Effect of human capital on the performance of small and medium enterprises: a mediating role of innovation practice in Ethiopia

Dinku, Ashenafi Eneyew; Singh, Manjit; Singh, Sandeep Article Effect of human capital on the performance of small and medium enterprises: a mediating role of innovation practice in Ethiopia Cogent Business & Management Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Dinku, Ashenafi Eneyew; Singh, Manjit; Singh, Sandeep (2024) : Effect of human capital on the performance of small and medium enterprises: a mediating role of innovation practice in Ethiopia, Cogent Business & Management, ISSN 2331-1975, Taylor & Francis, Abingdon, Vol. 11, Iss. 1, pp. 1-19, https://doi.org/10.1080/23311975.2024.2434729 This Version is available at: https://hdl.handle.net/10419/326727 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Cogent Business & Management ISSN: 2331-1975 (Online) Journal homepage: www.tandfonline.com/journals/oabm20 Effect of human capital on the performance of small and medium enterprises: a mediating role of innovation practice in Ethiopia Ashenafi Eneyew Dinku, Manjit Singh & Sandeep Singh To cite this article: Ashenafi Eneyew Dinku, Manjit Singh & Sandeep Singh (2024) Effect of human capital on the performance of small and medium enterprises: a mediating role of innovation practice in Ethiopia, Cogent Business & Management, 11:1, 2434729, DOI: 10.1080/23311975.2024.2434729 To link to this article: https://doi.org/10.1080/23311975.2024.2434729 © 2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group Published online: 01 Dec 2024. Submit your article to this journal Article views: 1184 View related articles View Crossmark data Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=oabm20 EntrEprEnEurship & innovation | MEthod Cogent Business & ManageMent 2024, VoL. 11, no. 1, 2434729 Effect of human capital on the performance of small and medium enterprises: a mediating role of innovation practice in Ethiopia ashenafi Eneyew dinku, Manjit singh and sandeep singh school of applied Management, Punjabi university, Patiala, india ABSTRACT in this knowledge economy era, people-dependent intangible organizational resources, such as human capital, drive sMEs’ innovation and performance globally. however, scant literature examines the nexus between human capital, innovation, and sMEs’ performance. hence, the study aimed to examine the mediating role of innovation practice in the nexus between human capital dimensions (formal education and managerial skill) and the performance of sMEs. a proportionate stratified with a simple random sampling technique was used to take 425 representative owner-managers of sMEs in Ethiopia. CB-sEM was used for data analysis. Findings reveal that owner’s managerial skills and formal education significantly and positively influence sME performance and innovation practice. however, innovation practice partially mediates the nexus between formal education, managerial skills, and sME performance. hence, the study suggests for policymakers and stakeholders to play a critical role in aligning the formal education system and managerial skill development to stimulate innovation and improve sMEs’ performance. the study also suggests for sMEs to leverage their owners’ human capital for innovation-driven performance. Furthermore, this study contributes novel insights that add to the body of knowledge in the extant entrepreneurship field. 1. Introduction in this dynamic and competitive business environment, intangible resources, such as human capital, would make a difference in advancing a competitive advantage, fostering innovation, and value creation to bolster the performance of sMEs (Kasumawijaya & astuti, 2023; astuti etal., 2021; dogbe etal., 2021). as the economic paradigm has shifted from an industrial revolution framework to a knowledge-based economy since the 20th century, organizations demand adequate human capital to support their performance (Khan & Quaddus, 2018). also, the notion of large-scale firms that took advantage of economies of scale as the only driving force of growth and development until the 1960s has shifted to a more vital role for sMEs in the national economy worldwide (Weldeslassie et al., 2019). as a result, properly synchronizing human capital, innovation, and sME performance emerges as a potent mechanism for fostering national economic growth and the prosperity of individual organizations and business owners. however, the contribution of human capital and innovation to the performance of small and medium enterprises (sMEs) and the national economy is often perceived as low in developing countries (ussif & salifu, 2020). For instance, ussif and salifu (2020) identified that low levels of education and improper record-keeping hinder the performance of 200 sME operators in Ghana, nigeria, and togo. ahmad and ahmad (2021) found that more than 80% of sMEs failed within three years of operation due to mismanagement, a lack of innovation, and a lack of strategic planning implementation in pakistan. also, in data collected from 2009 to 2018 in Ethiopia on the determining factors for the sustainability of sMEs, 320 or 49.23% of sMEs were found to be terminated or failed enterprises (ayele & derseh, 2024). Weldeslassie © 2024 the author(s). Published by informa uK Limited, trading as taylor & Francis group CONTACT ashenafi eneyew Dinku ashenefeney[email protected] Punjabi university, nH 64, urban state Phase ii, Patiala, Punjab 147002, india https://doi.org/10.1080/23311975.2024.2434729 this is an open access article distributed under the terms of the Creative Commons attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. the terms on which this article has been published allow the posting of the accepted Manuscript in a repository by the author(s) or with their consent. ARTICLE HISTORY received 3 January 2024 revised 12 september 2024 accepted 15 november 2024 KEYWORDS performance of sMEs; human capital; formal education; managerial skill; innovation practice; CB-sEM; Ethiopia SUBJECTS Entrepreneurship and small Business Management; Management of technology & innovation; human resource Management 2 a. E. dinKu EtaL. et al. (2019) also identified that a lack of human capital, innovation, product and market development, government and public policy coordination failure, and financing sources are the critical challenges of sMEs’ performance in Ethiopia. similarly, poor management and a weak market chain caused 213, or 62.1% of sample micro and small-scale manufacturing enterprises, to fail in Ethiopia (abera et al., 2019). the above evidence revealed that low levels of human capital and innovation cause poor performance of sMEs in developing countries, including Ethiopia. hence, it calls for the attention of sME owners, policymakers, researchers, and stakeholders to alleviate the problem, particularly in a developing country context. Moreover, it is conceptualized that the performance of sMEs is significantly enhanced by the interplay influence between sMEs’ innovation practices and human capital. innovation practices enhance the company’s offerings, procedures, marketing strategies, and overall efficiency and help develop superior products to those of competitors (dogbe et al., 2021). however, innovation practices in sMEs are emerging in developing countries and have been developed by big companies for profit in developed countries (pachouti & sharma, 2016). also, studies on the nexus between innovation and the performance of sMEs are concentrated in the Western, Middle, and Far East and minimal in africa (ndesaulwa & Kikula, 2016). hence, this study fills the research gap from the perspective of a developing