The Influence of Financial Technology Adoption and Financial Adaptability on the Financial Performance of MSMEs in Central Java

Abstract

The MSME sector plays a pivotal role in Indonesia's economic growth but faces structural constraints, including limited digital capabilities and financing barriers. While digital technology adoption is widely viewed as a solution, empirical evidence of its direct impact on financial performance remains inconsistent. Grounded in the integration of the Resource-Based View (RBV), the Technology Acceptance Model (TAM), and Dynamic Capabilities theory as the primary theoretical lenses, this study analyses the joint effects of financial technology adoption (an external resource) and strategic financial agility (an internal capability) on MSME financial performance in Central Java, Indonesia. Employing an explanatory quantitative design, primary data were gathered via structured questionnaires from 200 MSME owners and managers across six regencies in Central Java, selected through purposive sampling. PLS-SEM analysis via Smart PLS 4 demonstrates that fintech adoption (beta = 0.489, t = 10.395, p < 0.001) and strategic financial agility (beta = 0.426, t = 8.673, p< 0.001) exert positive and statistically significant impacts on financial performance. Jointly, both variables explain 57.9% of the variance in financial performance (R2 = 0.579), indicating moderate-to-strong predictive power. This study contributes to the literature by demonstrating how aligning external digital payment adoption with internal resource flexibility fosters sustainable financial resilience for small firms in volatile emerging markets.