Digitalization and Its Impact on Small Medium Enterprises Financial Performance
Riska Nur Rosyidiana (a), Dian Agustia (b)

a) Doctoral Program in Accounting, Faculty of Economic and Business, Airlangga University, Surabaya, Indonesia- Faculty of Vocational Studies, Airlangga University, Surabaya, Indonesia.
riska.rosyidiana[at]vokasi.unair.ac.id
b) Department of Accounting, Faculty of Economic and Business, Airlangga University, Surabaya, Indonesia.
dian.agustia[at]feb.unair.ac.id

Abstract

Abstract
Purpose:
This study investigates the adoption of digitalization using the Technology-Organization-Environment (TOE) framework and its impact on the financial performance of Micro, Small, and Medium Enterprises (MSMEs) in Indonesia.
Design/methodology/approach:
A quantitative research design utilizing a survey questionnaire was employed to collect data from 299 MSME owners/managers across Indonesia. Structural equation modelling (SEM) was used to analyze and test the hypothesized relationships.
Findings:
The results indicate that technological, organizational, and environmental factors significantly and positively influence the adoption of digitalization among Indonesian MSMEs. Digitalization, in turn, has a strong positive effect on financial performance by reducing costs, improving customer communication, and increasing business resilience. The study also confirms that digitalization mediates the relationship between the TOE dimensions and financial outcomes, highlighting its strategic role in enhancing MSME competitiveness.
Research limitations/implications:
Cross-sectional data utilized in this study present limitations in explaining causal relationships, as these relationships may evolve over time. Future research should consider longitudinal and cross-country analyses to enhance generalizability and deepen understanding.
Practical implications:
The findings emphasize the necessity for MSMEs to adopt digital technologies strategically, supported by suitable organizational structures and favourable environmental conditions. Policymakers are advised to facilitate infrastructure, training, and regulatory environments conducive to digital transformation.
Originality/value:
This study enriches existing literature by empirically validating digitalizations mediating role within the TOE framework, specifically in the context of MSMEs financial performance in Indonesia, providing critical insights valuable for policy formulation and strategic decision-making in emerging economies.

Keywords: Digitalization, MSMEs, Financial Performance, TOE Framework

Topic: Entrepreneurship and small medium entreprises