country, Ethiopia. in this study, human capital is measured by formal education (FE) and managerial skill (Ms), which are the basics of human capital and are important for the competitiveness and performance of sMEs (schultz, 1961). While previous studies examined the relationship between FE and Ms with the performance of sMEs in isolation, these studies did not consider FE and Ms from the perspective of measuring human capital (appiah etal., 2023; deng & Wang, 2023; ahmad & ahmad, 2021; asah et al., 2015). additionally, previous studies focused on the training, educational level, and experience dimensions of hC and have overlooked much of the FE and Ms dimensions of hC (dar & Mishra, 2019; Mubarik etal., 2020; samagaio & rodrigues, 2016). Moreover, there is a lack of study on the mediating role of innovation practice (ip) in the nexus between hC and the performance of sMEs in the extant literature, except for a few related studies that have explored the mediating role of innovation on the nexus between hC dimensions (training, experience, and knowledge) and the performance of sMEs (timothy, 2022; aliyu et al., 2019; prange & pinho, 2017; Byukusenge & Munene, 2017). hence, studying FE and Ms as a measure of hC on the mediating role of innovation practice in the nexus between human capital and the performance of sMEs is a new approach that fills the research gap and advances the knowledge base of the entrepreneurship literature. this study uses human capital theory (hCt) and resource-based view (rBv) as a theoretical foundation to examine the mediating role of ip in the nexus between human capital and the performance of sMEs. rBv posits that a firm’s competitive advantage stems from its unique resources and capabilities, including human capital (Gerhart & Feng, 2021; Kraaijenbrink, 2011). hence, people-dependent intangible organizational resources such as hC create competitiveness and sustainability advantages over tangible organizational resources such as physical assets and financial capital (hall, 1993). recently, the rBv has emphasized the need for increased attention to hC since hC is crucial not only to individual-level outcomes such as job performance and employee development but also for firm-level outcomes such as competitive advantage and capability development. Because of this, hC becomes a strategic issue for management (Cipd technical report, 2017). as a result, it implies that hCt advances from the rBv. similarly, hCt states that employees, managers and owners with a higher quality hC enriched with education and skills contribute significantly to the performance of sMEs (Wernerfelt, 1984). Education is of profound importance in improving the owner-managers efficiency and productivity through the inculcation of knowledge and abilities that are utilized in the operation of the business, thereby boosting the performance of the enterprises (Musavi & Maingi, 2018). appiah and associates found that formal fashion education has a significant positive effect on the business performance of Ghanaian small-scale fashion designers (appiah et al., 2023). however, studies underscored that the relationship between formal education and the performance of sMEs needs immense attention to critically implementing educational interventions through well-articulated entrepreneurship education in formal educational institutions to enrich students with adequate human capital in terms of knowledge, skills, and attitudes, which is an asset for their future business endeavors (appiah et al., 2023). in this regard, asghar etal. (2023) recommended that educators enable graduates/students to adopt the technology and generate new ideas in CoGEnt BusinEss & ManaGEMEnt 3 various innovations to enhance business activities in a country. as a result, it calls for policy interventions to amend the educational programs of formal educational institutions to advance trainees’/business owners’ human capital in various realms of knowledge, including entrepreneurial mindset, that enable them to start and run their future business endeavors. this study contributes significantly to advancing existing knowledge in the entrepreneurship literature. it broadens the scope of the literature by examining the mediating role of ip in the nexus between FE and Ms and the performance of sMEs, particularly from a developing country, Ethiopia, where there has been scant empirically tested prior research. it is also essential to create room for the regional sME offices, policymakers, and government to design appropriate policies, goals, and strategies to enhance the sME owners’ human capital and the performance of sMEs. Moreover, the study provides lessons to promote entrepreneurship or technical education in formal educational institutions so that potential future owners of sMEs can acquire the necessary skills and knowledge or human capital to start their businesses and reach success. Furthermore, this study insists that business owners of sMEs continuously update themselves by taking timely and needed training to fill knowledge and skills gaps. sMEs are the backbone of the Ethiopian economy next to agriculture and a source of employment for many young citizens, particularly in the private sector (Weldeslassie et al., 2019). hence, Ethiopia has given considerable attention to fostering the performance and contribution of sMEs to gross domestic product, employment, and income generation through developing supportive policies and strategies. however, they are still challenged by a lack of access to capital financing, low innovation and human capital capabilities, and a lack of market linkages for their products (ayele & derseh, 2024). due to the above research gaps, this study examined the effect of owners’ hC on the performance of sMEs and the mediating role of ip in the nexus between owners’ hC and the performance of sMEs engaged in construction, manufacturing, urban agriculture, and service sectors in dessie, Kombolcha, Kemisse, and Woldia cities of the amhara regional states of Ethiopia. the rest of this study is organized as follows. the literature review presents the theoretical and hypothesis section. next is the materials and methods section, followed by the data analysis and results section. discussions, conclusions, limitations and implications are discussed in that order. 2. Literature review 2.1. Theories underlying the study 2.1.1. Resource based view (RBV) the rBv states that businesses can typically build a long-term competitive advantage when a firm can gain a competitive edge in its industry by having resources with unique attributes like rare, inimitable, valuable, and non-substitutable. it, in turn, leads to a sustained performance that significantly aids in the expansion and development of the business as a whole (Barney, 1991). hence, when sMEs are supported by unique resources, such as human capital developed as a result of formal education and managerial skill development, they will have more innovative capabilities than others who do not apply such unique resources in their endeavors, consequently improving their performance. From the rBv perspective, Wernerfelt (1984) considers managerial skills to be the foundation of a firm’s superior performance and competitive advantage. sMEs with better expertise can identify market changes faster and recognize lucrative prospects before their rivals do (pitelis, 2009). the human capital of the owners, which can be expressed in terms of managers and other employees’ relationships, training, experience, and ideas are necessary for enhancing innovation and performance of sMEs (dogbe et al., 2021). 