Financial Performance SMEs: The Mediating Effect of Digitalization on Financial Literacy and Accounting Skill

Abstract

This paper investigates the mediating effect of digitalization on the relationship between financial literacy, accounting skills, and the financial performance of small and medium-sized enterprises (SMEs). The purpose of this study is to explore how digitalization can enhance the financial outcomes of SMEs by leveraging financial literacy and accounting capabilities. Utilizing a quantitative research design, data were collected through questionnaires distributed to 211 small business owners in the Bekasi district of West Java, Indonesia. The analysis was conducted using Structural Equation Modeling - Partial Least Squares (SEM-PLS) to evaluate the relationships between the variables. The findings reveal that both financial literacy and accounting skills significantly influence the digitalization of SMEs, which in turn positively impacts their financial performance. Additionally, digitalization serves as a crucial mediator in enhancing the effects of financial literacy and accounting skills on financial outcomes. These results underscore the importance of integrating digital tools in financial management practices to improve efficiency and profitability. The implications of this study extend to both theory and practice, suggesting that policymakers and business educators should prioritise financial literacy and accounting training while promoting digitalization initiatives among SMEs. This research contributes to the existing literature by highlighting the interconnectedness of financial literacy, accounting skills, and digitalization in driving SME performance, offering valuable insights for future studies and practical applications in the field of small business management.