Ludovica Antenozio, Pilar Marques, Andrea Bikfalvi
Digital orientation plays a key role in the competitiveness of firms, enhancing business processes and improving performance. In this paper, we examine how digital orientation affects innovative SMEs in terms of innovation and financial performance. Our analysis is based on an original panel data set of 250 innovative Italian SMEs over a period of 10 years, constructed using novel methods. We applied the Generalised Method of Moments, considering the curvilinear (inverted U-shaped) effect between businesses’ digital orientation and innovation and financial performance. The study finds support for the positive influence of digital orientation on financial performance, confirming the inverted U-shape, while results for innovation are contrary to the hypothesis raised. Our research provides insightful evidence of the complex relationship between digital orientation and different types of performance, contributing to the discussion on the IT paradox and highlighting a key managerial implication whereby innovative SMEs, rather than steadily increasing digital investment, should focus on optimising their digital assets to sustain both innovation and financial performance. • Assesses inverted U-shape relationship between digital orientation, innovation and financial performance in innovative SMEs. • Digital orientation and innovation have a curvilinear relationship. • Results show inverted U-shape between digital orientation and financial performance. • Provides evidence of the complex relationship between digital orientation and different types of performance. • The findings contribute to the digital innovation and SMEs literature contributing to the IT paradox.