the business model and less on the social and environmental ones. We appreciate that those dimensions, especially the social dimension of sustainability models, are essential, specifically in crisis times such as the COVID-19 pandemic period, in areas such as HoReCa. In those circumstances, we consider the following research hypothesis:

H1. 

Earnings management financial reporting practice determines the significant impact on the variation in firms’ economic value added in pandemic times, with a negative impact on firms’ resilience capabilities.

H2. 

Financial risks firms are faced with generate positive effects in the variation of economic value added in pandemic times, with negative effects on firms’ resilience capabilities.

H3. 

Efforts on the transition towards sustainability significantly amplify the variation in firms’ economic value added in pandemic times, with a negative impact on firms’ resilience capabilities.

H4. 

Total quality management and business process improvements contribute significantly to the reduction in firms’ economic value added, implying an improvement in the potential of firms’ resilience.

The main objective of the paper is to determine the impact of financial risks, earnings management, sustainability efforts, and continuous improvement initiatives on the firms’ ability to redesign their business model, aimed to ensure sustainable financial growth. For this purpose, we have considered four basic dimensions to assess their contribution to a measure of firms’ financial resilience we have selected in this paper, respectively, a measure of time-series variation in economic value added, based on quarterly financial statements, as can be seen in the Figure 1. The four dimensions refer basically to two fundamental directions of research that highlight the direct and indirect impact on firms’ performance management and reporting, respectively, the dimensions of purely accounting-driven decision making and the dimensions of real-activity-based decision making.

Therefore, when management looks for drivers of firms’ resilience, they generally start from financial statements in order to have a clear picture of the financial position and financial performance of the firms they lead. However, some of them proceed as well to creative accounting techniques, such as big-bath accounting, specific for crisis periods, or even fraudulent financial reporting, to transmit false signals about firms’ financial health [135]. From this perspective, we have considered two basic dimensions that are expected to reflect the implications of earnings management, and, respectively, investors’ pressure through debt covenants to reach financial targets, on the economic value added firms have reached, according to financial statements. As the KPI of economic value added is influenced by both operational efficiency and firms’ cost burden, those two dimensions appear to be relevant to our analysis.

First, the measure of earnings management is chosen to describe managers’ intention to overestimate the operating income or underestimate different operational-process-related expenses. In this direction, we are reminded of suspicions concerning accruals estimations under uncertain times, fixed cost allocation in terms of capacities used inefficiently, special items recorded in the balance sheet, wrong asset classification because of the unclear purpose of use of respective assets, etc. This dimension is not directly related to firms’ resilience, but rather to firms’ vulnerability, which deteriorates their capacity to oversee potential future shocks and to ensure an effective planning function in uncertain times.

Second, the measure of financial risk is planned to be captured through the capital market volatility, risk of bankruptcy, and credit scoring, seen rather as firms’ area of vulnerability with implications on the firms’ resilience. Those measures show once again the uncertainty firms have been faced with in times of the COVID-19 pandemic period, with implications on providing reasonable assurance on some basic financial reporting premises, such as the going concern essential for both accountants and auditors as well. If the dimension of earnings management is more related to the use of creative accounting techniques rather than reflected in the profit and loss statement, the dimensions of firms’ bankruptcy and the credit scoring represent a mix of financial ratios based on both stocks and financial flows. Instead, the measure of capital markets’ volatility better describes investors’ reaction to firms’ strategic decisions and relates indirectly to the cost of the capital component of the economic value added KPI. All those elements directly influence the cost of capital, as an increase in bankruptcy risk or beta is expected to lead to a higher cost of capital in times of crisis, to reflect the additional risk creditors and investors accept.

The dimension of product quality and process improvement is considered essential in current circumstances, from two perspectives. First, keeping the high quality of products and services provided, firms increase their chances to overcome the effects of the recent COVID-19 pandemic on the turnover, with a direct impact on the net income and economic value added. Second, this dimension shows the potential of cost savings firms as well could achieve through the redesign of business processes and continuous improvement initiatives. However, as there is less transparency on such information disclosed by financial statements or other corporate disclosures, it is hard to make a clear connection between firms’ performance and the implementation of lean manufacturing. Moreover, requirements such as following TQM principles and using related tools and techniques are rather considered mandatory. Instead, in times of a pandemic, we expect that such quality-based elements prevent firms from recording high detective quality costs and rather allow significantly lower preventive quality costs. Overall, both dimensions are expected to lead to an increase in value creation, as long as product design and business processes are managed and modeled through TQM and lean manufacturing tools and techniques, and if the implementation of such initiatives proves to be opportune from a cost–benefits analysis.

The last dimension considered in our analysis is the dimension of sustainability. This dimension became essential during the COVID-19 pandemic as the social factor has been proven to represent an element in drawing-up firms’ V curve recovery evolution. Human factor health or education represent intangible assets firms can use in their recovery efforts. However, overlapping the projects of digitalization of business operations with human factor concerns about the COVID-19 pandemic and uncertainty is expected to generate positive effects only in the case of firms operating in some sectors, such as the ICT sector, or even the Healthcare sector, whereas the HoReCa sector is one of the losers in this equation. Moreover, the same dimension of sustainability concerns the regional European efforts of transition to more circular-economy-based business models, involving the use of more renewable energy, the reuse of materials, or a reduction om material consumption. In those circumstances, in light of the Green Deal objectives, firms had to face even more serious constraints, involving higher operational costs, or a higher cost of capital based on creditors’ and investors’ pressure on firms to redesign business processes to become more sustainable.

3. Materials and Methods

3.1. Data Collection and Processing

In Figure 2, we summarize the main steps followed in this study. Several steps are made to perform some data curation, which resume basically eliminating outliers through the winsorizing method. Through the winsorizing method, we replace outliers with the 5th percentile and, respectively, the 95th percentile of the initial set of data, ensuring normality distribution for data.

The data used in this study are extracted from Refinitiv database. They cover the period of the recent COVID-19 pandemic, respectively, 2019–2021. Financial information is mainly reflecting year-end data. The data related to calculation of the economic value added are an exception, which are represented quarterly, to reflect better the dynamics during the pandemic period. Overall, our sample consist of 275 companies, from four countries, operating in ten areas of activity, summing up 825 observations. An exception is made for the information related to variables used for determining the economic value added, which sum up 2430 quarterly reported data. The sample consists of only 271 companies, as we have filtered the initial database only with companies that have available data related to variables used in the study, on Refinitiv database for the complete period of 2019–2021, for both year-end and quarterly reported financial information.

The sample composition is described by Figure 3. The choice for the limited number of countries was made since this study is aimed to analyze firms’ financial resilience for firms originating from European developed economies, the biggest economies within European Union. In this way, we can take out the effect of regional public policy implications on our results, as the European Union countries have followed similar directions on combating the effects of COVID-19 pandemic. The limited number of areas of activity was considered, to focus on this study the attention on the sectors which are expected to be the most affected by the COVID-19 pandemic.

3.2. Variable Definition

In

Table 1. Variable definitions.

