Research on the effect of enterprise financial flexibility on sustainable innovation

The innovation and development of enterprises are influenced by both internal management and external economic policy uncertainty. This study examines methods for enterprises to ensure the development of sustainable innovation under economic policy uncertainty. Specifically, this study examines the effect of national economic policy uncertainty as a threshold variable on enterprise financial flexibility in a sustainable innovation model using the micro data of non-financial companies in China's A-share market from 2007 to 2019. Through an empirical analysis of the mechanism of the effect of enterprise financial flexibility on innovation, this paper discusses the possible "adaptive effect" of financial flexibility under policy uncertainty. Using a threshold effect model, this study examines the coefficient change of the negative effect of enterprise financing constraints on sustainable innovation caused by fluctuations in economic policy uncertainty and records the threshold value of the economic policy uncertainty index. The results show that a rise in policy uncertainty has a negative impact on enterprise innovation, and enterprises can actively adjust their flexible financial reserve to gain an adaptive effect under the influence of policy uncertainty. The results indicate a simultaneous threshold effect based on economic policy uncertainty in a model of enterprise financing constraints and sustainable innovation. Accordingly, the economic policy uncertainty index can be divided into a "reasonable area" and "warning area," to indicate the need for enterprises to take countermeasures to deal with the fluctuations caused by government economic policies appropriately.