The Effects of Dynamic Capabilities on Firm’s Financial Performance

Abstract

Firms often face significant challenges to stay competitive in the present economic environment, thus, dynamic capabilities are vital as it is a substantial factor in accomplishing better business performance. This study involved yearly data of 62 firms in the ACE market that engaged with dynamic capabilities, the data was collected from the year 2012-2021. The data was gathered from the firm's annual report and has been analyzed using two-step GMM. Generally, the ACE market is consistently associated with inferior performance and capital compared to the main market. Hence, the market has the possibility of being delisted and affecting capital market performance. Therefore, this study includes dynamic capabilities in the ACE market to study the market’s performance. The results obtained are consistent with the theory, whereby changes in dynamic capabilities contributed to a positive return on the firm’s performance. However, the small capital nature of the ACE Market limits the investment in the dynamic capabilities. This study concluded that more priority to be given to the awareness of dynamic capabilities in the current competitive era. The result proved that the investment in the dynamic capabilities improved the performance of the Ace market even though some of the firms in the ACE market ignored dynamic capabilities due to capital constraints. Thus, policymakers should play their role in providing grants for the firms in the ACE Market to improve the investment in dynamic capabilities.