Research Paper

SME performance in core and peripheral UK regions: Exploring the role of innovation and firm networks during times of financial distress

ERC Research paper No 107

Associated Themes
  • Business Growth
  • Productivity and performance

Small and medium-sized enterprises (SMEs) comprise 99.9% of the UK’s business population and generate 61% of UK employment. It is therefore not surprising that a global negative shock on the scale of Covid-19 would exert a long-term impact on the entire economic machinery. SMEs were the hardest hit. Covid-19 exposed their unregulated financial frailties and utter unpreparedness to withstand negative shocks of such great magnitude. During stable times, well-relegated firms can appear to be masters of growth, and this is for a good reason. In uncertain times, however, and particularly when the uncertainty is persistent, weaker corporations are exposed and may be pushed out of the market unless kept afloat by government intervention. But government support for failing businesses imposes a costly burden on all, and it is a burden that, in the UK at least, seems to be growing bigger and heavier over the long-term. It is, for example, worth noting that the UK is currently experiencing high inflation, with consequent increases in the base interest rate. This paper contributes to the literature on pandemic-driven/financial crisis and the resilience of SMEs. Specifically, we empirically test the direct link between innovation, networking, financial obstacles, and several other variables, and SME performance, and examine the potential interaction effects of the key explanatory variables with a Covid-19 recession dummy.