Variable Name	Variable Label	Description
Variation in EVA	σ(EVA)	- It represents the dependent variable of the study; - It reflects the standard deviation of the quarterly economic value-added time series, calculated starting from the relation ${EVA}_{i,t}={EBIT}_{i,t}·\left(1-{Tax\%}_t\right)-{WACC}_{i,t}·{{Capital}_{invested}}_{i,t}$, describing the variation measure of EVA for firm $i$ in period $t$, where: ${EBIT}_{i,t}$ is the earnings before interest and taxes; ${Tax\%}_t$ is the tax rate for corporate profit specific for each country in year $t$; ${WACC}_{i,t}$ is the weighted cost of capital; ${{Capital}_{invested}}_{i,t}$ is defined by the sum of the total equity and the long-term debt reported.
Cash flow component	Cash flow	- It represents a measure that describes how much of the earnings reported are explained by the cash flow of the period recorded by the firm on a yearly basis; for this purpose, the EQ model looks at free cash flow, or cash flow from operating activities less the capital expenditures, scaled by average net operating assets.
Operating efficiency component	Efficiency	- It reflects a measure that describes the way earnings reported were generated, through high margins (${\displaystyle \frac{Earnings}{Sales}}$) and good asset utilization (${\displaystyle \frac{Sales}{Assets}}$), which would translate into more likely persistence of earnings; therefore, this measure reflects the ROA components, based on DuPont decomposition model, respectively, the assets efficiency and efficiency intensity measures; - The score is based on a decomposition analysis of the asset’s profitability ratio, considering a DuPont analysis approach.
Accrual component	Accruals	- It represents an aggregate measure integrating eight different sources of accruals (accounts receivables, inventories, other current assets, PP&E, other non-current assets, account payables, other current liabilities, and other non-current liabilities), based on their contribution to the persistence of earnings; it is a measure that describes, together with the other components of the Refinitiv Earnings Quality model (cash flow, operating efficiency, and exclusions); - The measure is calculated starting from the relation of decomposition of earnings reported into two basic pillars, respectively, the cash flow component and the accruals component.
Total quality management	TQM score	- It is a score, with values ranging from 0 to 100, that describes if a firm has implemented total quality management policy and procedures, and uses specific tools; it also incorporates information if firms have implemented Six Sigma as a project management methodology, or lean management philosophy.
Sustainability	ESG score	- Similar with the other Refinitiv aggregate scores, the ESG score is a mix of about 186 subsets of data, calculated based on percentile methodology, that not only accounts for weighting importance of those subsets, but also adjusts the final score with implications derived from industry benchmarking. - Overall, the score suggests firms’ commitment to the triple-bottom line sustainability development, that involves actions in environmental (emissions, innovation, and resource use), social (community, human rights, product responsibility, and workforce), and governance (strategy, management, and shareholders) directions of action; the human factor taken is well-represented within this aggregate score, along with each of the three dimensions mentioned above.
Bankruptcy rating	Z-score	- It represents the Altman bankruptcy model score.
Credit default rating	Credit score	- It represents an aggregate measure integrating five different sources of corporate financial health (profitability, leverage, liquidity, growth, and stability), based on their contribution to the likelihood of financial distress; there is only a partial overlap between the accruals proxy and the credit score proxy, from the perspective of having both integrated sub-dimensions of profitability, as Accruals proxy is related to the ROA, whereas the Credit Score proxy relates to the ROE. - The measure is adjusted with the industry-specific and country-related metrics fixed effects, such as legal, political, cultural, or economic factors.
Stock volatility	Beta	- It is a measure of securities volatility, compared to the market as a whole; it is similar with the classical beta regression coefficient used in the CAPM model, that amplifies the risk premium expected by investors in case of higher security systematic risk.

Source: authors’ description.

, we summarize the definition of the variables considered in the study.

In the case of components of the Earnings Quality Refinitiv model, we emphasize that, from the way they are defined and calculated, they are adjusted to the impact of the industry characteristics, as they are evaluated against industry benchmarks because of the structurally different industry-specific characteristics. Moreover, we add the fact that those components are determined using not only historical financial data, but forward-looking information as well.

The adjustment of economic value added (EVA) time series consists of excluding the trend component, as the dependent variable represents the standard deviation on EVA on a quarterly basis for the period of COVID-19 pandemic. The trend component of the time series was deducted by adjusting the quarterly data using moving average method, as per the relation ${{q_i}_{t-2}}_{trend}={\displaystyle \frac{\frac{{q_i}_{t-2}}{2}+{q_i}_{t-1}+{q_i}_t+{q_i}_{t+1}+\frac{{q_i}_{t+2}}{2}}{4}}$, whereas the adjusted quarterly time-series element is given by the relation $\widehat{{q_i}_{t-2}}={q_i}_{t-2}-{{q_i}_{t-2}}_{trend}$. We have considered the quarterly data to capture better the variation across this period.

The purpose of this procedure of time-series adjustment was to capture in the financial resilience proxy the idiosyncratic financial resilience component that relates rather to corporate inferences, and less to macroeconomic and any systemic effects. Additionally, we considered the EVA measure instead of the traditional accounting measures of profitability, as EVA reflects better the process of value creation for shareholders which becomes more and more important in the negotiation with the management of the companies when discussing the strategy of aligning the business processes to more agile, resilient, and sustainably responsible ones. EVA represents a measure similar to the Ohlson residual income, that incorporates both shareholders’ expectation in terms of stock returns through the cost of equity, and the cost of debt. Therefore, it captures both the operating efficiency of the company, but also the capital markets pressure on the corporate financial performance. Based on the relation of definition considered for this analysis, respectively, ${EVA}_{i,t}={EBIT}_{i,t}·\left(1-{Tax\%}_t\right)-{WACC}_{i,t}·{{Capital}_{invested}}_{i,t}$, the main drivers of the variation in EVA are the operational profitability, the weighted cost of capital, and the level of the capital used in the current economic activity. In spite of the fact that EVA is subject as well to several adjustments on the value of NOPAT (${EBIT}_{i,t}·\left(1-{Tax\%}_t\right)$), we did not consider them in the following [136].

On the one hand, we use the variation in economic value added as a measure of firms’ resilience, reflecting companies’ capacity to report persistent earnings, that should describe faithfully firms’ performance in a dynamic context of the business environment. On the other hand, the dependent variables are more related to measures of firm’s vulnerability, perceived as cost generators. The exception is the dimension of earnings quality (cash flow, accruals, and efficiency) that rather provides insights related to potential implications of earnings management on firms’ resilience, with low probability of additional costs, generally incorporated in the weighted cost of capital, based on investors’ perception about firm’s financial health and perspectives in times of crisis.

3.3. Econometric Model Formulation

As a final step of our research, we proceed to estimate several econometric models to assess the relationship between firms’ financial resilience and potential drivers selected for analysis, in times of pandemic. Below, we provide the econometric model:

$${\sigma \left(EVA\right)}_{i,t}={\alpha }_0+{\sum }_{k=1}^8{\alpha }_k·{Score}_{i,t}^{\left(k\right)}+{\epsilon }_{it}$$

(1)

where ${\sigma \left(EVA\right)}_{i,t}$ reflects the standard deviation in economic value added calculated considering quarter reporting figures, and ${Score}_{i,t}^{\left(k\right)}$ represents one of the scores considered in the analysis and defined in Table 1, whereas the marginal effect on the ${\sigma \left(EVA\right)}_{i,t}$ of firm $i$ on year $t$ is represented by ${\displaystyle \frac{\partial \sigma {\left(EVA\right)}_{i,t}}{\partial {Score}_{i,t}^{\left(k\right)}}}={\alpha }_k$.

If ${\alpha }_k<0$, the result suggests that the $k$ driver included in the econometric model led to a reduction in the variation of EVA, with positive implications in the medium and long term for firm. Therefore, such drivers should be paid special attention from management side. Instead, if ${\alpha }_k>0$, we understand this driver rather deteriorates firms’ financial resilience.

To control for potential bias that could be determined by the distribution of probabilities of variables included in the model, we estimate the linear regression both using the OLS method and the quantile method. Nonetheless, to review any potential bias in the estimated results that could be generated by issues of multicollinearity, we review the VIF statistic for all dependent variables.

The effects generated by industry characteristics are analyzed using panel data regression analysis, integrating in the econometric model a dummy component reflecting each industry included in the sample, as per relation presented below:

$${\sigma \left(EVA\right)}_{i,t}={\alpha }_0+{\sum }_{k=1}^8{\alpha }_k·{Score}_{i,t}^{\left(k\right)}+Industryeffects+{\epsilon }_{it}$$

(2)

The validation of the models is mainly ensured analyzing the $R^2$, which shows how much of the model explains the independent variable. For model statistical significance, we review the results on F test. Then, we look for an answer as to whether dependent variables included in the model determine only a partial mediating effect on $\sigma \left(EVA\right)$, or it explains significant part of the variation in EVA.

