Transformation of startups in China: innovation’s role in driving financial agility

Purpose This study aims to examine the impact of digital technology adoption (DTA), market responsiveness (MR), business model dynamism (BMD) and corporate social responsibility initiatives (CSRI) on financial agility (FA) in Chinese startups. Particular attention is given to the mediating role of innovation initiatives (II) in converting strategic orientations into agile financial responses. The research addresses gaps in the Chinese entrepreneurship literature by repositioning innovation as a mediating capability, rather than merely an outcome, and contributes new insights into dynamic capability building under contextual constraints. Design/methodology/approach A quantitative research design was used, using data collected from a structured survey administered to 404 startup executives across diverse regions in China. Structural equation modelling was used to test the proposed relationships and evaluate both direct and indirect effects. The study incorporated validated multi-item measures for six constructs and applied stratified random sampling across 20 industry-region strata to enhance generalisability. Findings DTA and BMD have a significant direct effect on FA. Conversely, MR and CSRI do not directly influence FA but demonstrate strong indirect effects through II. The results confirm that II serve as a critical mediating mechanism, enabling strategic inputs to translate into adaptive financial practices. This underscores the importance of innovation not only as an output of strategy but also as a conduit for financial adaptability, particularly in resource-constrained startup environments. The mediating effects were statistically significant across all tested pathways. Practical implications The study offers practical guidance for startup leaders to embed innovation capabilities within their digital, market and CSR strategies to enhance financial flexibility. It encourages managers to integrate innovation into strategic planning to improve resource adaptability in volatile markets. Policymakers are advised to incentivise innovation-led digital transformation and responsible entrepreneurship by offering targeted fiscal, regulatory and institutional support, especially for startups operating in high-uncertainty contexts. Social implications The findings promote innovation-led FA as a pathway to sustainable entrepreneurship, aligning with broader societal goals such as inclusive economic growth and digital equity. By enabling startups to better manage risk and adapt to change, the study supports the creation of employment, regional development and the diffusion of socially responsible practices. It encourages inclusive policy measures that foster long-term resilience in underserved or emerging innovation ecosystems. Originality/value This study contributes to entrepreneurship and strategic management literature by introducing a novel conceptualisation of II as a mediating construct that links external strategic orientations to FA. Differentiating itself from prior Chinese studies that treat innovation as an outcome, this research provides empirical evidence for a process-oriented model of resilience. It offers an integrated, context-sensitive framework for enhancing startup adaptability through innovation-led transformation in volatile environments.