The Role of Digitalization and Digital Capabilities in Financial Performance: A Multilayer Perceptron-Based Hybrid SEM-ANNs Approach

This study aims to examine how different aspects of digitalization and digital capabilities affect financial performance of SMEs. The study employs a deductive approach, collecting data through questionnaires from 396 respondents and utilizing structural equation modeling and artificial neural networks analysis to empirically evaluate the proposed model. The results emphasize the importance of digital transformation, digital innovation, and digital servitization in enhancing the financial performance of SMEs by optimizing processes, reducing operational expenses, and improving customer engagement. Moreover, the research highlights the critical role of digital capabilities (encompassing human, technical, innovation and collaboration capabilities) in facilitating these improvements. Notably, human and innovation capabilities emerge as the most influential factors, demonstrating that a skilled workforce and robust innovative capacity are vital for converting technological investments into tangible financial benefits. This study advances resource-based view theory by examining how digital technologies and capabilities act as vital resources that boost the financial performance of SMEs. By integrating linear with non-linear methods, the research offers a detailed analysis of how digital resources contribute to competitive advantage. The study recommends targeted policies, including financial incentives, digital literacy programs, and innovation hubs, to align technology with SME business needs and foster growth, competitiveness, and sustainability.