In case of the panel data regression model considering fixed effects, we perform several prior tests to check if pooled regression, fixed effects regression, or random effects regression model fits best the purpose of our analysis. Best inference tests performed are the Hausman test that checks the significance of fixed effects in the regression model, and the Breusch–Pagan test that checks for the significance of random effects.

4. Results and Discussion

In

Table 2. Descriptive statistics.

Variable	Mean	St. Dev.	Min.	Max.	Percentiles			Collinearity Statistics		Normality KS Stat.
					25	50	75
σ(EVA)	0.085	0.442	0.003	4.482	0.011	0.019	0.032	Tolerance	VIF	0.194
Cash flow	55.44	25.78	1.000	100	36	56	77	0.460	2.173	0.055
Efficiency	58.75	25.07	1.000	100	39	60	80	0.547	1.829	0.082
Accruals	49.72	27.38	1.000	100	27	49	72	0.808	1.237	0.076
TQM score	47.19	36.17	0.000	96.35	0.00	63.51	77.38	0.950	1.052	0.288
ESG score	52.91	22.00	3.376	92.23	36.39	54.31	68.94	0.895	1.117	0.082
Z-Score	2.896	2.098	0.135	8.392	1.435	2.358	3.794	0.708	1.412	0.306
Credit score	0.003	0.004	0.000	0.037	0.001	0.002	0.003	0.756	1.323	0.084
Beta	0.846	0.637	−1.347	4.132	0.428	0.799	1.177	0.913	1.095	0.171

Source: authors’ projection.

, we provide the descriptive statistics on the variables considered in the analysis, that cover the complete period of the COVID-19 pandemic crisis, respectively, 2019–2021. The results show a relatively heterogeneous sample of firms considered for the analysis, as the mean of each variable explains more than 15% of the standard deviation.

In the case of the variation in EVA, we observe that the standard deviation of 0.442 is much higher than the mean of 0.085, which gives an indication of the particularities of each firm’s business model that determines the significant differences in the economic value added. The variation in economic value added is negative, no matter the area in which the firms run their operations, as reflected in Figure 4. Interesting results show that the quarterly negative variation in EVA increases, especially in the 2021 period where macroeconomic statistics have shown the increasing slope of the V curve recovery of the national economy.

In Figure 4, we have represented the evolution of the variation in EVA and the average of EVA, at the country level. The results suggest that there are only slight differences at the country level, except for France, in which case it seems that there is a lower heterogeneity in the sample of firms analyzed from the perspective of EVA indicator evolution in the period 2019–2021.

Industry specifics lead to a different amplitude of variation in EVA. On one hand, we can observe that firms operating in the Real Estate and Financials sectors have the lowest variation in EVA, along the period of the COVID-19 pandemic crisis, showing higher stability in the value creation processes. If we look to the average of EVA at the industry level, we see that exactly those sectors have the highest EVA as well, which gives an indication to the fact that both sectors have been less affected by this pandemic crisis, compared with the prior global financial crisis when those sectors were affected the most.

It is interesting to note that the Healthcare or Energy sectors have a lower EVA value. In the healthcare sector, there have been significantly high costs of services with relatively unchanged tariffs, whereas, in the Energy sector, these results can be explained by the lower demand on energy caused by governmental restrictions and changes in the aggregate demand in consumers and the Manufacturing area, with indirect implications on the energy consumption, as can be seen in Figure 5.

We observe also that most of the sectors have the highest variation in EVA in the first year of the COVID-19 pandemic crisis, except for the Energy and Utilities sectors, which could be explained by the low demand elasticity of the products and services provided by those sectors, especially during this period. Instead, in the next two years analyzed, the variation in EVA increases, mainly based on the capital expenditures needed for the modernization and extension of the existing infrastructure.

It is essential, in explaining the variation in time of the EVA in the case of each firm, to make a separation between the artificial contribution led by accounting-based firm policies and the contribution of economic activities. For this purpose, we first look at the descriptive statistics of the components of the Refinitiv Earnings Quality model. All those percentile-based variables calculated using a scale from 0 to 100 show the means that represent a moderate ranking. Moreover, heterogeneity in the sample seems to be lower compared with the other variables, except for ESG score. This slight homogeneity indicates a relative pattern of firms’ behavior in terms of earnings management or efforts made for the transition to more sustainable business models.

Overall, the variables considered in the analysis follow a normal distribution, based on the Kolmogorov–Smirnov statistic, with a significance level of 5%. Additionally, the results in Table 1 show that the variables considered in the analysis do not present issues of multicollinearity, as the VIF values do not exceed the threshold of four [22].

4.1. Correlation Analysis

In

Table 3. Pearson correlation matrix.

	EVA Variation	Cash Flow	Operating Efficiency	Accruals	TQM Score	ESG Score	Altman Z-Score	Credit Score	Beta
EVA	1	−0.207 **	−0.058	0.059	−0.119 **	0.119 *	−0.152 **	0.290 **	0.052
Cash flow	−0.207 **	1	0.493 **	0.170 **	0.002	−0.127 *	0.338 **	−0.309 **	0.000
Efficiency	−0.058	0.493 **	1	0.062	0.070	−0.079	0.383 **	−0.255 **	0.019
Accruals	0.059	0.170 **	0.062	1	−0.040	0.043	−0.052	0.095 **	−0.007
TQM score	−0.119 **	0.002	0.070	−0.040	1	0.011	−0.100 *	−0.010	−0.060
ESG score	0.119 *	−0.127 *	−0.079	0.043	0.011	1	−0.036	0.237 **	0.131 *
Z-Score	−0.152 **	0.338 **	0.383 **	−0.052	−0.100 *	−0.036	1	−0.248 **	0.005
Credit score	0.290 **	−0.309 **	−0.255 **	0.095 **	−0.010	0.237 **	−0.248 **	1	−0.024
Beta	0.052	0.000	0.019	−0.007	−0.060	0.131 *	0.005	−0.024	1

* Correlation is significant at the 0.01 level (2-tailed). ** Correlation is significant at the 0.05 level (2-tailed). Source: authors’ calculation.

, we present the correlation matrix related to variables included in the empirical analysis. Overall, the results show modest correlations between variables, however, statistically significant at the 1% significance level. Only the correlation of 0.493 between the cash flow component of the Refinitiv StarMine Earnings Quality model and the operating efficiency component of the same model seem to be higher.

The StarMine EQ model of Refinitiv looks mainly for earnings persistence in time. Moreover, this model gives a relevant indication as to investors’ expectations concerning the predictability of earnings reported. Starting from the definition of each component, as described in the previous section, this correlation between the two components of the EQ model shows that earnings persistence is achieved through a high rate of cash flow explaining the earnings reported and the higher efficiency of assets affected in the current firms’ operations. In other words, the COVID-19 pandemic crisis has forced firms to learn how to gain cost savings through business process improvements and, in many cases, through a significant redesign of major operational processes and the business model itself. Nonetheless, the cash flows have become essential for firms’ resilience, as they are more efficiently affected by operating activity. This statement is suggested even by the negative correlation of −0.207 between the variation in EVA and the cash flow component of the EQ model, which shows firms’ financial resilience can be partially achieved through optimal cash management.

However, the pandemic crisis period has raised concerns about numerous firms facing the risk of bankruptcy. This reality is reflected in our results as well, showing a positive correlation between the efficiency components of the EQ model and Altman Z-score. Moreover, we observe a positive correlation between the measure of EVA variation and the Refinitiv composite credit score, which implies a variation in the cost of capital, especially in debt contracting and achieving targets in different debt covenants.

