Micro, small, and medium-sized enterprises (MSMEs) during the post-pandemic economic recovery period: digitalization, literation, innovation, and its impact on financial performance

Rosyidiana, Riska Nur; Narsa, I. Made Article Micro, small, and medium-sized enterprises (MSMEs) during the post-pandemic economic recovery period: digitalization, literation, innovation, and its impact on financial performance Cogent Business & Management Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Rosyidiana, Riska Nur; Narsa, I. Made (2024) : Micro, small, and medium-sized enterprises (MSMEs) during the post-pandemic economic recovery period: digitalization, literation, innovation, and its impact on financial performance, Cogent Business & Management, ISSN 2331-1975, Taylor & Francis, Abingdon, Vol. 11, Iss. 1, pp. 1-16, https://doi.org/10.1080/23311975.2024.2342488 This Version is available at: https://hdl.handle.net/10419/326245 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 Micro, small, and medium-sized enterprises (MSMEs) during the post-pandemic economic recovery period: digitalization, literation, innovation, and its impact on financial performance Riska Nur Rosyidiana & I. Made Narsa To cite this article: Riska Nur Rosyidiana & I. Made Narsa (2024) Micro, small, and mediumsized enterprises (MSMEs) during the post-pandemic economic recovery period: digitalization, literation, innovation, and its impact on financial performance, Cogent Business & Management, 11:1, 2342488, DOI: 10.1080/23311975.2024.2342488 To link to this article: https://doi.org/10.1080/23311975.2024.2342488 © 2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group Published online: 22 Apr 2024. Submit your article to this journal Article views: 5540 View related articles View Crossmark data Citing articles: 10 View citing articles Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=oabm20 EntrEprEnEurship & innovation | rEsEarch articlE Cogent Business & ManageMent 2024, VoL. 11, no. 1, 2342488 Micro, small, and medium-sized enterprises (MSMEs) during the post-pandemic economic recovery period: digitalization, literation, innovation, and its impact on financial performance riska nur rosyidianaa,b and i. Made narsaa aFaculty of economic and Business, airlangga university, surabaya, indonesia; bFaculty of Vocational studies, airlangga university, surabaya, indonesia ABSTRACT this study explores the impact of digitalization, literation, and innovation on the financial performance of Micro, small, and Medium-sized Enterprises (MsMEs) in Bojonegoro, East Java, indonesia. using a sample of 35 business owners, the research employs partial least squares structural equations modelling. the findings reveal a positive and significant relationship between innovation and MsMEs’ financial performance, emphasizing the crucial role of innovative practices. additionally, business owners’ literacy levels positively influence innovation. although digitalization shows a positive impact on innovation and financial performance, the lack of statistical significance calls for nuanced exploration. the study contributes to understanding the complex dynamics within MsMEs post-pandemic, emphasizing the importance of literation and innovation. the research offers practical insights for MsME owners on enhancing financial literacy and fostering an innovative culture within their businesses. policymakers were also encouraged to allocate resources to facilitate financial training for business owners. urban areas might employ varying pandemic response strategies depending on their economic circumstances, resulting in differences in interaction variables. Future studies should extend these findings to diverse urban settings to broaden our understanding of literation, innovation, and digitalization’s impact on MsME performance. 1. Introduction Micro, small, and Medium-sized Enterprises (MsMEs) form the backbone of many economies worldwide, contributing significantly to economic growth and employment (corazza, 2018; Eggers, 2020; rosyidiana et al., 2022). in the wake of the post-pandemic economic recovery era, understanding the factors that influence the financial performance of MsMEs has become increasingly vital. Exploring strategies for navigating pandemics is crucial for gaining knowledge on effectively managing similar crises in the future. the process of digitalization enhances the effectiveness of MsMEs by transforming their interactions, communications, and transactions (Guo etal., 2020; rahman etal., 2020; Zhou etal., 2024). this, in turn, helps economies bounce back from unforeseen disruptions (Zhou et al., 2024). Moreover, the level of financial literacy among business owners significantly impacts financial performance (rahim & Balan, 2021; Wahyono & hutahayan, 2021). Financial literacy is essential for overcoming financial challenges and shaping effective financial decision-making (Gunawan et al., 2023). Both the process of digitalization and financial literacy contribute to the advancement of innovation. nevertheless, no prior studies have investigated the combined impact of these characteristics on financial success, with innovation acting as a © 2024 the author(s). Published by informa uK Limited, trading as taylor & Francis group CONTACT i. Made narsa [email protected] Faculty of economic and Business, airlangga university, surabaya, indonesia https://doi.org/10.1080/23311975.2024.2342488 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 14 December 2023 revised 11 February 2024 accepted 7 april 2024 KEYWORDS Digitalization; literation; innovation; financial performance; MsMEs REVIEWING EDITOR Jeffrey Muldoon, Emporia state university, united states SUBJECTS Entrepreneurial Finance; strategic