Navigating crisis through digitalisation and its impact on firm formality: the case of microenterprises in India

Purpose Using an institutional lens and drawing on the arguments of the external enabler perspective, this study aims to examine the role of digital technology adoption on the performance of microenterprises, with a focus on their level of formality. It further explores these relationships in the context of an external crisis, like the COVID-19 pandemic. Design/methodology/approach The study uses data from 7,510 Indian microenterprises collected by the World Bank and applies a mediated-moderation model to analyse the relationship between digital technology adoption, formality and microenterprise performance during the COVID-19 pandemic. Findings The results reveal a significantly positive relationship between digital technology adoption and microenterprise performance. Importantly, we argue that this relationship between digital technology and microenterprise performance is strongly mediated by the level of a firm’s formality. Moreover, this study also finds that the relationship between digital technology adoption and microenterprise performance will be positively moderated by the impact that the COVID-19 pandemic has on the microenterprise, suggesting that the pandemic enhanced the benefits of digital technology adoption for microenterprises. Originality/value This study expands on the positive relationship between technology adoption and microenterprise performance by investigating the moderating role of COVID-19 impact and the mediating role of firm formality. The key contribution of this research is the mediating role of formality between digitalisation and firm performance. By testing this novel mediating relationship, we theorise that the adoption of digital technology helps microenterprises to overcome certain institutional voids in an emerging market context, serving as a viable conduit for formalisation. In turn, higher levels of formality lead to higher microenterprise performance. We also contribute to the emerging stream of literature discussing the role of an external enabler, such as the COVID-19 pandemic in entrepreneurship. In the end, the study offers novel policy implications.