4.2. Econometric Analysis

In

Table 4. Linear regression model statistics.

Dimension	Model	(1)	(2)	(3)	(4)
-	Constant	−0.0443	0.0280 *	0.1592 *	0.0263
		(0.1029)	(0.0018)	(0.0457)	(0.0392)
Earnings management	Cash flow	-	-	−0.0041 *	-
				(0.0007)
	Accruals	-	-	0.0015 *	-
				(0.0005)
	Operating efficiency	-	-	0.0010	-
				(0.0007)
Financial risk management	Credit score	-	-	-	26.500 *
					(4.302)
	Beta	-	-	-	0.0423
					(0.025)
	Altman score	-	-	-	−0.0185 **
					(0.0081)
Sustainability	ESG score	0.0036 **	-	-	-
		(0.0018)
Process management	TQM score	-	−0.0001 *	-	-
			(0.0000)
	Model validation
	Adj. R-squared	0.011	0.012	0.053	0.073
	F-statistic	3.968	7.401	14.83	18.61
	p-value	0.047	0.007	0.000	0.000

* Significance level of 0.01 (2-tailed). ** Significance level of 0.05 (2-tailed). Source: authors’ calculation.

, we summarize the statistics of the linear econometric models estimated in this model. Overall, the $R_{adj.}^2$ is relatively low, suggesting that the measure of variation in EVA is explained only by 1.1% to 7.3% of the dimensions we have considered in this study. Instead, all models are statistically significant, as the $pvalue$ does not exceed the significance level of 5%.

The first model estimated confirms a positive marginal effect of the ESG score on the variation of EVA on the period of the COVID-19 pandemic ($Coef.=0.0036,Sig.<5\%$). The result suggests to us that a higher involvement in sustainability activities implies a higher variation in the economic value added during the pandemic period.

The second model confirms a statistically significant marginal effect of the TQM score on the variation of EVA, but this time with a negative impact ($Coef.=-0.0001,Sig.<1\%$). As already noted above, in the case of shocks in business environment, firms should use any of their dynamic capabilities to overcome them, or at least reduce the effects of the crisis on firms’ performance [24].

The importance of the quality of financial statements is described by the third model estimates. As expected, the Accruals component of the Refinitiv EQ model has a marginal significant impact on the variation of EVA ($Coef.=0.0015,Sig.<1\%$). In other words, in pandemic times, the economic value added is affected by the management discretionary decision on accruals evaluation.

Instead, the component of cash flow suggests a negative impact on the variation of the economic value added ($Coef.=-0.0041,Sig.<1\%$). Those results show how important the generation of cash flow is for sustainable economic growth, as the cash flow is used to pay the cost of capital and constitute the premise of trust in investors’ perception.

In the fourth model, we have estimated the marginal effect of firms’ financing policy on the variation in economic value added. For this purpose, we have considered measures indirectly related to both the cost of equity and the cost of debt.

On one hand, the results show that the beta does not significantly impact the variation in EVA ($Coef.=-0.0423,Sig.>5\%$). Therefore, fluctuations in the capital market do not determine the drastic changes in the weighted cost of capital and in the economic value added. On the other hand, it seems that the cost of debt is more important in times of the COVID-19 pandemic, as it determines the significant marginal impact on the variation in economic value added.

First, the results suggest that a higher risk of bankruptcy determined a lower variation in the economic value added ($Coef.=-0.0185,Sig.<5\%$). Therefore, if firms are aware of the risk of bankruptcy, they will commit to a more precautionary policy approach, to reduce the risk and ensure the premises for advantageous credit conditions, as most of the debt covenants are related to financial ratios included in firms’ bankruptcy scores. This means that firms’ financial resilience is expected to be focused on directions that ensure earnings stability and financial stability. These directions involve, eventually, expectations of lower variation in main financial ratios, leading to the improvement in firms’ debt-contracting decisions.

However, it seems that the Refinitiv credit score has determined a much higher positive impact on the variation of EVA ($Coef.=26.5,Sig.<1\%$). This credit score represents a measure that reflects the confidence creditors have on recovering their receivables. If the creditors’ confidence changes, a variation in the cost of debt is recorded as well, with implications on the variation of EVA as well. In the pandemic period, the uncertainty degree is high, meaning a higher probability of credit default as well. After all, this credit score is a combination of financial and non-financial information, extracted from financial statements, disclosures, news from newspapers, conferences, etc. Compared with the Altman Z-score, the Refinitiv credit score captures better the dynamics of the business environment in the COVID-19 period.

The difference in the marginal effect related to those financial vulnerability measures derives from their design. If the Altman Z-score relates more to accounting-based financial ratios determined based on historical data, the Refinitiv credit score incorporates both historical data and forward-looking information, and includes information about industry-specific benchmarking metrics, and controls for weighting of financial ratios, based on their importance based on industry capital market characteristics. Therefore, the results show us that the variation in EVA is more related to the economic uncertainty of the business environment, and less related to accounting-based strategies and policies. Forward-looking information captures the best the perspectives of the evolution of the economy after the pandemic crisis ends. However, they are subject to a high risk of inaccuracy, because of the high economic uncertainty, with implications on the variation in EVA, especially through the volatility of the cost of equity.

4.3. Robustness Analysis

To gain a better understanding of the factors influencing firm performance during the recent COVID-19 pandemic, we review as well if there is any significant impact generated by industry characteristics. This approach can provide us with an indication on how efficient the governments’ policies were in reducing the effect of the economic shock determined by the COVID-19 pandemic on different areas of activity. For this purpose, we have estimated the fifth model, that incorporates all independent variables considered in the study.

Further, in the sixth model, we have controlled for industry fixed effects as well, to have the basis for a comparative analysis that provide insights on the role of industry characteristics on the firms’ resilience capabilities. In the case of this fixed effects model, we have reached the conclusion that it fits best the data analyzed, compared with the regression model with random industry effects, such as the Hausman test Chi-Sq. statistic of 22.104, with eight degrees of freedom being statistically significant at 1%. We note as well that the Breusch–Pagan statistic of 2.217 is not statistically significant (p-value = 0.136), meaning that the random effects model is not relevant, compared with the pooled regression model.

In

Table 5. Linear regression models of robustness statistics.

Dimension	Model	(6)	(7)	(8)
	Method	OLS (No Industry Fixed Effects)	OLS (with Industry Fixed Effects)	1st Quantile (Quantile Regression)
-	Constant	0.0139 *	0.01644 *	0.0031 *
		(0.0052)	(0.0054)	(0.0044)
Earnings management	Cash flow	−0.00001	−0.00004	0.00003
		(0.00007)	(0.00007)	(0.00006)
	Accruals	0.00003	0.00003	0.00001
		(0.00005)	(0.00005)	(0.00004)
	Operating efficiency	−0.0001	−0.00006	−0.00005
		(0.00006)	(0.00007)	(0.00004)
Financial risk management	Credit score	1.501 *	1.614 *	1.538 *
		(0.2632)	(0.2722)	(0.1319)
	Beta	0.00003	−0.00153	0.00019
		(0.0018)	(0.0019)	(0.0016)
	Altman score	0.00055	0.00014	0.00044
		(0.0006)	(0.0006)	(0.0005)
Sustainability	ESG score	0.0001 **	0.0001 ***	0.00004 **
		(0.00005)	(0.00006)	(0.00003)
Process management	TQM score	0.00004	0.00003	0.00004
		(0.00003)	(0.00004)	(0.00003)
Fixed effects		N	Y	N
Model validation
	Adj. R-squared	0.264	0.321	0.119
	F-statistic	8.564	5.702
	p-value	0.000	0.000
	Sparsity	-	-	0.021
	Prob (Quasi-LR stat)	-	-	0.000

* Significance level of 0.01 (2-tailed). ** Significance level of 0.05 (2-tailed). *** Significance level of 0.1 (2-tailed). Source: authors’ calculation.