2.1.2. Human capital theory (HCT) the human capital theory states that the human accumulated knowledge acquired via formal education, training, and work-related experiences has leveraged the performance of sMEs (Gimeno et al., 1997). Bruderl and colleagues were the first scholars to apply human capital theory to the entrepreneurial setting (Bruderl et al., 1992), emphasizing that hC is a decisive factor in enhancing the capabilities of business owners. Before Bruderl and associates used the human capital theory in the entrepreneurial setting, 4 a. E. dinKu EtaL. hC was perceived to enhance employees’ capabilities in an organization’s human resource management setting (schultz, 1961). hence, the investments made to improve the knowledge and skills of owner-managers will bring multi-fold returns to the sMEs’ performance (Gyasi et al., 2020). 2.2. Human capital and the performance of SMEs human capital (hC) refers to the collection of economically productive human capabilities, including knowledge, health, skills, and other desirable attributes that contribute to successful endeavors acquired through general education and specialized skills. skills are a subset of human capital tailored to specific tasks, jobs, or enterprises obtained through specialized education or training (african development report, 2011). according to somko et al. (2023), a comprehensive strategy involving education, healthcare, institutionalization, and investments in knowledge and skills is necessary for human resource development. Education and professional training are one approach to improving knowledge and skills and, consequently, human capital (abdullayev, 2023). health care also has a crucial role in extending life expectancy, decreasing illness and mortality rates, and fostering human capital advancement (somko et al., 2023). human resources development in businesses is also significantly influenced by professional development, innovation, and investments in human resources (Zhuravlev et al., 2018). Multiple studies have underscored the pivotal role of human resources in MsMEs. the competence, leadership abilities, expertise, and knowledge of human resources have been shown to impact the performance of MsMEs significantly (Musthafa et al., 2024). their influence on innovation and performance makes human resources a critical factor in the success of MsMEs (hamsani etal., 2022). a study by Chika and Chike (2021) on 270 MsMEs’ employees in anambra further supports this, demonstrating that developing human capital through employee training can enhance MsMEs performance. he and Estébanez (2023) conducted research on a sample of 846 Chinese sMEs from various industries. their investigation revealed that human capital, particularly through highly skilled staff, significantly enhances the performance of sMEs. similarly, abdullayev (2023) noted that a manager’s cognitive competence has a substantial influence on organizational performance. this underscores the crucial role of human capital in fostering economic development in the face of intense global competition (he & Estébanez, 2023). Musthafa etal. (2024) conducted a literature review to investigate the characteristics of human capital that influence the performance of MsMEs. the hC dimensions revealed in the study, such as education and training, employee motivation and engagement, skills and competencies, employee health and well-being, innovation and creativity, communication and cooperation, digital skills, and entrepreneurship, were found to significantly impact MsME performance. Furthermore, effective managerial skills are critical for the growth and success of MsMEs (ng’ora etal., 2022). Financial management, marketing, human relations, and entrepreneurial skills are critical for effective business operations (Macedo et al., 2020). however, many MsME owners and managers lack these skills, particularly in financial management, marketing, and entrepreneurial abilities (nambira & namene, 2020). 2.3. Human capital dimensions as hC is a complicated, multidimensional phenomenon with many intangible dimensions, it is challenging to measure precisely by one variable, a collection of items, or their combined sum (Khan & Quaddus, 2018). as a result of these intangible attributes of hC, a common measurement model has yet to be developed in the literature so far to measure owners’ hC in sMEs. hence, scholars in the field have used different measurements for hC. For instance, Mubarik etal. (2020) have used experience, skills, education, abilities, and training as core dimensions of human capital for sMEs. also, dar and Mishra (2019) have developed knowledge, experience, education, and skills as a human capital measurement scale for sMEs. Moreover, samagaio and rodrigues (2016) considered education, experience, professional proficiency, proactivity, and personality as human capital attributes. CoGEnt BusinEss & ManaGEMEnt 5 Empirical studies on the nexus between hC and the performance of sMEs showed that formal education and managerial skills as the components of human capital have yet to be studied well by previous researchers in sMEs in the entrepreneurship field (hani, 2021; Beltramino et al., 2020; popescu et al., 2020). 2.4. Hypothesis development 2.4.1. Formal education and the performance of SMEs Formal education is a structured system that imparts knowledge to the learners in educational institutions, either in person or through e-learning platforms. Learning or education leads to acquiring knowledge, considered a strategic asset that makes a difference in sMEs’ performance and competitive advantage by fostering innovation, adaptation to market changes, and resilience in the face of challenges (tian etal., 2021). in connection, park and Choi found that formal and informal learning positively influences south Korean sME performance (park & Choi, 2016). also, deng and Wang (2023) asserted that formal education is a determining factor for students to make successful entrepreneurial decisions in the global innovation and emerging technology market. Moreover, adequate human capital education and training contribute to sMEs’ high performance (saah, 2022). Moreover, the learning system that leans toward uplifting the performance of sMEs needs to be put in place depending on the knowledge gap of the owner-managers in the given context because well-educated and skilled owner-managers can give sMEs a competitive advantage in today’s knowledge-driven economy (debarliev et al., 2022). also, understanding the effect of formal education on sMEs’ performance can aid policymakers in formulating education and entrepreneurship policies, enabling tailored training and programs for employees and owners (pham etal., 2023). Furthermore, the relationship between FE and the performance of sMEs needs to be studied well in the field. hence, based on the preceding discussions, the study posits the hypothesis that; hypothesis 1: Formal education has a positive significant effect on the performance of sMEs 2.4.2. Managerial skill and the performance of SMEs Managerial skills are the organizational resources necessary to address impending challenges, direct the firm’s operations through the development of organizational planning, and deal with impending challenges (asghar et al., 2023). Managerial skills help to make informed decisions, which contributes to effective management in today’s competitive business landscape, giving sMEs a competitive advantage and significantly contributing to sMEs’ performance (sawaean & ali, 2020). in connection to this, the study done by ahmad and ahmad revealed that managerial skills significantly and positively affect the performance of sMEs in punjab, pakistan (ahmad & ahmad, 2021). also, managerial skills, as