Management; Management of technology and innovation; Entrepreneurship and small Business Management 2 r. n. rosYiDiana anD i. M. narsa mediator. this study investigates the intricate dynamics of the MsME sector, focusing on the effect of digital transformation, financial literacy, and innovation on their financial performance. We conducted our research in the unique location of Bojonegoro city in East Java province, indonesia, renowned for its rich natural resources (ardhanariswari, 2018). it’s also home to a thriving MsMEs ecosystem. By focusing our research on this specific location, we hoped to provide useful insights that could be immediately utilized by business owners considering expanding their operations inside the unique environment of Bojonegoro. the economic performance of Bojonegoro in 2022, as indicated by the Gross regional Domestic product (GrDp), reflects a value of iDr 100,492.89 billion (Bps, 2023). Following a period of economic contraction during the pandemic, it was noteworthy that economic growth in the years 2021 and 2022 has exhibited a favourable upward trajectory. this condition demonstrates Bojonegoro’s capacity to effectively navigate the challenges posed by the pandemic. this study selected Bojonegoro as the research site to sample and examine the tactics employed to navigate the pandemic, with the aim of understanding how these strategies can contribute to the survival of the region throughout the post-pandemic Economic recovery period. a questionnaire of 35 business owners was analyzed utilizing a non-probability sampling technique to fulfill our research aims. to validate the suggested model and draw relevant conclusions, the acquired data was subjected to rigorous analysis using partial least squares structural equations modelling. this research’s conclusions provided several important advances to the theoretical understanding of MsME dynamics. notably, it indicated a significant and positive association between MsMEs’ financial success and innovation, stressing the critical importance of innovative methods in improving their economic outcomes. these findings were consistent with the prior study that indicates innovation as an essential variable in determining the financial performance of firms (Farida et al., 2019; olazo, 2023; rita et al., 2023; Wahyono & hutahayan, 2021). Furthermore, our findings show that MsMEs owner’s financial literacy levels have a significant impact on promoting innovation within their organizations, highlighting the crucial significance of financial literacy as a catalyst for innovative activity (Wahyono & hutahayan, 2021). although the study revealed a positive association between digitalization and innovation as well as financial performance, it was important to note that this correlation was not statistically significant. this highlighted the need for further investigation in this field. this underscores the significance of a more nuanced examination of the intricate interplay between digitalization initiatives and their tangible outcomes within the MsME sector. this research examined the intricate dynamics of MsMEs during the post-pandemic economic recovery period, with a particular emphasis on the role of digitalization, financial literacy, and innovation in determining their financial performance. one of the most important novelty of this study was its contextual relevance, as it offers timely insights into the challenges and opportunities encountered by MsMEs in a post-pandemic environment. this study offers a thorough overview of the factors that influence MsMEs by integrating and examining the combined impact of digitalization, literation, and innovation. notably, it highlighted financial literacy as a crucial, yet relatively unexplored aspect of MsME operations, illuminating its positive impact on innovation and financial performance. in addition, the study investigated whether innovation functions as a mediator between literation and financial performance, thereby enhancing our comprehension of these relationships. ultimately, this study offered practical implications for MsME owners, policymakers, and stakeholders by emphasizing the need to improve financial literacy and cultivate an innovative culture within these businesses, thereby providing valuable guidance for their success in the post-pandemic economic recovery period. in terms of practical implications, this study advises MsME owners on enhancing financial literacy, enabling them to make more informed and strategic financial decisions. improvements in financial literacy will lead to more efficient financial management, optimal resource allocation, and the identification of investment opportunities. additionally, fostering an innovative culture will promote adaptability to changes, increase competitiveness, and inspire new ideas for their businesses. the study’s practical implications also extend to the formulation of programs by policymakers to facilitate the expansion of MsME businesses. local governments may allocate resources to facilitate financial training for business owners. Furthermore, they can encourage collaboration between universities and industries to facilitate the transfer of information and technologies. in addition to strengthening digital infrastructure, policymakers can facilitate the implementation of digital technologies by MsMEs. coGEnt BusinEss & ManaGEMEnt 3 however, it was essential to acknowledge that this research was firmly rooted in the context of Bojonegoro. comparative analyses with other urban areas in indonesia were not conducted, limiting our ability to draw broader distinctions. Future research endeavours should prioritize investigating a more extensive array of urban settings to provide fresh perspectives on the influence of literation, innovation, and digitalization on MsME performance. such endeavours will be instrumental in assisting entrepreneurs not only within Bojonegoro city but also in diverse urban locales. During the post-pandemic period, specific regions encountered a decline in economic growth, although Bojonegoro city witnessed a favourable expansion. in diverse economic contexts, various urban areas may implement a variety of pandemic response strategies. this may lead to distinct relationships between particular variables. Further study is required to comprehend the ways in which these variables impact their enterprises in diverse economic landscapes. 