, we present the statistics of those models and analyze them comparatively. For both models, we observe that the only significant effect on the variation in EVA is caused by the credit score and the ESC score variables. Those results are robust with the results from

Table 6. Additional robustness analysis statistics.

Dimension	Variable	σ(EVA)	σ(EVA)	σ(EVA)	σ(EVA)	σ(EVA)	σ(EVA)	EVA	EVA
		OLS (Industry Fixed Effects)	OLS (Industry Fixed Effects)	OLS (Industry Fixed Effects)	OLS (Industry Fixed Effects)	OLS (Industry Fixed Effects)	1st (Quantile Regression)	OLS (Industry Fixed Effects)	1st (Quantile Regression)
-	Constant	0.0229 *	0.0366 *	0.0381 *	0.0382 *	0.0564 *	0.0161 *	−0.0750 *	-0.0689 *
		(0.0072)	(0.0070)	(0.0071)	(0.0068)	(0.0074)	(0.0060)	(0.0155)	(0.0180)
Earnings management	Cash flow	-	0.0000	0.0000	0.0000	0.0000	0.0000	0.0003 **	0.0002
			(0.0001)	(0.0001)	(0.0001)	(0.0001)	(0.0001)	(0.0001)	(0.0002)
	Accruals	-	0.0000	0.0000	0.0000	0.0000	0.0000	−0.0003 *	-0.0002
			(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0001)	(0.0001)
	Operating efficiency	-	−0.0001 **	−0.0001 **	−0.0001 **	−0.0001 **	0.0000 *	0.0007 *	0.0007 *
			(0.0001)	(0.0001)	(0.0001)	(0.0001)	(0.0000)	(0.0001)	(0.0002)
Financial risk management	Credit score	-	0.0135 *	0.0138 *	0.0138 *	0.0171 *	0.0135 *	−0.0024	-0.0072
			(0.0025)	(0.0025)	(0.0025)	(0.0029)	(0.0017)	(0.0055)	(0.0044)
	Beta	-	0.0003	0.0008	0.0005	−0.0033 **	−0.0011	−0.0038	−0.0066
			(0.0017)	(0.0017)	(0.0017)	(0.0017)	(0.0023)	(0.0038)	(0.0048)
	Altman score	-	0.0015 **	0.0015 **	0.0015 **	0.0019 *	0.0014 **	-0.0007	-0.0011
			(0.0006)	(0.0006)	(0.0006)	(0.0006)	(0.0007)	(0.0013)	(0.0013)
Sustainability	ESG score	0.0008 *	0.0001 ***	-	-	-	0.0001 *	−0.0003 **	−0.0002 ***
		(0.0003)	(0.0001)				(0.0000)	(0.0001)	(0.0001)
	ESG score2	0.0000 *	-	-	-	-	-	-	-
		(0.0000)
	Social	-	-	0.0001	-	-	-	-	-
				(0.0000)
	Environment	-	-	-	0.0001 ***	-	-	-	-
					(0.0000)
	Governance	-	-	-	-	0.0000	-	-	-
						(0.0000)
Process management	TQM score	−0.0003 ***	0.0000	0.0000	0.0000	−0.0001	0.0000	0.0001	0.0000
		(0.0002)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0001)	(0.0001)
	TQM score2	0.0000 ***	-	-	-	-	-	-	-
		(0.0000)
Control variable	Size	−0.0315 *	−0.0334 *	−0.0336 *	−0.0332 *	−0.0444 *	−0.0185 *	0.0070 *	0.0127 *
		(0.0069)	(0.0074)	(0.0074)	(0.0074)	(0.0076)	(0.0071)	(0.0163)	(0.0169)
	Model validation
	Adj. R-squared	0.129	0.343	0.334	0.342	0.285	0.144	0.398	0.145
	F-statistic	6.753	10.819	10.436	10.744	12.191	-	13.431	-
	Sparsity	-	-	-	-	-	0.022	-	0.067
	p-value	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000

* Significance level of 0.01 (2-tailed). ** Significance level of 0.05 (2-tailed). *** Significance level of 0.1 (2-tailed). Source: authors’ calculation.

, when their effect on EVA is isolated. However, the results suggest there is not any statistically significant effect determined by the EQ model components. Those results indicate to us that, during the pandemic period, the economic value added is influenced by changes in firms’ economic environment, rather than by accounting strategies and policies classified as actions in the direction of earnings management.

However, the effect of industry characteristics looks to be higher in the case of firms operating in the financial sector, where, in times of crisis, managers try to reduce the risk exposure and reflect this on the structure of the balance sheet. A similar industry negative effect on the variation of EVA is seen in the case of the basic materials sector, because of the drastic changes in the supply chains. However, currently, the changes in the supply chains translated into drastic reductions in demand have translated into serious supply chain disruptions, because of either insufficient production capacities, or insufficient logistic support that should cover the increase in demand. Nonetheless, we observe an additional positive impact on the variation of the EVA in the case of firms operating in the energy industry. This result is expected, as the price liberalization of energy has generated and still generates a major disturbance in the predictability of the market, with implications of firms’ structure of costs and the economic value added, as can be seen in Figure 6.

Fixed effects determined by industry characteristics seem to be visible especially in the case of the marginal effect determined by the credit score on the variation in EVA. On one hand, the results show that sustainability activity is less related to industry characteristics, but rather on firms’ business model characteristics.

On the other hand, we see a slight change in the regression coefficient of the credit score, comparing the sixth and the seventh model estimated, which shows that business models in the same sector share a significant common proportion of the exposure to the financial risk of a credit default, with a positive impact on the variation of EVA and negative implications on the firms’ financial sustainability. Therefore, among others, firm resilience is significantly conditioned by the credit default as well.

Further, we have performed an additional regression analysis, in order to see the marginal effects of companies’ size and each pillar effect on the variation of EVA. The results consider industry fixed effects on each model estimated at this stage. Overall, the results confirm the negative marginal effect of companies’ size on the variation of EVA. Therefore, the higher the company, the lower the variation in EVA is in times of the COVID-19 pandemic. In the case of big companies, the supply chains, the production processes, and, in general, the business processes are more complex and widespread in geographical areas subject to different regulation, cultural, and macroeconomic contexts.

However, the results suggest that bigger companies are more likely to be able to cope with external shocks, mainly because they have greater resources than smaller ones. By resources, we refer not only to financial resources that can cover the costs of governance mechanisms which are extremely important in ensuring a collaborative (coordinated) approach during crisis periods, but also to the extended dynamic capabilities matrix that allows those companies to address the external shocks in a more standardized way. Indeed, in the case of those companies, the paradigm between corporate financial resilience, sustainability, total quality management, and business process management is more visible. However, the level of managerial ability, the quality of governance mechanisms, and the innovative capacity of the companies represent key success factors.

After controlling the results for the size of the companies, we identified a statistically significant negative effect of the operating efficiency on the variation of EVA. Therefore, the higher the operating efficiency rate, the lower the variation in EVA. Those results represent evidence that confirms the efficiency of operations, representing an essential premise for guaranteeing higher corporate financial resilience, by designing the product development, production, and supply-chain-related corporate processes to ensure the proper allocation of resources.

The effect of both the bankruptcy score and credit score keep their association with the variation on EVA, which confirms once again the essential role of an adequate corporate financing policy, aimed at providing the optimal financial capital structure on the level of the cost of capital asked by capital markets.

Instead, if we estimate the association between EVA and all those drivers included in the initial model, the results provide additional insights on the relevance of earnings management dimensions. First, the results show a positive impact of the companies’ capacity to generate cash flows from operations. Second, the quality of accruals indicates a lower EVA level. Therefore, it is essential for any company to ensure efficient operational processes that generate positive cash flows representing companies’ self-financing source, which increases companies’ power of negotiation with both creditors and investors. However, the results indicate the presence of accruals-based earnings management, that affects directly the NOPAT component.