measured by effective financial management, good interpersonal skills, tenant monitoring skills, good marketing skills, technologically versatile skills, problem-solving skills, and network capability skills, had a significant positive effect on the performance of small, medium, and large-scale agribusiness incubators in india (Bose et al., 2017). in a nutshell, examining the nexus between managerial skills and sME performance signifies the importance of leadership, communication, and interpersonal skills in fostering a positive work environment, thereby enhancing the performance of sMEs (daudu et al., 2015). Furthermore, managerial skills are one of the building blocks of human capital. however, they have yet to be studied well enough to advance human capital in the literature. hence, based on the preceding discussions, it is proposed that; hypothesis 2: Managerial skill has a significant positive relationship with the performance of sMEs 2.4.3. The mediating role of innovation practice From the theoretical perspectives of rBv and hCt, it is posited that innovation plays a crucial mediating role in the relationship between human capital and the performance of sMEs. according to rBv, unique organizational resources enhance the innovative competitiveness of sMEs, thereby contributing to their 6 a. E. dinKu EtaL. higher performance (Barney, 1991). it is argued that continuous managerial skills development stimulates the generation and adoption of innovations that enhance sME performance (Wernerfelt, 1984). similarly, hCt argues that educational investments foster the growth of human capital with technical skills and cognitive capabilities, enabling sMEs to more readily adopt and implement innovative practices, thereby enhancing organizational performance (short, 2019). similarly, empirical studies revealed that innovation mediates the relationship between human capital and the performance of sMEs. For instance, marketing innovation partially mediates the relationship between top managers’ human capital (managers’ educational qualifications and years of experience) and sME productivity (timothy, 2022). also, organizational innovation has a complementary partial mediation effect in the nexus between personal drivers and sME international performance (prange & pinho, 2017). similarly, innovation fully mediates the relationship between knowledge management and the performance of sMEs in rwanda (Byukusenge & Munene, 2017). aliyu and associates also identified a significant mediating role of innovation in the nexus between training and the performance of women in MsMEs in nigeria (aliyu et al., 2019). however, the mediating role of ip in the nexus between FE, Ms, and the performance of sMEs is relatively uncharted in the extant entrepreneurship literature. as it contributes to advancing the body of knowledge of the extant entrepreneurship literature and based on the discussions above, the study proposes the following hypothesis: hypothesis 3: innovation practice mediates the positive relationship between formal education and the performance of sMEs hypothesis 4: innovation practice mediates the positive relationship between managerial skill and the performance of sMEs 2.5. Conceptual research model the conceptual research model is developed based on the theoretical and empirical reviews of the study. though multifaceted (Baylie & singh, 2019), this study assesses the performance of sMEs by subjectively evaluating the owner-managers perceptions of their company profitability, market share, sales volume, and personal wealth (Zulkiffli, 2014). Figure 1 shows the conceptual research model that shows the nexus between human capital dimensions, innovation practice, and sMEs’ performance. 3. Materials and methods 3.1. Sampling procedure Ethiopia is one of the developing countries in East africa, dominated by a young population, and its economy mainly lies in rural agriculture and sMEs. the researcher contacted the Labor and skills and industry and investment offices of dessie, Kombolcha, Kemise, and Woldia cities to identify the types and sizes of sMEs in the amhara region of Ethiopia. as a result, 857 private formal sMEs were identified from the 2022 annual report of these offices in the respective cities. Figure 1. Conceptual research model. CoGEnt BusinEss & ManaGEMEnt 7 a two-stage sampling technique was adopted. in the first stage, sMEs were considered as the primary sampling units. a pilot study was conducted on 50 randomly selected sMEs, making the final target population 807 sMEs after excluding 50 pilot sMEs. a total of 425 sample sMEs were included in the study by applying the daniel soper sample size determination formula with an anticipated effect size of 0.2, a desired statistical power level of 0.8, and a probability level of 0.05 (soper, 2023). a proportionate stratified sampling technique was used to take representative sMEs from the strata of enterprises. Moreover, simple random sampling with a lottery method was used to sample sMEs within each enterprise’s category. in the second stage, sME owner-managers were considered the secondary sampling units. a total of 425 owner-managers of the already identified 425 sMEs in stage one, one owner-manager from each enterprise, were included as respondents of the study purposively because better information regarding the study’s objectives is obtained from them. Moreover, to address potential response bias in the study, the samples were ensured to be randomized, as they were randomly drawn from the available lists of sMEs in the labor and skill, industry, and investment offices (Malhotra et al., 2017). Moreover, harman’s single factor and common latent factor methods were used to examine the potential response bias of respondents. the results revealed negligible response or common method bias in the study. 3.2. Ethical approval and informed consent in order to comply with the ethical guidelines of conducting research involving human participants, the present study was approved by the Board of postgraduate studies and research in the Faculty of Business studies of punjabi university, india, with a reference number of 265/research. Moreover, written informed consent was obtained, and the ethical guidelines in research involving human participants, including describing the study’s pure academic purpose, confidentiality of the participant’s responses, and their willingness to participate voluntarily, were informed in the introductory part of the questionnaire. additionally, the researcher started the data collection process after a formal support letter that clearly describes the purpose of the study from Wollo university, Ethiopia, where the researcher has been working, was submitted to and got full acceptance from the industry and investment and Labor and skill offices because these offices are responsible for the establishment and follow-up of sMEs. 3.3. Scale development a structured questionnaire was developed comprising dichotomous, multiple-choice, and Likert scale items. a five-point Likert scale items were developed with strongly disagree (1), disagree (2), neutral (3), agree (4), and strongly agree (5). this indicates that the items have been developed using a quantitative approach. Five items were developed for the formal education construct. two items, ‘the company’s owner-manager has improved his/her knowledge via education in formal educational institution’ and ‘the company’s owner-manager has completed his/her education in formal educational institution’, were developed by the researchers. the remaining three items were taken from (Mubarik et al., 2020) with some modifications in sentence wording. Eight managerial skill items were taken from (asah etal., 2015; agbim, 2013) with some modifications in sentence wording. Lastly, seven innovation practice and five performance of sMEs items were taken from (Baylie & singh, 2019). twenty-five Likert scale items were developed in total. 