Innovation for Sustainable SMEs: How Financial Health Drives Resilience and Long-Term Performance in a Transition Economy

Read full text
Authors: Teodora Babić, Milorad Katnić, Ivana Katnić, Vladimir Kavaric, Maja Drakic-Grgur
Cited by: 3
References: 39

Abstract

Small- and medium-sized enterprises (SMEs) are central to sustainable development in transition economies, yet their financial fragility often limits resilience and the capacity to invest in innovation and responsible practices. Despite growing interest in SME, financial health and its role in sustainability, empirical evidence from small transition economies like Montenegro remains scarce, particularly on how liquidity and profitability dynamics underpin conditions for SDG-aligned growth. This study addresses this gap by analyzing how core financial indicators—cash position, capital structure, and working capital efficiency—affect liquidity and profitability among 345 Montenegrin SMEs across manufacturing, services, and trade. Using OLS and robust regression models, results reveal that a higher cash-to-revenue ratio and moderate leverage significantly enhance both short-term solvency and profitability, while working capital efficiency shows nuanced effects and sector-specific patterns emerge in capital-intensive industries. These findings highlight financial management as a foundation for SME resilience, creating financial preconditions for innovation and digital investments in aligned with SDGs (goals 8, 9, 12). Policy recommendations focus on improving finance access and financial literacy to foster innovation-driven, sustainable SME models aligned with the 2030 Agenda.

Fields of Study & Subjects

Working Capital and Financial Performance Regional resilience and development Financial Distress and Bankruptcy Prediction

Publication details

Journal / source
Sustainability
Publisher
MDPI AG
Volume
18
Issue
3
Pages
1145–1145
Publication date
23 January 2026
Language
EN