2. Literature review 2.1. Digitalization and its effects on the financial performance of MSMEs Digitalization, in the context of MsMEs, has emerged as a transformative force (amaral & peças, 2021; horváth & szabó, 2019; oggero et al., 2020). Based on the previous research, the adoption and integration of digital technology into business operations could have a considerable impact on the financial performance of MsMEs (Guo et al., 2020; isensee et al., 2020; Komala & Firdaus, 2023). Digitalization increased operational efficiency, improved market access, allowing MsMEs to reach a larger consumer base, increased market share, and enhanced revenue (Gunawan et al., 2023). Furthermore, digitalization provided MsMEs with important insights based on information (handayani etal., 2023). in turn, this data-driven strategy could improve financial planning and forecasting accuracy, resulting in better financial results (Barann, 2019; Gunawan et al., 2023). Furthermore, digitalization had the ability to stimulate MsMEs’ innovation (Bhatti etal., 2022). it promoted the creation of new products, services, and business models that could differentiate them in the market and drive revenue growth (Khin & ho, 2020). adaptability and innovation in response to changing market conditions became increasingly important for financial success (soetjipto et al., 2023). Despite this, earlier studies revealed that digitalization had no statistically significant impact on MsME performance (niemand, 2017; sari et al., 2023). a factor hindering the profitability of organizations through digitization was the additional costs associated with developing and maintaining it systems (niemand, 2017). however, the literature also acknowledges digitalization’s difficulties (amaral & peças, 2021; Barann, 2019). these included concerns regarding data security, organizational problems, skilled labour, and the costs associated with adopting new technologies (amaral & peças, 2021). For some MsMEs, the initial investments require for digitalization could be a hindrance, and they may lack the skills and resources necessary to leverage digital tools effectively (Barann, 2019). h1: Digitalization has a significant effect on the financial performance of MsMEs. 2.2. Digitalization and its effects on MSMEs innovation Digitalization, the integration of digital technologies into business processes, has emerged as a transformative force in the business ecosystem of the present day (rosyidiana et al., 2023). a comprehensive literature evaluation revealed a consistent and persuasive narrative concerning the effects of digitalization on the innovation capabilities of MsMEs (Khurana etal., 2022; lu et al., 2023; tajudeen etal., 2022). Digitalization equipped MsMEs with a formidable collection of technological tools that serve as innovation catalysts (Yang etal., 2023). such capabilities enabled small businesses to innovate by allowing them to rapidly adapt to market dynamics, respond to customer demands, and develop novel products and services (Yang et al., 2023). the adaptability afforded by digitalization was a crucial element in fostering innovation among MsMEs (Bhatti et al., 2022). nevertheless, it was essential to recognize that while digitalization offers numerous opportunities for innovation, it also presented obstacles (Gupta & Kumar singh, 2023; Khan & uddin, 2023; Kusumaningtyas 4 r. n. rosYiDiana anD i. M. narsa et al., 2022; vo thai et al., 2023). Data security and privacy concerns, as well as the digital skills divide, could pose significant obstacles for MsMEs. in addition, the digital divide might exacerbate disparities among MsMEs, as those without access to or the ability to leverage digital technologies were at a significant disadvantage (anatan, 2023; chanchaichujit, 2024; tiara et al., 2023). h2: Digitalization has a significant effect on innovation within MsMEs. 2.3. Literation and its effects on the financial performance of MSMEs this study primarily focuses on financial literacy. the financial performance of MsMEs was significantly influenced by financial literacy (rahim & Balan, 2021; Wahyono & hutahayan, 2021). it includes all of the information and abilities required for efficient money management (Bire et al., 2019). several studies demonstrated a correlation between financial literacy and the financial performance of MsMEs (abd Majid etal., 2022; Gunawan etal., 2023). literacy enabled them to make knowledgeable decisions and optimized their businesses for financial success. Despite this, other studies found that literacy had no significant effect on MsME performance (sari et al., 2023). Despite this, there were disparities in financial literacy among MsMEs due to factors, such as education and access to financial education resources (abd Majid et al., 2022). h3: the level of literation has a significant influence on the financial performance of MsMEs. 