3.4. Data collection procedure a questionnaire is the appropriate data-collecting instrument for explanatory research (saunders et al., 2016). due to this, a 5-point Likert scale questionnaire was developed. after being developed in English, the questionnaire was translated into amharic, one of the local languages widely and commonly spoken in the study area, to make every respondent easily understand and respond. the Cronbach’s alpha values of the pilot test ranged between 0.718 and 0.816, which is above the threshold value of 0.7 (hair et al., 2019), indicating that the questionnaire is a reliable instrument to collect data from the respondents of 14 a. E. dinKu EtaL. practices, in turn enhancing the performance of sMEs, policymakers should align the formal education system and managerial skill development systems via inculcate strategies to make future owner-managers human capital competent enough to foster the innovation practice of organizations, particularly sMEs to improve their performance. the issues of education, innovation, and sME performance are linked to the Ministry of Education, Ministry of Labor and skills, investment Commission, Ministry of industry, and Ministry of innovation and technology in the Ethiopian context. hence, these institutions and interested stakeholders should take the initiative to play key roles in transforming the entrepreneurship-oriented formal education system and innovation culture to transform the performance of sMEs in Ethiopia. For instance, policymakers should revise the educational curricula of educational and training institutions by incorporating entrepreneurship and technical-oriented courses. also, sMEs should formulate innovative strategies to boost their future innovativeness, in turn, enhance their performance. Furthermore, innovation culture is a keen instrument for fostering sMEs’ productivity, growth, and sustainable performance globally. hence, while innovation is backed by adequate human capital enriched with quality formal education and managerial skills, the contribution of innovation to the competitiveness and sustainable performance of sMEs would be higher, particularly in this knowledge economy era. so, it is better to invest in innovation and hC no matter how much it costs the sMEs and the government. in a nutshell, in this knowledge era, firms’ intangible resources, such as human capital, mount enormous performance improvements by far more than the tangible resources that firms usually own and use. hence, investing in hC development and innovation enhances the knowledge and skills of sMEs’ owners, which drives them to perform better and more competitively. 7.Theoretical contributions and practical implications 7.1. Theoretical contributions this study contributes to the literature in various ways. First, the study findings deduce that human capital dimensions (FE and Ms) positively and significantly influence the performance of sMEs. so, the study substantiates the human capital theory, which theorizes that human capital has incredibly leveraged organizations’ performance. second, the choice of FE and Ms as dimensions of hC has yet to be studied well by previous researchers. so, FE and Ms as measures of hC are new and better ways of looking at hC dimensions, unlike previous researchers who focused on educational level, experience in the sector, and training as the components of human capital (dar & Mishra, 2019; Mubarik et al., 2020). thus, this study further enriches the dimensions of hC in the entrepreneurship literature. third, this study also supports the rBv in that while educated and skilled owner-managers run sMEs, the innovative practices of sMEs will be improved, again making sMEs outperform their rivals in profitability, market share, and sales (Barney, 1991). Fourth, ip has a mediation effect on the nexus between FE, Ms, and the performance of sMEs. so, the present study contributes theoretical support for ip’s mediating role in the relationship between FE, Ms, and the performance of sMEs in the extant entrepreneurship literature. in other words, this study proposed a new model for future researchers in the field, focusing on the mediating role of ip on the nexus between FE, Ms, and the performance of sMEs. 7.2. Practical implications Besides its theoretical contributions, this study offers practical implications that underscore the pivotal role of owner-managers and policymakers in driving performance within sMEs in Ethiopia: First, the study highlights how important it is for sMEs to invest in their human capital and promote an innovative culture. this can boost the sustainability and competitiveness of sMEs by directing strategic decision-making and resource allocation. second, the study suggests that sME owner-managers should take short-term capacity-building training and education programs. third, owner-managers of sMEs should update themselves with contemporary knowledge and managerial skill gap training in progressive ways via online education programs and technology-based training such as e-commerce. this will improve their dynamics of CoGEnt BusinEss & ManaGEMEnt 15 thinking outside the box in various innovative activities, such as incremental and radical innovations, which, in turn, can enhance sMEs’ performance. Moreover, the study’s partial mediation relationship between human capital, innovation, and the performance of sMEs can offer valuable insights to the government and policymakers for creating and implementing policies that encourage entrepreneurship, enhance workforce competencies, and create innovation ecosystems that support sME growth. Governments and policymakers, for instance, create policies for investing in human capital development through entrepreneurial education, continuous professional development, and vocational training specific to sMEs’ needs. policymakers should also encourage cooperative networks between sMEs, large enterprises, academic institutions, and governmental organizations to support sMEs’ innovation and performance. tax relief for those sMEs that participate in innovation-related activities like research and development, product development, and process improvements could be used by policymakers to encourage innovation. additionally, by encouraging a mindset shift toward continuous improvement and creativity, governments should support an innovative culture within sMEs. 7.3. Limitations and future implications Based on the limitations identified in this study, the following implications were forwarded to future researchers and policymakers. the data were collected only from the owner-managers of sMEs in Ethiopia. the possibility of obtaining biased information on their companies from the owner-managers can be validated if employees can also participate in the study. so, future researchers shall include employees as sources of information so that the findings will be more plausible. Geographically, the study is confined to four cities in Ethiopia’s amhara region. the study shall have more impact if its external validity or generalizability is sound. so, future researchers shall extend the geographical scope by adding more cities from Ethiopia. Moreover, any future researchers interested in the study shall replicate the study in a different context globally. FE and Ms constructs were used as measures of hC in this study. Future researchers shall enrich the hC dimensions by adding the variables ‘attitude and