Digital Transformation, Government Policy and Financial Performance of Small and Medium Enterprises in Southwestern Nigeria

Abstract

Modern business firms not only strive to survive in the face of modern technologies, but also thrive to improve their performance by transforming their operations with the adoption of advanced digital technologies. It is observed in the literature that most small and medium enterprises (SMEs) in spite of the adoption, are said to record poor performance. Hence, this study attempts to examine the combined effect of both government policy and digital transformation on firms’ financial performance.  The population of the study consists of the entire registered small business enterprises in the six states of southwestern Nigeria. A sample size of 373 SMEs was used to represent the entire population through Krejcie and Morgan (1970) formula. Primary data were collected with the aid of structured questionnaires distributed to owners/managers of the enterprises which was analyzed through Partial Least Squared-Structural Equation Modelling (PLS-SEM) techniques. The results suggest that all the three measures of digital transformation (i.e. digital technological, organizational and social perspectives) have positive significant effects on firms’ financial performance. The result also revealed that government policy on adoption of digital transformation had a positive significant effect on firms’ financial performance. Therefore, the study recommends that government needs to review and refine its policies on digital economics (i.e. digital tax incentives, digital grants to SMEs and infrastructural support) by creating enabling environment and by ensuring full implementation and application through legal backing, granting of technological extension services, spearheading of procurement of digital technologies and making such available to interested business firms on credit or hire purchases. Owners are also urged to key into digital transformation programmes by embarking on training of their employees on proper adoption of digital transformation.