Asian Journal of Advances in Research

The productivity performance of small and medium-sized enterprises (SMEs) in emerging economies continues to exhibit considerable variation despite growing investments in digital technologies. Although prior research has recognised the importance of digital entrepreneurship capabilities in enhancing firm performance, insufficient attention has been devoted to understanding how these capabilities interact with institutional voids to influence productivity outcomes. Grounded in dynamic capability theory and institutional theory, this study investigates the multilevel mechanisms through which digital entrepreneurship capabilities affect SME productivity within institutionally constrained environments.

Drawing upon data from 1,215 SMEs operating in emerging economies, the study utilises a multi-source dataset comprising firm-level survey responses and region-level institutional indicators. To account for the hierarchical structure of the data and potential unobserved heterogeneity, multilevel structural equation modelling (MSEM) is employed. In addition, causal mediation analysis is conducted to determine whether digital opportunity exploitation and process innovation function as critical mediating mechanisms linking digital entrepreneurship capabilities to productivity performance. Potential endogeneity concerns are addressed through the application of instrumental variable techniques and a series of robustness tests.

The findings indicate that digital entrepreneurship capabilities have a significant positive effect on SME productivity. However, the strength of this relationship is conditioned by the extent of institutional voids, including regulatory inefficiencies, infrastructural inadequacies, and deficiencies in market-supporting institutions. More specifically, institutional voids partially weaken the direct productivity benefits derived from digital capabilities while simultaneously strengthening their indirect effects through digital opportunity exploitation and operational innovation. At the regional level, higher institutional quality enhances the effectiveness of firm-level capabilities, suggesting the existence of cross-level complementarities between organisational capabilities and institutional environments.

This study makes three principal contributions to the existing literature. First, it advances scholarship on digital entrepreneurship by incorporating institutional voids into a multilevel framework of SME productivity. Second, it extends dynamic capability theory by demonstrating how institutional constraints influence the relationship between organisational capabilities and performance outcomes. Third, from a methodological perspective, the study provides rigorous empirical evidence through the integration of MSEM and causal mediation analysis, thereby responding to recent calls for greater methodological sophistication and analytical rigour in entrepreneurship research.

From a practical standpoint, the findings highlight the importance for SME managers of developing digital entrepreneurship capabilities that are sufficiently adaptive to institutional deficiencies. Simultaneously, policymakers should prioritise institutional reforms that reinforce and complement firm-level digital transformation initiatives. Overall, the study offers important insights into the productivity dynamics of SMEs operating in emerging economies, such as Nigeria, and provides valuable implications for theory development, policy formulation, and managerial practice in an increasingly digital environment.