informal education/learning’. attitude is one of the Kas attributes (knowledge, attitude, and skills) used to measure the human resource competency level. Like formal education, informal learning or education needs to be studied as one of the dimensions of human capital (park & Choi, 2016). this study uses composite or generic innovation practice as a construct. Future researchers shall investigate innovation by specific product, process, market, and organizational innovation (Kahn, 2018; Gault, 2018; atalay et al., 2013; Bohosievici, 2009). hence, future researchers can extend the hC-ip-performance research model. this study only took sMEs. as large-size enterprises are also important for the nation in various aspects, future researchers shall replicate the study on large-scale enterprises in Ethiopia. the present study used a cross-sectional design. the performance trends in sMEs across extended periods are vital for policymakers. hence, future researchers shall use a longitudinal design. Acknowledgements the researchers extend warm thanks to the employees of Labor and skill, industry and investment offices in dessie, Kombolcha, Woldia, and Kemissie Cities for their collaboration in distributing and collecting the questionnaire and to owners-managers of sMEs who spare time in filling out the questionnaire. Author contributions ashenafi Eneyew dinku contributed in the conception and design of the title, data collection and feeding in software, analysis and interpretation of the data; drafting of the paper, and read and approved the final manuscript to be published. professor Manjit singh contributed in the conception and design of the title, analysis and interpretation of the data, critically revising the manuscript, and read and approved the final manuscript to be published. dr. sandeep singh contributed in the conception and design of the title, analysis and interpretation of the data, critically revising the manuscript, and read and approved the final manuscript to be published. 16 a. E. dinKu EtaL. Disclosure statement no potential conflict of interest was reported by the author(s). About the authors Ashenafi Eneyew Dinku is an assistant professor in the department of Management at Wollo university, dessie, Ethiopia. he is currently pursuing his phd in university school of applied Management at punjabi university, patiala, india. he completed his Ba and MBa degrees from addis ababa university, Ethiopia. his key research areas include corporate social responsibility, human resource management, leadership, and entrepreneurship. Dr. Manjit Singh is a professor at the university school of applied Management, punjabi university, patiala, is a seasoned academician with an illustrious research career. over nearly three decades, he has contributed extensively to Management and Commerce education, publishing 140 scholarly articles in leading national and international journals. his research spans corporate governance, financial well-being, and sustainability, with significant contributions to socially responsible investing and financial inclusion. dr. singh’s work has been recognized with prestigious awards, has successfully guided more than 38 ph.d. scholars and has a remarkable international engagement including leadership roles in rwanda and participation in programs by stanford university, unEsCo and iiEp underscoring his global research impact. as an advocate for interdisciplinary research, dr. singh remains committed to advancing academic inquiry and fostering innovative solutions to contemporary business and economic challenges. Dr. Sandeep Singh is acting as an assistant professor at university school of applied Management, punjabi university, patiala, punjab, india. he is also acting as associate editor for international Journal of technology transfer and Commercialisation. he is qualified in diverse areas like LLB, MBa (hr) and ph.d. in Management. he has more than ten years’ experience in teaching and research. he is trainer of various softwares like spss, aMos, Warp-pLs, smart-pls, adanCo and JaMovi. Data availability and materials statement data available on reasonable request from the corresponding author. References abdullayev, E. B. (2023). attention to the issue of human capital in the constitution and national legislation. American Journal of Social Sciences and Humanity Research, 03(02), 68–71. https://doi.org/10.37547/ajsshr/ volume03issue02-12 abera, G., ali, M., & Girma, h. (2019). Firm growth and its determinants of micro and small scale manufacturing enterprises in selected towns of Jimma zone, oromia national regional state. Africa Journal of Business and Economics, 2(2), 14–29. african development report. (2011). Human capital and skills development (pp. 100–121). agbim, K. C. (2013). the relative contribution of managerial skills to entrepreneurial success. a survey of small and medium enterprises in the trade sector. Journal of Business and Management, 7(2), 08–16. ahmad, i., & ahmad, s. (2021). Effect of managerial skills on the performance of small and medium sized enterprises: a case study in pakistan. Journal of Asian Finance, Economics and Business, 8(4), 161–170. https://doi.org/10.13106/ jafeb.2021.vol8.no4.0161 aliyu, r. M., salha, t., ahmad, t., & nordin, n. (2019). the influence of training on business performance of women entrepreneurs: the mediating role of innovation. Sains Humanika, 11(2-2), 91–97. https://doi.org/10.11113/sh. v11n2-2.1660 appiah, n. a., Zanu, J. a., & Glover, a. (2023). Formal fashion education and business performance: an exploration of small-scale fashion designers in Ghana. Asian Journal of Education and Social Studies, 49(2), 49–61. https://doi. org/10.9734/ajess/2023/v49i21117 asah, F., Fatoki, o. o., & rungani, E. (2015). impact of motivations, personal values and management skills on the perfromance of sMEs in south africa. African Journal of Economic and Management Studies, 6(3), 308–322. https:// doi.org/10.1108/aJEMs-01-2013-0009 asghar, n., Khattak, a., danish, M. h., hussain, i., & Waris, M. (2023). Managerial skills, technology adaptation and firm performance: Mediating role of process innovation and product innovation. Cogent Business & Management, 10(3), 1-18. https://doi.org/10.1080/23311975.2023.2281485 astuti, W. t., sudiro, a., & hadiwidjojo, d. (2021). the role of innovation in mediating the effects of market orientation and entrepreneurial orientation on business performance in the context of sMEs. PalArch’s Journal of Archaeology of Egypt/Egyptology, 18(8), 1337–1352. CoGEnt BusinEss & ManaGEMEnt 17 atalay, M., anafarta, n., & sarvan, F. (2013). the relationship between innovation and firm performance: an empirical evidence from turkish automotive supplier industry. Procedia - Social and Behavioral Sciences, 75, 226–235. https:// doi.org/10.1016/j.sbspro.2013.04.026 ayele, a. W., & derseh, a. B. (2024). sustainability time and its determinant factors of small and medium scale enterprises in east Gojjam zone: parametric survival regression model. Global Business Review, 25(3), 656–682. https:// doi.org/10.1177/0972150920988657 Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. https:// doi.org/10.1177/014920639101700108 Baylie, a., & singh, M. (2019). Entrepreneurial competency, innovation, and small business performance. Journal of Business and Management, 21(8), 87–104. https://doi.org/10.9790/487X-21080187104 Beltramino, n. s., de Lema, d. G. p., & Juárez, L. E. v. (2020). impact of the human capital on the performance of micro-enterprise: an empirical study in argentina. International Journal of Entrepreneurship and Small Business, 40(4), 439–464. https://doi.org/10.1504/iJEsB.2020.109009 