The role of strategic management accounting adoption in shaping financial and innovation performance of SMEs: testing a mediating model

Purpose This study aims to examine the critical role of strategic management accounting (SMA) practices (interactive budgeting, accounting information quality and digital strategy) in driving the financial performance of small and medium-sized enterprises (SMEs), with innovation performance acting as a mediator. Design/methodology/approach Data were collected from 366 SMEs in Indonesia, and the data were tested using the partial least squares technique. Findings Interactive budgeting has a positive impact on innovation performance in SMEs, with innovation acting as a mediator. Accounting information quality contributes directly to better financial outcomes, yet it does not lead to a significant enhancement in innovation performance. Moreover, digital strategy has a positive influence on innovation and financial performance, with innovation performance serving as a mediator of the effect of digital strategy on financial performance. Practical implications This study highlights that SMEs can enhance their financial performance by adopting SMA practices, particularly interactive budgeting and strategies, thereby improving their innovation performance. It underscores the need for an adaptive SMA framework that positions innovation as a key mechanism linking SMA practices to financial outcomes. Originality/value This study examines the three primary dimensions of SMA, namely, interactive budgeting, accounting information quality and digital strategy, within the context of SMEs. This study addresses the research gap and inconsistencies in the three dimensions of SMEs’ financial performance improvement through innovation performance development, particularly in developing countries such as Indonesia. Thus, this study provides new insights into the importance of innovation performance as a link between SMA and SME financial performance (across different categories of SMEs).