Looking further into our analysis, this time assessing the individual ESG factor effect on the variation of EVA, the results show that the overall ESG score positive impact is mainly determined by the environmental dimension, not the social dimension as we have expected, because of the higher focus on human capital during the COVID-19 pandemic crisis.

Nonetheless, we have looked also for the pattern of the impact of both the ESG factor and TQM-business-process-management-related factor, on the variation of EVA. The results confirm a V curve pattern, which emphasizes that the TQM factor contributes to the corporate financial resilience, but within some limited boundaries. Therefore, the positive impact of the ESG factor on the corporate financial resilience persists up to one point from when the costs incurred by the TQM and business process change management activities become higher than the benefits.

5. Discussion

The main objective of the paper was to analyze the evolution of corporate financial resilience in the period of the COVID-19 pandemic. Therefore, looking for a sample of listed companies in four developed economies, for the period of 2019–2021, we have assessed the level of variation in the economic value added. The variation in the EVA measure was considered as a basis for describing the corporate financial resilience, as a residual income--related measure that describes better both the operations efficiency, achieved through process stability, and the cost of capital which captures the capital-market-related investors’ expected returns [137].

The results show a negative economic value added, no matter the area the firms run their operations. Interesting results show that the quarterly negative variation in EVA increases especially in 2021, a period when macroeconomic statistics have shown the increasing slope of the V curve recovery of the national economy. As per our knowledge, this is the first study that performs such an analysis, considering as a corporate financial measure the economic value added. These results are in line with the unanimous opinion in the literature that the COVID-19 pandemic has determined a significant deterioration of the corporate financial performance, especially because of the drastic reduction in sales [9,12,15,16,32,40,90,95]. Those studies have emphasized how important it is that facing a crisis can be challenging, but a better situation in the corporate liquidity and financial leverage can allow companies to avoid debt overhanging effects, because of the higher and costly financial constraints imposed by creditors [9,15,16,40,90], by capital markets [12,96,97], or by labor markets [32,98]. Therefore, firms with a lower financial resilience before the COVID-19 pandemic have been faced with an increase in firms’ cost of capital, on the ground of increasing uncertainty, led this time by disruptions in supply chains and precautionary consumers’ behavior.

Going further in our analysis, we have observed industry specifics has led to different amplitude of variation in EVA, with differences generated by the way companies have achieved to acquire or create dynamic capabilities oriented towards sustainability principles [138], or the governments have provided financial support for specific industries only [63,86,87,88,89]. Those results are in line with the literature [64,67,84,95], that highlight the role of the business model for management on searching solutions to face with the COVID-19 pandemic crisis and to adapt, such as the acquisition and creation of various dynamic capabilities, aimed to support companies to adapt and be more flexible to the external shocks from the economy [139]. On one hand, firms operating in the Technology, Real Estate and Financials areas have the highest level of EVA at the beginning of the pandemic crisis. Instead, at the end of the crisis period, in all those sectors the EVA decrease. On the other hand, results show higher variation on EVA, in case of firms operating in ICT and Consumers area, which shows rather companies’ capabilities of adapting to the new context of the market and that on those sectors there seems to be a higher competitivity.

We observe a negative variation of EVA on the period of COVID-19 pandemic crisis in case of firms operating in the ICT area, despite the current efforts of digitalization of economic activities, especially because of the cost structure dynamics, including the cost of debt related to financial resources borrowed to finance new capital expenditures, that have increased on the ground of the increasing uncertainty in pandemic crisis. Instead, this sector has reported lower level of variation, compared with other industries. After all, the COVID-19 pandemic has been the main trigger for an increasing volume of work done remote on corporate level and investing significant resources on processes digitalization [32,33,140], which has increased the demand for the services of telecommunication and smart solutions that integrated the emerging technologies, such as blockchain, robotic process automation, cloud computing, big data analytics.

Another objectives of the paper were to assess the relationship between two core aspects of the corporate business models within a VUCA-BANI environment, respectively the corporate financial resilience and corporate sustainability. The efforts made on country level to achieve the SDGs have translated as well into additional pressure on capital markets level, changing shareholders and other stakeholders’ perception on business models design and purpose [8,31,33,34]. Instead, even if scattered and relatively limited to one-country cases, there are studies that have raised serious concerns about the potential synergies, but also trade-offs that could appear when implementing on company level a more resilient sustainable business model [124,127], with direct and indirect positive/negative effects on corporate financial performance and therefore corporate financial resilience in periods of crisis [16,20,32].

The results provided by the estimated econometric models suggest that higher involvement on sustainability activities imply higher variation in the economic value added during the pandemic period. In the literature, there mixed results concerning the sign of the association between corporate financial performance and corporate sustainability performance. Both [16,40,50,103]. Instead, those studies have emphasized that the COVID-19 pandemic crisis has generated negative impact on corporate financial performance that could not have been compensated by management action plans, or financial support from governments. During the COVID-19 pandemic, the costs related to employee’s healthcare have drastically increase, with negative impact on the economic value added. Additionally, the social distance has determined in case of some employees a reduction on productivity, whereas the disruptions in supply chains have determined even additional pressure on the cost of goods sold, through bottleneck costs, or increase in raw material purchasing prices. Nonetheless, the environmental activities were mainly placed in the second plan, as the social costs have taken the first place, affecting the biggest portion of sustainability activities budgeted resources. The same has happened with the evolution of the cost of capital that has increased during the crisis, leading to changes on the EVA along the crisis period, highly conditioned by companies’ ability to gain creditors’ and investors’ trust, together with more active initiatives of stakeholders’ engagement. These results can be explained further, based on business models complexity and exposure to ESG risks, by the evolution of the synergies and trade-offs generated by the transition towards more sustainable business models, which change over time, especially in case of companies that achieve to acquire or build on their own dynamic capabilities, such as risk management models, effective business continuity management, knowledge management systems, strategic human resources management, corporate innovation or digitalization [39,43,44,141]. Those capabilities were either realized after the COVID-19 pandemic crisis started, which was expected to generate positive outcome on the next years [8,31], as long as critical success factors were considered and properly addressed on the implementation of the internal initiative of alignment with the sustainable business models, such as management commitment, stakeholders engagement, sustainable embedded production, corporate innovation, or sustainability trainings [142]. For instance, in the absence of a mature framework and adequate tools for risk management, companies cannot anticipate the emerging risks that could generate in the next future significant negative financial effects, leading to weakening their ability to ensure sufficient self-financing resources for future strategic project initiatives aimed to mitigate the respective risks.

The key success factors on implementation of sustainable business models is expected to provide positive impact on corporate financial performance. However, the central issue firms were still facing was the uncertainty in terms of business environment, inefficient allocation of governments financial support, or precautionary consumers’ behavior that have drastically reduced the aggregate demand and firms’ revenues [9,12,16,40,90,95]. On those circumstance, firms’ cost structure has become essential, as the side with the revenue was related rather to a medium to long-term fight, through diversified portfolio of products and integrated services, or differentiation on the markets valorizing the competitive advantage. Therefore, companies’ dynamic capabilities have become the core solutions to the COVID-19 pandemic crisis effects. Instead, based on the capabilities companies had, the costs structure and potential of sales were impacted differently among companies, and across industries, with impact on the measure of the economic value added, affecting operations efficiency and indirectly operations financial performance, such as NOPAT, one of the main EVA components [15,32,39]. For instance, there were firms that have faced the serious problem of labor force relocation, from less competitive to more competitive companies during COVID-19 pandemic [93], which generated issues for those companies of hiring employees with adequate technical competencies and skills, that translated indirectly into a high likelihood that changes on business processes were implemented improperly [143]. Instead, if a company would have developed a dynamic capability of strategic HRM, including a tool of advanced human resource planning, this situation would have been anticipated and countermeasures could have been performed in advance to avoid this unfortunate situation.