Bentler, p. M., & Bonett, d. G. (1980). significance tests and goodness of fit in the analysis of covariance structures. Psychological Bulletin, 88(3), 588–606. https://doi.org/10.1037/0033-2909.88.3.588 Bohosievici, C. (2009). a synthesis on the innovation concept. International Journal of Modern Manufacturing Technologies, 1(1), 17–20. Bose, s. C., Kiran, r., & Goyal, d. (2017). Examining the relation of service assistance facilities, managerial skill competencies and constraints with agri-business incubators performance in india. Custos e Agronegocio, 13(3), 75–100. Bruderl, J., preisendorfer, p., & Ziegler, r. (1992). survival chances of newly founded business organizations. American Sociological Review, 57(2), 227. https://doi.org/10.2307/2096207 Byukusenge, E., & Munene, J. C. (2017). Knowledge management and business performance: does innovation matter? Cogent Business & Management, 4(1), 1368434. https://doi.org/10.1080/23311975.2017.1368434 Cheung, G. W., Cooper-thomas, h. d., Lau, r. s., & Wang, L. C. (2024). reporting reliability, convergent and discriminant validity with structural equation modeling: a review and best-practice recommendations. Asia Pacific Journal of Management, 41(2), 745–783. https://doi.org/10.1007/s10490-023-09871-y Chika, a. C., & Chike, n. K. (2021). impact of human capital development on small and medium scale enterprise in some selected firms in anambra state. Asian Journal of Economics, Business and Accounting, 21(18), 57–64. https:// doi.org/10.9734/ajeba/2021/v21i1830499 Cipd technical report. (2017). Human capital theory: Assessing the evidence for the value and importance of people to organisational success. dar, i. a., & Mishra, M. (2019). human capital and sMEs internationalization: development and validation of a measurement scale. Global Business Review, 22(3), 718–734. https://doi.org/10.1177/0972150918817390 daudu, M., olowu, Y., & aliyu, i. (2015). impact of managerial skills on small scale businesses performance and growth in nigeria. European Journal of Business and Management, 7(5), 2222–2839. debarliev, s., Janeska-iliev, a., stripeikis, o., & Zupan, B. (2022). What can education bring to entrepreneurship? Formal versus non-formal education. Journal of Small Business Management, 60(1), 219–252. https://doi.org/10.108 0/00472778.2019.1700691 deng, W., & Wang, J. (2023). the effect of entrepreneurship education on the entrepreneurial intention of different college students: Gender, household registration, school type, and poverty status. PloS One, 18(7), e0288825. https://doi.org/10.1371/journal.pone.0288825 dogbe, C. s. K., Bamfo, B. a., & pomegbe, W. W. K. (2021). Market orientation and new product success relationship: the role of innovation capability, absorptive capacity, green brand positioning. International Journal of Innovation Management, 25(03), 2150033. https://doi.org/10.1142/s136391962150033X Eichhorn, B. r. (2014). Common method variance techniques (pp. 1–11). Midwest sas users Group. Fanny, K. C. Y., & alzalit, K. Z. Z. (2021). Employing exploratory and pooled-confirmatory factor-analysis for the reliability and the validity of a peer-led fun-inspired inquisitive scale. International Journal of Learning, Teaching and Educational Research, 21(3), 51–70. https://doi.org/10.26803/ijlter.21.3.4 Fornell, C., & Larcker, d. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research, 18(1), 39–50. https://doi.org/10.1177/002224378101800104 Gault, F. (2018). defining and measuring innovation in all sectors of the economy. Research Policy, 47(3), 617–622. https://doi.org/10.1016/j.respol.2018.01.007 Gerhart, B., & Feng, J. (2021). the resource-based view of the firm, human resources, and human capital: progress and prospects. Journal of Management, 47(7), 1796–1819. https://doi.org/10.1177/0149206320978799 Gimeno, J., Folta, t. B., Cooper, a. C., & Woo, C. Y. (1997). survival of the Fittest? Entrepreneurial human capital and the persistence of underperforming firms. published by: sage publications. Administrative Science Quarterly, 42(4), 750–783. https://doi.org/10.2307/2393656 Gyasi, r. s., Li, C., akolgo, i. G., & owusu-ampomah, Y. (2020). the impact of entrepreneurial training and performance of sMEs in Ghana. International Journal of Scientific Research in Science and Technology, 7(2), 126–134. https://doi.org/10.32628/iJsrst207215 hair, J., Black, W. C., Babin, B. J., & anderson, r. E. (2019). Multivariate data analysis (8th ed.). Cengage Learning, EMEa. 18 a. E. dinKu EtaL. hair, J., Black, W., Babin, B., & anderson, r. (2014). Multivariate data analysis (7th ed.). published by pearson Education Limited. hall, r. (1993). a framework linking intangible resources and capabilities to sustainable competitive advantage. Strategic Management Journal, 14(8), 607–618. https://doi.org/10.1002/smj.4250140804 hamsani, h., reniati, r., Wibawa, d. p., & Yusnita, M. (2022). human capital development strategy in the Covid-19 pandemic era of MsMEs in pangkalpinang City. Integrated Journal of Business and Economics, 6(3), 212. https://doi. org/10.33019/ijbe.v6i3.561 hani, E. h. (2021). the effect of managerial skill on business success. Cross-Cultural Management Journal, 23(2), 199– 204. harrington, d. (2009). Confirmatory factor analysis (pocket guides to social work research methods). oxford university press hatem, G., Zeidan, J., Goossens, M., & Moreira, C. (2022). normality testing methods and the importance of skewness and kurtosis in statistical analysis. BAU Journal - Science and Technology, 3(2), 1-5. https://doi.org/10.54729/KtpE9512 he, M., & Estébanez, r. p. (2023). Exploring the impact of r & d intensity, human capital, patents, and brand value on business performance in small and medium enterprises. Economic Research-Ekonomska Istraživanja, 36(1), 1-17. https://doi.org/10.1080/1331677X.2023.2181839 howard, M. C. (2016). a review of exploratory factor analysis decisions and overview of current practices: What we are doing and how can we improve? International Journal of Human-Computer Interaction, 32(1), 51–62. https://doi. org/10.1080/10447318.2015.1087664 Kahn, K. B. (2018). understanding innovation. Business Horizons, 61(3), 453–460. https://doi.org/10.1016/j.bushor.2018.01.011 Kassim, n. M., Zain, M., Bogari, n., & sharif, K. (2020). Why do consumers buy counterfeit luxury products? a tale of two major cities in two different countries. Asia Pacific Journal of Marketing and Logistics, 33(2), 416–446. https:// doi.org/10.1108/apJML-06-2019-0361 Kasumawijaya, i. K., & astuti, p. d. (2023). the effect of human capital on innovation: the mediation role of knowledge creation and knowledge sharing in small companies. Knowledge and Performance Management, 7, 64-75. https://doi.org/10.21511/kpm.07(1).2023.05 Khan, E. a., & Quaddus, M. (2018). dimensions of human capital and firm performance: Micro-firm context. IIMB Management Review, 30(3), 229–241. https://doi.org/10.1016/j.iimb.2018.05.004 Kimathi, B. M., & Elegwa, M. r. o. (2019). Effect of innovation on the performance of small and medium enterprises in Kenya. International Journal of Entrepreneurship, 2(1), 15–28. Kraaijenbrink, J. (2011). human capital in the resource-based view. The Oxford handbooks of Human Capital (pp. 218-237). https://doi.org/10.1093/oxfordhb/9780199532162.003.0009 Mabenge, B. K., ngorora-Madzimure, G. p. K., & Makanyeza, C. (2022). dimensions of innovation and their effects on the performance of small and medium enterprises: the moderating role of firm’s age and size. Journal of Small Business & Entrepreneurship, 34(6), 684–708. https://doi.org/10.1080/08276331.2020.1725727 Macedo, K. B., de, M., hahn, i. s., Bianchi, J., & ogoshi, r. C. s. (2020). Entrepreneurial