2.4. Literation and its effects on MSMEs innovation research has demonstrated that financial literacy equips entrepreneurs with the knowledge and confidence needed to investigate innovative solutions (Khurana etal., 2022). Financially literate MsME proprietors were more likely to engage in strategic financial planning, evaluate the viability of innovative projects, and secure funding for innovation initiatives (soetjipto et al., 2023). this improved their ability to develop and implement innovative solutions, to adapt to market changes, and ultimately to drive innovation (Wahyono & hutahayan, 2021). prior studies have suggested that effective financial literacy implementation could facilitate the completion of financial responsibilities by means of resource allocation, financial planning, and acquiring financial services to optimize profits (Babajide etal., 2023; rahim & Balan, 2021). By enhancing the financial literacy of MsMEs owners, they could establish and manage their enterprises more efficiently and profitably using the innovations they develop (ali et al., 2020). h4: literation significantly contributes to innovation within MsMEs. 2.5. Innovation and its effects on the financial performance of MSMEs in the field of MsMEs, innovation was increasingly recognized as a key factor in determining financial performance (soetjipto et al., 2023). comprehensive research revealed a compelling narrative highlighting the revolutionary effects of innovation on the economic outcomes of these small enterprises (Bouwman et al., 2018). Multiple studies demonstrated a positive and robust correlation between innovation and financial performance (Doran & ryan, 2012; Wedari et al., 2022). innovations might take the form of new products, processes, or business models (ali et al., 2020; Bornhausen & Wulf, 2023). these innovations enabled MsMEs to capture larger market shares, generate higher revenues, and achieve cost efficiencies, which all significantly contribute to enhanced financial performance (akinwale, 2020; ali et al., 2020). h5: innovation has a significant effect on the financial performance of MsMEs. 2.6. Innovation as a mediator on the financial performance of MSMEs a comprehensive examination of the relevant literature reveals that the concept of innovation as a link between literacy, digitalization, and the financial performance of MsMEs was both complex and crucial. coGEnt BusinEss & ManaGEMEnt 5 literacy, which refers to the ability to read, write, and comprehend material well, was the first factor that, according to the majority of people, helps MsMEs innovate (Bire et al., 2019). Entrepreneurs who can read and write frequently have superior problem-solving abilities and are better able to absorb and utilize information (Babajide et al., 2023). these cognitive abilities enable individuals to think creatively and generate new ideas. however, it is crucial to keep in mind that even though literacy encourages innovation, it may not necessarily result in better financial outcomes. the literature demonstrates that the link between literacy and financial success could be mediated by entrepreneurs’ innovative activities (Khin & ho, 2020; soetjipto et al., 2023). Digitalization, on the other hand, introduced the transformative force of digital tools to the world of MsME. small businesses could become more innovative by utilizing digital tools and processes to gain access to vast quantities of data, enhancing communication, and streamlining operations (Maulana & iskandar, 2023). however, automation may not have a direct impact on the success of a business. instead, the effects of digitalization on financial results may be mediated by the way it impacts innovation. in essence, digitalization provides the technological infrastructure and resources that enable innovative activities, thereby enhancing financial performance (soetjipto et al., 2023). h6: innovation has a significant moderating effect on the relationship between digitalization and financial performance of MsMEs. h7: innovation has a significant moderating effect on the relationship between literation and financial performance of MsMEs. 3. Methodology 3.1. Method this study utilized a quantitative methodology, which involved a systematic examination of constituent elements and phenomena. through the implementation of statistical analysis techniques, it also aimed to establish causal relationships between measurable variables. For the accumulation of numerical data in research investigations, quantitative research relies primarily on statistical methods. Within this research strategy, researchers employ a conceptual framework derived from theories related to the variables under consideration. this is a causal explanatory investigation in which hypotheses have been formulated based on both theoretical constructs and empirical research. these hypotheses specify the relationships between variables and are supported by both theoretical and empirical research. subsequently, these relationships are empirically validated through the analysis of questionnaire survey data collected from MsMEs, utilizing statistical tools to determine whether the findings support or contradict the conclusions derived from prior research sources. surveys offer researchers a reliable means to collect valuable first hand data that can assist in informed decision-making (rahmawati et al., 2023). two sections were included in the questionnaire. the first section comprised inquiries relating to the gender, age, level of education, and the number of employees. the second section comprised inquiries that related to the participants’ perspectives on the following concepts: digitalization, literation, innovation, and financial performance. For this investigation, a five point likert scale was selected, ranging an interval from ‘strongly disagree’ to ‘strongly agree’ (tajudeen et al., 2022). the adoption of digitalization was measured based on technological, organisational, and Environmental (toE) Framework (Ghobakhloo et al., 2011; rahman et al., 2020). technological was measured using a 3-scale item, organizational was measured using a 2-scale item, and environmental was measured using a 3-scale item. Financial literacy was measured using 5-scale items (Gunawan et al., 2023; rahmawati et al., 2023; soetjipto et al., 2023). innovation was measured using 6-scale items (soetjipto et al., 2023; tajudeen et al., 2022). 