The Effect of Technology, Organization, and Environment Factors on MSME Growth through Financial Performance and Digital Transformation as Mediating Variables A Study of Bank Indonesia-Assisted MSMEs in Banda Aceh City

Abstract

The purpose of this research is to analyze the effects of Technology, Organization, and Environment on the growth of MSMEs using Financial Performance and Digital Transformation as mediating variables. The methodology used for this research is the quantitative method using Structural Equation Modeling (SEM) approach based on Partial Least Square (PLS). The population used in this research is all MSMEs that have been assisted by Bank Indonesia in Banda Aceh city, and the number of total units is 250, and all of them were involved as respondents with a census sampling technique. Results show that technology, organization, and environment have a positive impact on both financial performance and digital transformation. Additionally, financial performance and digital transformation have a positive effect on MSME growth. However, technology, organization, and environment directly have no significant effect on MSME growth. Mediation analysis has confirmed that Financial Performance and Digital Transformation act as complete mediators between the three TOE factors and growth of MSMEs, with Environment being the highest contributor to Digital Transformation. This study adds value to the Technology-Organization-Environment framework through the addition of Financial Performance and Digital Transformation as two more factors that explain MSME growth. The implication here is that any move towards improving the technology, organization, and business environment dimensions has to start with an improvement in financial performance and digitalization because they are the major avenues for sustainable growth of MSMEs.