SUSTAINABLE ENTREPRENEURSHIP AND PERFORMANCE IN DISABILITY MSMEs: ROLES OF LEADERSHIP, DIGITAL TRANSFORMATION, SOCIAL INNOVATION

Abstract

This study examines the role of Sustainable Leadership, Digital Transformation, and Social Innovation in promoting Sustainable Entrepreneurship and Sustainable Business Performance among disability-owned MSMEs in East Java, Indonesia. Drawing on Dynamic Capabilities Theory (DCT) and the Natural-Resource-Based View (NRBV), the study conceptualizes Sustainable Entrepreneurship as a strategic capability that enables MSMEs to transform leadership orientations, digital resources, and social innovation into sustainable business outcomes. The study employed a quantitative research design using a survey of 266 respondents from disability-owned MSMEs. The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS. The results demonstrate that Sustainable Leadership has a positive and significant effect on Sustainable Entrepreneurship, while Digital Transformation does not significantly influence Sustainable Entrepreneurship. Social Innovation has a very strong and significant effect on Sustainable Entrepreneurship. Furthermore, Sustainable Entrepreneurship strongly and positively influences Sustainable Business Performance. Regarding direct effects on performance, Digital Transformation has a significant positive effect, whereas Sustainable Leadership and Social Innovation do not have significant direct effects. The mediation analysis indicates that Sustainable Entrepreneurship significantly mediates the relationship between Sustainable Leadership and Sustainable Business Performance and between Social Innovation and Sustainable Business Performance. However, the indirect effect of Digital Transformation through Sustainable Entrepreneurship is not significant. The model explains 78.0% of the variance in Sustainable Entrepreneurship and 82.3% of Sustainable Business Performance, with strong predictive relevance. These findings highlight that sustainable performance among disability-owned MSMEs depends not solely on adopting digital technologies or implementing social initiatives, but on the ability to transform these resources into sustainable entrepreneurial capabilities. The study contributes to DCT and NRBV by positioning Sustainable Entrepreneurship as a critical capability-based mechanism for achieving sustainable business performance.