An additional channel of transmission is the cost of capital, through its components of cost of debt and, respectively, cost of equity, which are mainly driven by capital market evolutions, highly conditioned by investors’ risk aversion and level of trust [83,84]. After all, the higher the risk exposure, the higher the investors’ expectation on stock returns, affecting indirectly the cost of equity. A similar rationale is behind the cost of debt, determined either by an increase in the interest requested by creditors, in spite of the green bonds or alternative solutions that are characterized by lower interest rates than the traditional similar instruments, or generated by the cost of limiting managers’ decisions to following targets in different debt covenants, generating a cost of opportunity for projects with a positive NPV that generate positive cash flows only in the long term [121,144].

Nonetheless, firms should assess their corporate governance mechanisms and instruments, such as the internal policies, procedures, and the overall governance system and perform some stress tests to figure out what is going wrong in the case of drastic changes on operations, with a focus on the role of human capital that should be perceived as a fundamental asset for the firm and that is highly impacted by the corporate culture extremely important for business models resilience [8,28,31,50,145].

Further, the results provide evidence on the positive marginal effect determined by activities performed in the area of total quality management and business process change management methodologies, such Lean and Six Sigma. Our results are in line with the literature. Refs. [35,127,135] have underlined the positive impact of total quality management and lean management at the corporate level. Even the two approaches are different, with them having actually many common points, such as the need for customer orientation, employee and management commitment, a culture for excellence, and, of course, continuous improvement. Ref. [125] have raised concerns about the fact that any changes to the business models have first to start with the proper modelling of corporate processes behind them. Under the current context of a dynamic economic environment, asking for companies to change their business models towards sustainable responsibility and business resilience, ref. [49,127] have focused a big part of their efforts on remodeling the corporate processes, by acquiring or creating, and implementing various dynamic capabilities aimed at providing the companies with a significant competitive advantage, including through business process management policies and actions. As noted by [36], the COVID-19 pandemic period should be perceived by management as a trigger, not only for continuous improvements initiatives that are mainly managed by a lean (kaizen)-oriented methodology, but also for radical changes in the processes, such as a business process redesign; more suitable for corporate project initiatives is the Six Sigma methodology. After all, changes in business processes could be decided based on the business process management and lean methodologies, such as value stream mapping, and create value-add to the companies, either through revenue increase or cost reduction, unless management does not have a proper formal decision-making framework that looks carefully for a cost–benefit analysis, considers the need for flexibility in operations, and monitors carefully the outcome of the business processes and resource allocation efficiency [130].

As already noted above, in the case of shocks in the business environment, firms should use any of their dynamic capabilities to overcome, or at least reduce the effects of the crisis on firms’ performance [24]. One of the capabilities firms could use for resilience purposes is the role firms give to continuous improvement initiatives concerning business processes and products quality. On one hand, in times of crisis, firms should make sure they keep their customers with at least the same level of quality of products or services provided so far. On the other hand, product quality is related to significant fixed costs or prevention, which, in times of crisis, reduce drastically the firms’ performance, based on the lower turnover, or higher exceptional expenses. In those circumstances, firms should focus their attention on the improvement in the business processes, that could generate cost savings in the short and medium term. Therefore, firms having implemented lean production, following kaizen principles related to the waste of resources, or that have developed a mature total quality management system, are the most likely to gain cost savings in times of crisis, as agile processes ensure a higher flexibility and faster alignment to the recent business environment configuration.

However, this mission is extremely difficult for managers, as sustainability, business resilience, and total quality management have many points in common, but also significant diverging points that lead to different paradigms which make the managers’ decision even more difficult. In those circumstances, the managerial ability, alignment with business models’ excellence principles, such as the Baldrige or the EFQM models, and organizational ambidexterity become essential dynamic capabilities for the company [11,49,127,133]. The key aspects to be considered by management is just to find an adequate model that integrates the business resilience, sustainability, and business process management dimensions, moderated by a robust and mature organizational knowledge management system [124,126,128,132].

There are opinions that have questioned the value relevance of this measure, as it can be affected by the impact of earnings management [146], which is the reason why we have considered in this study the assessment of the impact of these practices on the variation of the economic value added, limited to accruals-based earnings management measures. Both accruals and real-activities-based earnings management impact negatively the financial statements’ accuracy, therefore increasing the informational asymmetry between managers, shareholders, and creditors, with indirect implications on the cost of capital that is highly dependent on the level of trust both investors and creditors have on the companies and how much they rely on companies’ financial transparency [105,106]. The results obtained are predictable for the pandemic period, as the economic uncertainty has reduced the efficiency of the management planning function.

Corporate financial resilience is related to the management strategic approach on obtained synergy effects between several key dimensions, including liquidity planning, creditors management, business continuity plan, financial distress assessment, or the financial strategy of CFOs. Therefore, the corporate financial leverage and the corporate financial distress dimensions represent key parameters for companies on anticipating, coping, and adapting corporate strategy and policies to absorb or to adapt to the shocks from the economy [9].

On one hand, the negative impact of the accruals on the economic value added suggests a more conservative approach to accounting policies in times of pandemic crisis, as managers are aware they are strongly monitored in this period, generating potential future litigation costs for the company [25,28,105,107,110]. Therefore, accruals quality translates into firm performance stabilization, generating more predictability of earnings, with negative implications on the dividend policy approach and a potential negative effect on short-term corporate liquidity management, as those accruals reverse in time [26,105,146]. Additionally, the literature states that companies that are more sustainably responsible engage less in the practice of earnings management, at least from the perspective of managers behaving with a high-quality business conduct [91,103], as, for instance, both national culture and organizational culture, which are fundamental elements of a sustainable business model, are key drivers of managers’ expected behavior [8,31]. In those circumstances, the sustainability factors could play an important role in the reduction in the information asymmetry between managers, shareholders, and other key stakeholders [118].

On the other hand, the results show the importance of the capacity of companies to generate cash flow during crisis periods, in order to ensure the self-financing of the basic operations and some strategic sustainability-related investments that could bring synergies in the long term. Most of the literature has emphasize the value proposition whereby firms facing liquidity issues before a crisis will most probably suffer serious financial constraints, including higher interest rates, or even worst, limitations on external financing solutions. After all, the cash flow represents the basis of paying the cost of capital and the premise of trust in investors’ perception. Such trust is determined by more predictable earnings, that are explained in large part by the cash flow generated, with advantageous implications on the cost of equity. In those circumstances, the signals of financial health of firms are more reliable, as the accounting policies are proven to have a lower impact on earnings reported. Overall, the economic value added does not influence the strategic long-term horizon decision-making process, via the accounting policy choice and other adjustments. Therefore, the negative relationship between the variation in EVA and the cash flow component is predictable, especially in times of crisis when most of the accruals are reversed, as a consequence for potential future litigation costs for the company [105].

Nonetheless, we have analyzed in this study the effect of the corporate financing policy on the variation in the economic value added, as a measure of the corporate financial performance. As one of the main drivers of this financial performance measure is the cost of capital, we have looked at both the accounting-related and capital-market-related measures of financial risk exposure. Therefore, the risk of financial distress is evaluated using the classical Altman score, as an accounting-related measure, whereas the Beta factor, as defined through the CAPM model, was used to capture the risk of stock market volatility. As noted in prior sections, the EVA indicator has the advantage of incorporating both the dimension of operations efficiency and the dimension of cost of capital in one model. The cost of capital is related in our study to the weighted cost of capital, without making a separation between the marginal effect of each element, respectively, the cost of debt and the cost of equity. Therefore, the economic value added is mainly affected by capital-market-based fluctuations, reflected through the weighted cost of capital. However, we analyze the role of the credit score on the EVA variation, related to the cost of debt, whereas the cost of equity is incorporated in the EVA calculation.

