Mapping the Underlying Factors of Firms’ Economic Performance: Antecedents of Digital Transformation and ESG Reporting
Abstract
Digital transformation represents a purposeful strategy for achieving a competitive edge and stronger economic performance. At the same time, sustainability disclosure practices can also improve economic outcomes, while their effects vary across different contexts. However, a paucity of research base of SMEs obscures how they position themselves in both arenas; this study addresses that gap through an empirical analysis. The study examines whether digital leadership, digital orientation, digital culture, and ESG reporting drive SMEs’ economic performance; regarded as antecedents of digital transformation, do these factors improve ESG reporting; whether digital leadership shapes digital orientation and culture; and whether ESG reporting mediates the link between the antecedents of digital transformation and performance. Aligned with these questions, the study is grounded in the dynamic capabilities theory, the upper echelon’s theory, and stakeholder theory to vindicate the relationships with the research model as the basis. Utilizing data collected from Malaysian SMEs with 360 firm-level observations, the hypotheses are assessed. The findings reveal that digital leadership and ESG reporting are significant determinants of firms’ economic performance, while digital orientation and digital culture are not necessary qualifications for performance. ESG reporting partially mediates the relationship between digital orientation, digital culture, and firms’ economic performance; however, it does not mediate the relationship between digital leadership and firms’ economic performance. Additionally, digital leadership induces digital orientation and digital culture, which in turn drive ESG reporting. This study, thus, features digital leadership and ESG reporting as key transformation drivers, adding to SMEs’ economic performance and improving sustainable business practices.
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