3.2. Data Micro, small, and medium-sized enterprises (MsMEs) in Bojonegoro, East Java province, were the focus of the investigation. random sampling, a form of probability sampling that ensures that every member of 6 r. n. rosYiDiana anD i. M. narsa the target population has an equal chance of being selected, was used to select the sample. the purpose of this random sampling was to create a representative sample of the complete population. the initial population of MsMEs in this study totalled 86,820, a size that poses difficulties in constructing a suitable model (hair etal., 2012). this population was mostly engaged in the sectors of food and beverage, fashion, crafts, and others (rosyidiana et al., 2023). a total of 89% of the entities were classified as micro-businesses, 10% as minor businesses, and 1% as medium-sized enterprises. a questionnaire survey was distributed to a total of 60 owners of MsMEs. there were a total of 35 surveys that were completed and collected. the overall response rate was 58%. among the 35 questionnaires collected, they have covered the type of industries and reflected the categorization of MsMEs, spanning from micro to small and medium-sized enterprises, with respective proportions of 89, 8, and 3% as shown in table 1. this indicates that the sample accurately reflects the criteria of the population. the collected data were then analysed using partial least squares structural equation modelling, a technique employed to evaluate both the collected data and the validity of the proposed model, as shown in Figure 1. this study’s sample size was relatively small as only 35 business owners participated. this small sample size might decrease the study’s statistical power and generalizability. it is important to recognize these limitations when interpreting the research findings and to take them into account when applying the findings to the larger population of MsMEs. to resolve these limitations and improve the robustness and generalizability of future research, a more comprehensive and representative sampling approach could be explored. 4. Analysis and findings in this study, the assessment of variables was conducted through a meticulous examination encompassing both validity and reliability assessments. in this study, the analytical procedure was divided into multiple phases. initially, a thorough assessment of the research instrument’s reliability and validity was conducted. a subsequent stage involved hypothesis testing, which included an examination of the conformity of classical assumptions and the adequacy of the model. the final phase consisted of hypothesis validation utilizing smart pls as the primary analytical instrument. specifically, the validity assessment of the research instrument was conducted to confirm the questionnaire’s accuracy and suitability, thereby enhancing the robustness of the research methodology. 4.1. Statistic descriptive table 1 illustrates that the majority of participants in the study are women entrepreneurs, comprising 86% of the sample. the age distribution of the sample is primarily concentrated within the 30 to 50-year range, which comprises 86% of the participants. a smaller proportion of individuals, ~3%, are younger than 30 years, while 11% are older than 50 years. there is a range of educational backgrounds among individuals, with the most prevalent group being high school graduates, which represent 40% of the sample, followed by individuals who have obtained a bachelor’s degree, comprising 34% of the Table 1. Respondent statistics. Characteristics Category total % gender Man 5 14% Woman 30 86% age <30 years 1 3% 30–40 years 15 43% 40–50 years 15 43% >50 years 4 11% educational background sD 1 3% sMP 3 9% sMa 14 40% Diploma 5 14% s1 12 34% number of employees <5 persons 31 89% 5–10 persons 3 8% >10 persons 1 3% coGEnt BusinEss & ManaGEMEnt 7 population. the majority of firms, over 89%, have several employees <5 people. a smaller percentage, around 9%, employ between 5 and 10 individuals, while a paltry 3% have a workforce beyond 10 employees. these demographic variables serve as a comprehensive representation of the participant characteristics in the study, hence establishing the foundation for subsequent analytical procedures. the descriptive statistics shown in table 2 provide an overview of the main pattern and variability within the dataset. For the variable literation (lit1 to lit5), the mean scores range from ~1.657 to 2.400, with medians mostly around 2.000. these scores reflect moderate levels of literation among the participants. the standard deviations, ranging from ~0.5236 to 0.6590, indicate relatively consistent responses within this construct. similarly, for the variable innovation (inn1 to inn6), mean scores range from ~1.829 to 2.343, with medians primarily at 2.000. these scores suggest that participants generally exhibit moderate levels of innovation. the standard deviations, ranging from around 0.2847 to 0.6417, indicate varying degrees of variability in responses within this construct. regarding Digitalization (DtEc1 to DtEc3, DorG1 to DorG2, DEnv1 to DEnv3), the mean scores show a range from ~2.057 to 2.829, with medians often at 3.000. these results suggest a moderate level of digitalization among the participants. the standard deviations, which vary from around 0.5493 to 1.4440, indicate varying degrees of dispersion in responses within this construct. lastly, for Financial performance (Finp), the mean is ~17.229, with a median of 17.000, indicating relatively stable financial performance among the sample. the standard deviation of ~1.1970 highlights some variability in financial performance scores. 