The results confirm the positive impact of companies’ credit risk score and financial distress score. As noted by [120], managers are tempted to hide the violation of debt covenants, or to avoid an adverse going concern auditor opinion. In pandemic times, the EVA has suffered significant changes, based on the changes in investors’ expectation in terms of risk aversion, leading to a higher fluctuation in the cost of equity. The cost of debt has been kept relatively stable and low during this period, exactly because of the need to finance solutions needed to cover expenses related to the COVID-19 pandemic [83,84]. Instead, it is not the same situation for the cost of capital, which reflects investors’ expectation on stock returns, based on the CAPM model. However, the biggest issue with this COVID-19 pandemic crisis was rather related to the sales dimension of the EVA calculation, as significant changes were made along the supply chains, leading to significant corporate liquidity issues to the whole network of each company [9,15,16,40,90].

Related to the credit-score impact on the variation of EVA, the results show us that the variation in EVA is more related to the economic uncertainty of the business environment, and less related to accounting-based strategies and policies, showing the high fluctuation in the cost of debt, strongly related to the financial bonity of each company. Forward-looking information captures the best the perspectives of the evolution of the economy after the pandemic crisis ends. However, they are subject to a high risk of inaccuracy, because of the high economic uncertainty, with implications on the variation in EVA, especially through the volatility of the cost of equity. Similar results are found by [122] that have highlighted the negative association between the corporate accounting financial performance and the corporate financial constraints, defined by various specific models. However, this association is highly conditioned by the managerial ability to identify and combine the optimal solutions for external financing [123], or by earnings management [25,26,106,107], as, by those manipulation techniques, managers were expecting to smooth corporate financial performance measures that affect indirectly various debt covenants.

Nonetheless, the results suggest that, if firms are aware of the risk of bankruptcy, they will commit to a more precautionary policy approach, to reduce the risk and ensure premises for advantageous credit conditions, as most of the debt covenants are related to financial ratios included on firms’ bankruptcy scores. This means that firms’ financial resilience is expected to be focused on directions that ensure earnings stability and financial stability. These directions involve, eventually, expectations of a lower variation in the main financial ratios, leading to an improvement in firms’ debt-contracting decisions.

After some tests of robustness, the results have confirmed as significant drivers of the variation in economic value added only the dimension of sustainability and the sub-dimension of credit risk score. In those circumstances, managers should consider carefully the allocation of resources companies have, in order to prioritize project initiatives concerning business models’ transition towards sustainability, but together with considering the reduction in operations and business process complexity and the improvement in business resilience via more flexible processes and operations that ensure higher operating efficiency [15,32,39].

Nonetheless, the robustness analysis results highlight the need for proper TQM business process improvement activities that address the related key success factors, such as ensuring adequate technical and technological competencies, adequate process design, corporate innovation, employee engagement, or top management commitment [132,145,146].

6. Conclusions

The main objective of our research was to analyze the relation between firms’ financial resilience and several drivers, addressing not only firms’ financial risk exposure, but also the role of product quality, business process improvements, alignment with sustainable development framework, and implications of earnings management. For this purpose, we have considered the economic value added (EVA) as a dependent variable and determined a measure of quarterly variation in EVA, as a measure of firms’ financial resilience. The variation in EVA is expected to be positively influenced by a higher risk exposure, such as credit default, or uncertainty in the area of the social dimension of the sustainability strategic directions of action, because of drastic changes determined by the COVID-19 pandemic crisis.

The results show that firms’ capacity to generate cash flow and improve continuously the product quality and business processes could be considered important enablers of firms’ resilience after the COVID-19 pandemic crisis. Instead, as expected, the results confirm firms’ credit risk exposure amplifies the variation in EVA, meaning a less persistent firm performance and the deterioration of premises for firms’ sustainable development in the medium and long term. Additionally, we observe a higher alignment of firms to the ESG framework led to the lower persistence of EVA in the medium and long term, especially because of the social factor that has played a central role in the economics of the recent COVID-19 pandemic crisis. Therefore, the orientation of firms’ strategy towards sustainable economic development is not enough, as it should mainly focus on circular-economy based principles, because of the potential of cost savings. Nonetheless, firms should pay attention to the financing decision in pandemic times, as the uncertainty at the macroeconomic level induces an additional risk of credit default, because of the lower capacity of generation of free cash flow. It is essential that operating efficiency should be achieved through proper capital allocation in areas that generate profitability even in times of crisis, whereas the assets not able to generate benefits should be redirected for other operational purposes, such as renting.

The results highlight once again the essential place of government institutions in firms’ sustainability landscape, especially in times of crisis, as fixed costs involved in both operational and ESG activities determine the significant impact on firms’ business continuity. Hence, the results of our study underline the relevance of management’s choice for earnings management on ensuring firms’ financial resilience, which ask for better corporate governance and high-quality and effective institutional regulatory and enforcement mechanisms. Moreover, the paper brings evidence on the impact of the COVID-19 pandemic on firms’ financial sustainable development and emphasizes the importance of the efforts of corporate process improvements and high-quality products on generating value add, by looking at the relevance of those drivers on the level of corporate economic value add, a measure that limits the impact of discretionary management accrual-based accounting choices on our discussion.

In this sense, the state should somehow support firms on aligning with more circular economy-based business models, by granting financial resources and providing macroeconomic guidance, to obtain synergy effects at least at the sector and country level [30,86].

It is also essential that the best practice in process improvements and the digitalization of business processes should be facilitated by the state, launching invitations of cooperation between governmental agencies, academics, and private sector specialists. Designing a theoretical framework of assessment for firms’ resilience is not sufficient, as the models formulated should be practical as well. Otherwise, the value-based firms’ performance will be significantly affected, as only superficial changes in business processes are made, without a structural and substantial transformation of the business model that should be more flexible and able to adjust to a rapidly changing business environment.

Overall, firms should become more and more aware of the importance of performing regular assessments of their capabilities to overcome shocks in their operations, by running different stress tests on the various processes and areas of strategic management. With better planning and the strong relationship between communication with shareholders and stakeholders, they can establish a positive reputation and induce confidence, that is indirectly reflected in the firms’ cost of capital as well.

Nonetheless, it is essential to emphasize that a crisis, such as the COVID-19 pandemic, gives them the opportunity to perform a lesson-learning analysis and workshops, aimed at redesigning processes and supporting the development of human capital to prevent future shocks through a more creative decision-making approach and the use of innovative disruptive technologies useful in improving operational and strategic planning, despite the economic uncertainty.

We emphasize as well some caveats of the study and the future research agenda. First, among the main study caveats, we mention the limited number of countries included in the sample and the lack of comparative analysis of the figures before and after the COVID-19 pandemic has started. Second, we acknowledge that the sample size is relatively low. Third, we underline the fact that the TQM proxy is perhaps too broad to provide clear insights on specific dimensions of the lean management, corporate process management, or quality management aspects of each business model. This limitation is given by the lack of such data on an international level, as the collection of such data requires a mixed research design, such as a questionnaire addressed to management, combined with secondary research data extracted from databases. Fourth, we are aware of the fact that the current analysis does not look for the decomposition of the variation in EVA for each component, nor does it look for a separate analysis of the variation in the cost of equity and, respectively, cost of debt and their impact on the variation of EVA. Fifth, we mention that the purpose of this study was not to look deeper into the efficiency of governments’ public policies during the COVID-19 pandemic crisis, as this would have asked for a comparative analysis ex ante and ex post the pandemic period. All those limitations of the study are considered by the authors for future research, which is expected to address the trilogy nexus assessment between organizational resilience, sustainability, and business process management, considering more targeted proxy variables, mainly based on research data collected via questionnaires sent to the top and middle management of several listed companies that are part of a regional or international ESG-related capital market index, such as the Dow Jones Sustainability index.