The impact of digital transformation on SMEs’ financial performance: Evidence from Vietnam’s manufacturing sector

Abstract

Digital transformation has become an inevitable trend in the development of the era, from the national level to the organizational level. Although it is expected to be the main driving force promoting innovation and growth, its impact on the financial performance of enterprises remains controversial. Based on a cost-benefit perspective, this study analyzes the impact of digital transformation on the financial performance of SMEs in the manufacturing industry in Viet Nam by using the 2023 enterprise survey data from the General Statistics Office. The empirical results from multivariate linear regression and quantile regression indicate that digital transformation has a positive effect on financial performance measured by ROA and ROE, with a particularly stronger impact on ROE. While firm size and asset growth rate positively influence ROA and ROE, high capital intensity, operating cost ratio, and leverage ratio may reduce the benefits from digital transformation. The research findings suggest that SMEs in the manufacturing industry should prioritize the implementation of digital transformation activities, consider sustainable scale expansion, and optimize asset utilization to leverage the benefits of digital transformation. At the same time, they need to exercise strict control over operating costs and carefully manage financial leverage to ensure that the advantages gained from digital transformation are not offset by increased operating costs and debts.