4.2. Validity and reliability test the assessment of outer loadings for each indicator is essential in determining the reliability and validity of the measurement model. among the indicators those with valid outer loadings that exceed the recommended threshold (usually 0.7) are considered robust measures of their respective constructs. in this analysis, as mentioned in table 3, indicators, such as DtEc1 (0.769), DorG1 (0.818), DEnv1 (0.781), lit1 (0.802), lit2 (0.929), lit4 (0.816), lit5 (0.706), and inn3 (0.857) demonstrate valid outer loadings, indicating their reliability in measuring their intended constructs. conversely, indicators with outer loadings below the threshold are considered less reliable or invalid measures. these include DEnv2 (0.665), DEnv3 (0.644), DorG2 (0.495), DtEc2 (0.683), DtEc3 (0.570), inn1 (0.214), inn2 (0.688), inn4 (0.694), inn5 (0.603), and inn6 (0.500), which did not meet the criteria for robust indicators. using the average variance Extracted (avE) method to examine construct validity is a crucial aspect of this study. avE evaluates the extent to which items within a construct quantify that construct relative to measurement error. according to the result, the avE values for Digitalization and literacy were 0.794 Figure 1. structural model. 14 r. n. rosYiDiana anD i. M. narsa ali, h., hao, Y., & aijuan, c. (2020). innovation capabilities and small and medium enterprises’ performance: an exploratory study. The Journal of Asian Finance, Economics and Business, 7(10), 959–968. https://doi.org/10.13106/ jafeb.2020.vol7.no10.959 altuwaijri, B. M., & Kalyanaraman, l. (2020). cEo education-performance relationship: Evidence from saudi arabia. The Journal of Asian Finance, Economics and Business, 7(8), 259–268. https://doi.org/10.13106/jafeb.2020.vol7. no8.259 amaral, a., & peças, p. (2021). sMEs and industry 4.0: two case studies of digitalization for a smoother integration. Computers in Industry, 125, 103333. https://doi.org/10.1016/j.compind.2020.103333 anatan, l. 2023. Micro, small, and medium enterprises’ readiness for digital transformation in indonesia. Economies, 11(6), 156. https://doi.org/10.3390/economies11060156 ardhanariswari, K. a. (2018). From nothing to something: study on how local government transformed oil and gas area into ecotourism village in indonesia through branding strategy. Journal of Environmental Management and Tourism, 9(8), 1760–1767. https://www.scopus.com/inward/record.uri?eid=2-s2.0-85064984860&doi=10.14505/jemt. v9.8%2832%29.15&partneriD=40&md5=292207356a7d9a7c560faf5dc1f74bce Babajide, a., osabuohien, E., tunji-olayeni, p., Falola, h., amodu, l., olokoyo, F., adegboye, F., & Ehikioya, B. (2023). Financial literacy, financial capabilities, and sustainable business model practice among small business owners in nigeria. Journal of Sustainable Finance & Investment, 13(4), 1670–1692. https://doi.org/10.1080/20430795.2021.1962663 Barann, B. (2019). supporting digital transformation in small and medium-sized enterprises: a procedure model involving publicly funded support units. in Proceedings of the 52nd Hawaii International Conference on System Sciences (vol. 6, pp. 4977–4986). https://doi.org/10.24251/hicss.2019.598. Bhatti, s. h., ahmed, a., Ferraris, a., hirwani Wan hussain, W. M., & Wamba, s. F. (2022). Big Data analytics capabilities and MsME innovation and performance: a double mediation model of digital platform and network capabilities. Annals of Operations Research. https://doi.org/10.1007/s10479-022-05002-w Bire, a. r., sauw, h. M., & Maria. (2019). the effect of financial literacy towards financial inclusion through financial training. International Journal of Social Sciences and Humanities, 3(1), 186–192. https://doi.org/10.29332/ijssh. v3n1.280 Bornhausen, a. M., & Wulf, t. (2023). Digital innovation in family firms: the roles of non-family managers and transgenerational control intentions. Small Business Economics, 62(4), 1429–1448. https://doi.org/10.1007/ s11187-023-00823-w Bouwman, h., nikou, s., Molina-castillo, F. J., & de reuver, M. (2018). the impact of digitalization on business models. Digital Policy, Regulation and Governance, 20(2), 105–124. https://doi.org/10.1108/DprG-07-2017-0039 Bps (2022). Badan pusat statistik. retrieved March 28, 2022, from https://www.bps.go.id/pressrelease/2022/02/07/1911/ ekonomi-indonesia-triwulan-iv-2021-tumbuh-5-02-persen–y-on-y-.html Bps (2023). pertumbuhan Ekonomi Kabupaten Bojonegoro tahun 2022. retrieved september 1, 2023, from https:// bojonegorokab.bps.go.id/pressrelease/2023/02/28/25/pertumbuhan-ekonomi-kabupaten-bojonegoro-tahun-2022.html chanchaichujit, J. (2024). Enablers and benefits of supply chain digitalization: an empirical study of thai MsMEs. in Environmental footprints and eco-design of products and processes, faculty of environmental management (pp. 113– 131). prince of songkla university. https://www.scopus.com/inward/record.uri?eid=2-s2.0-85172476794&d oi=10.1007/978-981-99-4894-9_8&partneriD=40&md5=dce379796db7eda175c480f6ad025ab8 corazza, l. (2018). small business social responsibility: the csr4utool web application. Journal of Applied Accounting Research, 19(3), 383–400. https://doi.org/10.1108/Jaar-11-2014-0122 Doran, J., & ryan, G. (2012). regulation and firm perception, eco-innovation and firm