Innovation Strategies to Reduce SMEs’ Bankruptcy Prediction During COVID-19 Pandemic in Central Java

Abstract

As a result of the COVID-19 epidemic, the business sector, particularly SME’s, is
currently undergoing turbulence. To combat this epidemic, SMEs doers must increase
their efficiency and effectiveness and maximize their market share by leveraging
possibilities and innovative solutions. Prior to and during a pandemic, small and
medium-sized enterprises (SMEs) faced challenges that may have led to their bankruptcy
rather than having a large influence on the national economy and the micro welfare.
having The purpose of this study was to determine the effect of the innovation strategy
carried out by SMEs in dealing with potential bankruptcy in the Covid-19 pandemic
era. Innovation strategy is measured through “Cost Research and Development”, while
bankruptcy prediction is calculated using “Z Score Altman Model”. The research used
primary data, namely financial data questionnaires, while the sample and research
population were SMEs in the province of Central Java. The results show that the
innovation strategy is proven to be able to influence SMEs bankruptcy prediction, and
its financial performance is proven to be a significant moderating variable which, if it
shows good results, then it can weaken the bankruptcy prediction. Furthermore, this
innovation strategy is also able to reduce the prediction of bankruptcy because it has a
positive effect; the higher the innovation strategy, the higher the Z-Score value is, while
the potential for bankruptcy prediction becomes smaller.