Digital Accounting and Financial Performance of MSMEs in Indonesia: The Mediating Role of Digital Innovation

This study investigates the determinants of financial performance among Micro, Small, and Medium Enterprises (MSMEs) in Indonesia, addressing the critical issues of low accountability and limited access to capital. Grounded in the Resource-Based View and Dynamic Capabilities Theory, the research examines the impact of accounting information systems, management knowledge capability, and digital platform capability on financial performance, mediated by digital innovation. A quantitative approach was employed, utilizing a cluster random sampling survey of 403 MSME owners across Indonesia’s major islands. Data were analyzed using Structural Equation Modeling (SEM) with AMOS software. The results reveal that accounting information systems, management knowledge capability, and digital platforms significantly enhance financial performance. Notably, digital platform capability emerged as the most potent driver. Furthermore, digital innovation proved to be a vital mediator, transforming management knowledge and platform capabilities into tangible financial outcomes. The study concludes that while digital tools provide essential infrastructure, innovation serves as the critical mechanism for unlocking value. These findings suggest that MSMEs must transition from passive technology adoption to active digital innovation to achieve sustainable financial success in the digital economy.