performance. European Journal of Innovation Management, 15(4), 421–441. https://doi.org/10.1108/14601061211272367 Eggers, F. (2020). Masters of disasters? challenges and opportunities for sMEs in times of crisis. Journal of Business Research, 116, 199–208. https://doi.org/10.1016/j.jbusres.2020.05.025 Farida, l., afandi, M. F., sularso, r. a., suroso, i., & putri, n. a. (2019). how financial literacy, innovation capability, and human capital affect competitive advantage and performance: Evidence from creative MsMEs. International Journal of Scientific and Technology Research, 8(11), 2300–2310. https://www.scopus.com/inward/record.uri?eid=2-s 2.0-85075276404&partneriD=40&md5=5a93ebc252547b153cef656c1e68c7fe Ghobakhloo, M., arias-aranda, D., & Benitez-amado, J. (2011). adoption of e-commerce applications in sMEs. Industrial Management & Data Systems, 111(8), 1238–1269. https://doi.org/10.1108/02635571111170785 Gottesman, a. a., & Morey, M. r. (2010). cEo educational background and firm financial performance. Journal of Applied Finance, 2, 70–82. Gunawan, a., Jufrizen, & pulungan, D. r. 2023. improving MsME performance through financial literacy, financial technology, and financial inclusion. International Journal of Applied Economics, Finance and Accounting, 15(1), 39–52. https://doi.org/10.33094/ijaefa.v15i1.761 Guo, h., Yang, Z., huang, r., & Guo, a. (2020). the digitalization and public crisis responses of small and medium enterprises: implications from a coviD-19 survey. Frontiers of Business Research in China, 14(1), 1-25. https://doi. org/10.1186/s11782-020-00087-1 Gupta, a., & Kumar singh, r. (2023). Managing resilience of micro, small and medium enterprises (MsMEs) during coviD-19: analysis of barriers. Benchmarking: An International Journal, 30(6), 2062–2084. https://doi.org/10.1108/ BiJ-11-2021-0700 coGEnt BusinEss & ManaGEMEnt 15 hair, J. F., ringle, c. M., & sarstedt, M. (2012). partial least squares: the better approach to structural equation modeling? Long Range Planning, 45(5–6), 312–319. https://doi.org/10.1016/j.lrp.2012.09.011 handayani, B. D., hajawiyah, a., putra harjanto, a., & Fathur, M. (2023). analysis of the use of accounting information technology in MsMEs in indonesia. Quality-Access to Success, 24(195), 115–124. harymawan, i., Minanurohman, a., nasih, M., shafie, r., & ismail, i. (2023). chief financial officer’s educational background from reputable universities and financial reporting quality. Journal of Accounting & Organizational Change, 19(4), 566–587. https://doi.org/10.1108/Jaoc-12-2021-0195 horváth, D., & szabó, r. Z. (2019). Driving forces and barriers of industry 4.0: Do multinational and small and medium-sized companies have equal opportunities? Technological Forecasting and Social Change, 146(March), 119– 132. https://doi.org/10.1016/j.techfore.2019.05.021 isensee, c., teuteberg, F., Griese, K. M., & topi, c. (2020). the relationship between organizational culture, sustainability, and digitalization in sMEs: a systematic review. Journal of Cleaner Production, 275, 122944. https://doi. org/10.1016/j.jclepro.2020.122944 Jalbert, t., Furumo, K., & Jalbert, M. (2011). Does educational background affect cEo compensation and firm performance? Journal of Applied Business Research, 27(1), 15–40. Khan, M. a. i., & uddin, M. a. (2023). Does managerial propensity towards digitalization enhances firm performance? a case study of indian MsMEs. International Journal of Applied Economics, Finance and Accounting, 17(1), 168–175. https://doi.org/10.33094/ijaefa.v17i1.1093 Khin, s., & ho, t. c. F. (2020). Digital technology, digital capability and organizational performance: a mediating role of digital innovation. International Journal of Innovation Science, 11(2), 177–195. https://doi.org/10.1108/iJis-08-2018-0083 Khurana, s., luthra, s., haleem, a., Kumar, a., & Mannan, B. (2022). can sustainability be achieved through sustainable oriented innovation practices? Empirical evidence of micro, small and medium scale manufacturing enterprises. Sustainable Development, 30(6), 1591–1615. https://doi.org/10.1002/sd.2330 Komala, a. r., & Firdaus, D. W. (2023). improving the quality of financial statements and the survival of MsMEs through digital economy: the case of indonesia and Malaysia. Journal of Eastern European and Central Asian Research, 10(5), 752–763. https://www.scopus.com/inward/record.uri?eid=2-s2.0-85172761968&doi=10.15549/jeecar. v10i5.1435&partneriD=40&md5=4bde712e043fb0cde8e05c4d9031ddfc Kusumaningtyas, r. o., subekti, r., Jaelani, a. K., orsantinutsakul, a., & Mishra, u. K. (2022). reduction of digitalization policy in indonesian MsMEs and implications for sharia economic development. JURIS (Jurnal Ilmiah Syariah), 21(2), 157–171. https://doi.org/10.31958/juris.v21i2.6855 lu, h. t., li, X., & Yuen, K. F. (2023). Digital transformation as an enabler of sustainability innovation and performance – information processing and innovation ambidexterity perspectives. Technological Forecasting and Social Change, 196, 122860. https://doi.org/10.1016/j.techfore.2023.122860 Maulana, a., & iskandar, Y. (2023). the effect of technology adaptation and government financial support on sustainable performance of MsMEs during the coviD-19 pandemic. Cogent Business and Management, 10(1), 2177400. https://www.scopus.com/inward/record.uri?eid=2-s2.0-85148437482&doi=10.1080/23311975.2023.2177400&partneri D=40&md5=1fdc2cb6bf870e3be9e716d089b7c629 niemand, t. (2017). Entrepreneurial orientation and digitalization in the financial service industry: a contingency approach. in Proceedings of the 25th European Conference on Information Systems, ECIS 2017 (pp. 1081–1096). ntom udemba, E., Khan, n.