This study investigates the causal impact of digital capabilities on the growth and financial resilience of Small and Medium Enterprises (SMEs). Using a compre- hensive longitudinal dataset of 500 SMEs observed over the period 2018-2022, we employ advanced econometric methods including fixed effects models and system GMM estimation to address endogeneity concerns. Our findings reveal that digital capabilities have a statistically significant positive effect on sales growth (β = 0.001, p < 0.01) and enhance financial resilience by reducing profit volatility. The effect is heterogeneous, being stronger for younger firms and those in technology-intensive sectors. The results underscore the critical importance of targeted pol icy inter- ventions to foster digital adoption among SMEs, particularly for nascent ventures that stand to benefit most from digital transformation. Our research contributes to the lit erature by providing robust causal evidence using dynamic panel methods and introducing resilience as a key performance metric alongside traditional growth measures.
Thanusree et al. (Sun,) studied this question.