skills and its relationship with MsMEs performance competências Empreendedoras E sua relação. Revista de Administração da UFSM, 13, 1408– 1422. https://doi.org/10.5902/1983465945216 Malhotra, n. K., nunan, d., & Birks, d. F. (2017). Marketing research: An applied approach (5th ed.). pearson Education Limited. https://doi.org/10.4324/9781315890005 Mubarik, M. s., devadason, E. s., & Govindaraju, C. (2020). human capital and export performance of small and medium enterprises in pakistan. International Journal of Social Economics, 47(5), 643–662. https://doi.org/10.1108/ iJsE-03-2019-0198 Musavi, v. L., & Maingi, d. J. (2018). Effect of credit and education on performance of micro and small enterprises in Kenya. American Journal of Economics, 3(1), 19–35. https://doi.org/10.47672/aje.337 Musthafa, i., Elfindri, E., anas, Y., & ariyanto, E. (2024). human capital and performance of micro, small and medium enterprises: a literature review. Cashflow Current Advanced Research on Sharia Finance and Economic Worldwide, 3(2), 250–275. https://doi.org/10.55047/cashflow.v3i2.1028 nambira, G., & namene, n. (2020). Empirical evidence on the perceptions of MsMEs entrepreneurs on operational management knowledge, skills and business growth. Strategic Journal of Business & Change Management, 7(1), 893-910. https://doi.org/10.61426/sjbcm.v7i1.1598 ndesaulwa, a. p., & Kikula, J. (2016). the impact of innovation on performance of small and medium enterprises in tanzania: a review of empirical evidence. Journal of Business and Management Sciences, 4(1), 1–6. https://doi. org/10.12691/jbms-4-1-1 ng’ora, s., Mwakalobo, a. B. s., & Lwesya, F. (2022). Managerial skills for micro, small and medium-sized enterprises. Management Dynamics in the Knowledge Economy, 10(4), 343–359. https://doi.org/10.2478/mdke-2022-0022 orji, M. G., Emmanuel, a., & Egwuatu, C. M. (2023). the role of managerial skills on the performance of small and medium enterprise in Jabi district, abuja, nigeria. Economit Journal: Scientific Journal of Accountancy, Management and Finance, 3(2), 112–122. https://doi.org/10.33258/economit.v3i2.876 owolabi, h. o., ayandele, J. K., & olaoye, d. d. (2020). a systematic review of structural equation model (sEM). Open Journal of Educational Development (ISSN: 2734-2050), 1(2), 27–39. https://doi.org/10.52417/ojed.v1i2.163 CoGEnt BusinEss & ManaGEMEnt 19 pachouti, a., & sharma, s. (2016). Barries to innovaton in indian small and medium sized enterprses. ADBI Working Paper Series, 588, 75–75. park, Y., & Choi, W. (2016). the effects of formal learning and informal learning on job performance: the mediating role of the value of learning at work. Asia Pacific Education Review, 17(2), 279–287. https://doi.org/10.1007/ s12564-016-9429-6 pham, M., nguyen, a. t. t., tran, d. t., Mai, t. t., & nguyen, v. t. (2023). the impact of entrepreneurship knowledge on students ‘e - entrepreneurial intention formation and the moderating role of technological innovativeness. Journal of Innovation and Entrepreneurship, 12(1), 30. https://doi.org/10.1186/s13731-023-00351-7 pitelis, C. (2009). With a new introduction on Edith Penrose’s ‘The theory of the growth of the firm’ fifty years later (4th ed.). oxford university press inc. popescu, L., iancu, a., avram, M., avram, d., & popescu, v. (2020). the role of managerial skills in the sustainable development of sMEs in Mehedinti County, romania. Sustainability, 12(3), 1119. https://doi.org/10.3390/su12031119 prange, C., & pinho, J. C. (2017). how personal and organizational drivers impact on sME international performance: the mediating role of organizational innovation. International Business Review, 26(6), 1114–1123. https://doi. org/10.1016/j.ibusrev.2017.04.004 saah, p. (2022). the impact of education and training on the success of small and medium sized enterprises. International Journal of Innovation in Management, Economics and Social Sciences, 2(3), 32–46. https://doi. org/10.52547/ijimes.2.3.32 samagaio, a., & rodrigues, r. (2016). human capital and performance in young audit firms. Journal of Business Research, 69(11), 5354–5359. https://doi.org/10.1016/j.jbusres.2016.04.137 saunders, M. n. K., Lewis, p., & thornhill, a. (2023). Reserach methods for business students (9th ed.). pearson Education Limited. saunders, M., Lewis, p., & thornhill, a. (2016). Research methods for business students (7th ed.). pearson Education Limited. sawaean, F. a. a., & ali, K. a. M. (2020). the impact of entrepreneurial leadership and learning orientation on organizational performance of small and medium enterprises: the mediating role of innovation capacity. Management Science Letters, 10, 369–380. https://doi.org/10.5267/j.msl.2019.8.033 schultz, t. (1961). investment in human capital. Unproductive Labor in Political Economy, 51(1), 102–115. https://doi. org/10.4324/9781315620893-12 short, h. (2019). Learning in sMEs. Human Resource Development International, 22(5), 413–419. https://doi.org/10.108 0/13678868.2019.1658368 shrestha, n. (2021). Factor analysis as a tool for survey analysis. American Journal of Applied Mathematics and Statistics, 9(1), 4–11. https://doi.org/10.12691/ajams-9-1-2 somko, M. L., Epikhin, a. i., & Epikhina, G. v. (2023). Elements of the theory of knowledge management as a basis for the development of staff competencies. SHS Web of Conferences, 164, 00050. https://doi.org/10.1051/shsconf/202316400050 soper, d. s. (2023). A-priori sample size calculator for structural equation models. https://www.danielsoper.com/statcalc tian, h., dogbe, C. s. K., pomegbe, W. W. K., sarsah, s. a., & otoo, C. o. a. (2021). organizational learning ambidexterity and openness as determinants of sMEs’ innovation performance. European Journal of Innovation Management, 24(2), 414–438. https://doi.org/10.1108/EJiM-05-2019-0140 timothy, v. L. (2022). the effect of top managers’ human capital on sME productivity: the mediating role of innovation. Heliyon, 8(4), e09330. https://doi.org/10.1016/j.heliyon.2022.e09330 urban, B., & verachia, a. (2019). organisational antecedents of innovative firms: a focus on entrepreneurial orientation in south africa. International Journal of Business Innovation and Research, 18(1), 128–144. https://doi.org/10.1504/ iJBir.2019.096905 ussif, r., & salifu, K. (2020). Contributions of small and medium enterprises to economic developments in sub-saharan africa. International Journal of Academic Accounting, Finance and Management Research, 4(3), 63–78. vixathep, s., & phonvisay, a. (2019). Human capital, innovation and entrepreneurship in micro and small businesses in Laos. springer. https://doi.org/10.1007/978-981-13-3525-9_5 Weldeslassie, h. a., vermaack, C., Kristos, K., Minwuyelet, L., tsegay, M., tekola, n. h., & Gidey, Y. (2019). Contributions of micro, small and medium enterprises to income generation, employment and gross domestic product. Journal of Sustainable Development, 12(3), 46. https://doi.org/10.5539/jsd.v12n3p46 Wernerfelt, B. (1984). the resource-based view of the firm. Strategic Management Journal, 5(2), 171–180. https://doi. org/10.1177/1056492611436225 Zhuravlev, p. v., Epishkin, i. a., Chernukhina, G. n., Zavyalov, M. v., varlamova, v. v., & voronkova, o. Y. (2018). development of human capital in the system of economic categories of work. European Research Studies Journal, 21(3), 107–117. https://doi.org/10.35808/ersj/1365 Zikmund, W., Babin, B., Carr, J., & Griffin, M. (2010). Business research methods (8th ed.). south Western Educ pub. Zulkiffli, s. n. a. (2014). a literature analysis on business performance for sMEs: subjective or objective measures? SSRN Electronic Journal, 3(1), 391–401. https://doi.org/10.2139/ssrn.1867874