-u., & raza shah, s. a. (2024). Demographic change effect on ecological footprint: a tripartite study of urbanization, aging population, and environmental mitigation technology. Journal of Cleaner Production, 437, 140406. https://doi.org/10.1016/j.jclepro.2023.140406 oggero, n., rossi, M. c., & ughetto, E. (2020). Entrepreneurial spirits in women and men. the role of financial literacy and digital skills. Small Business Economics, 55(2), 313–327. https://doi.org/10.1007/s11187-019-00299-7 olazo, D. B. (2023). Marketing competency, marketing innovation and sustainable competitive advantage of small and medium enterprises (sMEs): a mixed-method analysis. Asia Pacific Journal of Marketing and Logistics, 35(4), 890–907. https://doi.org/10.1108/apJMl-01-2022-0050 rahim, s., & Balan, v. (2021). Financial literacy: the impact on the profitability of the sMEs in Kuching. International Journal of Business and Society, 21, 1172–1191. rahman, r. u., Mohsin ali shah, s., El-Gohary, h., haider Khalil, s., al altheeb, s., & sultan F. (2020). social media adoption and financial sustainability: learned lessons from developing countries. Sustainability, 12(24), 1–26. rahmawati, a., Wahyuningsih, s. h., & Garad, a. (2023). the effect of financial literacy, training and locus of control on creative economic business performance. Social Sciences and Humanities Open, 8(1), 100721. https://doi. org/10.1016/j.ssaho.2023.100721 rita, M. r., et al. (2023). lessons learned in the recovery of business performance from the coviD-19 endemic: the importance of working capital management and financial management. in Entrepreneurship business debates: Multidimensional perspectives across geo-political frontiers (pp. 67–85). Faculty of Economics and Business, satya Wacana christian university. https://www.scopus.com/inward/record.uri?eid=2-s2.0-85171501529&doi=10.1007/978 -981-99-1071-7_5&partneriD=40&md5=4c64f5fde4ab5c63f8d463bb057785b0 rosyidiana, r. n., Ervianty, r. M., Firmandani, W., linduwati, M., & Margaretha, c. c. (2023). Digitalization of MsMEs: implementation of product detail pages and digital financial management on MsMEs in Bojonegoro. Jurnal Layanan Masyarakat (Journal of Public Services), 7(1), 1–12. https://doi.org/10.20473/jlm.v7i1.2023.1-12 16 r. n. rosYiDiana anD i. M. narsa rosyidiana, r. n., Ervianty, r. M., nurul, M., linduwati, p. M., arda rini, i. n., & rahmawati, l. a. (2022). Digitalization in financial reporting and marketing on micro, small and medium enterprises as a strategy for economic recovery in the pandemic period. Darmabakti Cendekia: Journal of Community Service and Engagements, 4(1), 16–22. https:// doi.org/10.20473/dc.v4.i1.2022.16-22 sari, Y. W., nugroho, M., & rahmiyati, n. (2023). the effect of financial knowledge, financial behavior and digital financial capabilities on financial inclusion, financial concern and performance in MsMEs in East Java. Uncertain Supply Chain Management, 11(4), 1745–1758. https://doi.org/10.5267/j.uscm.2023.6.016 soetjipto, B. E., handayati, p., hanurawan, F., Meldona, rochayatun, s., & Bidin, r. (2023). Enhancing MsMEs performance through innovation: Evidence from East Java, indonesia. Journal for ReAttach Therapy and Developmental Diversities, 6(3s), 124–145. https://www.scopus.com/inward/record.uri?eid=2-s2.0-85159906711&partneriD=40&md5 =b0096d02e66a769c93d20f96c3813090 tajudeen, F. p., nadarajah, D., Jaafar, n. i., & sulaiman, a. (2022). the impact of digitalisation vision and information technology on organisations’ innovation. European Journal of Innovation Management, 25(2), 607–629. https://doi. org/10.1108/EJiM-10-2020-0423 tiara, t., purnomo, a., & salim, G. (2023). Blockchain utilization in actions to empower digitalization of accounting information systems for small and medium-sized entities in indonesia. Journal of Theoretical and Applied Information Technology, 101(17), 7033–7044. https://www.scopus.com/inward/record.uri?eid=2-s2.0-85174919181&partneriD=40 &md5=5b75e9eb211bd42918216f8395b89c02 utaminingsih, a., Yuni Widowati, s., & Witjaksono, E. h. (2024). sustainable business model innovation: External and internal factors on sMEs. International Journal of Innovation Science, 16(1), 95–113. https://doi.org/10.1108/ iJis-04-2022-0061 vo thai, h.-c., hue, t. h. h., tran, M.-l., & vo, X. v. (2023). a strategy tripod perspective on digitalization for sustainable development: a case of micro, small, and medium-sized enterprises in vietnam. Journal of Small Business & Entrepreneurship, 35, 1–30. https://doi.org/10.1080/08276331.2023.2253682 Wahyono, & hutahayan, B. 2021. the relationships between market orientation, learning orientation, financial literacy, on the knowledge competence, innovation, and performance of small and medium textile industries in Java and Bali. Asia Pacific Management Review, 26(1), 39–46. https://doi.org/10.1016/j.apmrv.2020.07.001 Wedari, l. K., Moradi-Motlagh, a., & Jubb, c. (2022). the moderating effect of innovation on the relationship between environmental and financial performance: Evidence from high emitters in australia. Business Strategy and the Environment. https://www.scopus.com/inward/record.uri?eid=2-s2.0-85131842264&doi=10.1002/bse.3167&partneriD =40&md5=44c50597cf2758500ee2326332916b97 Yang, M., Gabrielsson, p., & andersson, s. (2023). Entrepreneurs’ social ties and international digital entrepreneurial marketing in small and medium-sized enterprise internationalization. Journal of International Marketing, 31(4), 1–22. https://doi.org/10.1177/1069031X231178220 Zhou, X., sawada, Y., shum, M., & tan, E. s. (2024). coviD-19 containment policies, digitalization and sustainable development goals: Evidence from alibaba’s administrative data. Humanities and Social Sciences Communications, 11(1), 1-16. https://doi.org/10.1057/s41599-023-02547-4