Perceived value of microfinance and SME performance: The role of exploratory innovation

Abstract

This study examines how perceived value of microfinance and exploratory innovation affect small and medium-sized enterprises (SME) performance in the context of a developing nation. Drawing on the strategic innovation and microfinance literature, we hypothesize that (1) perceived value of microfinance affects exploratory innovation and SME performance, and (2) exploratory innovation serves as an effective mechanism through which microfinance enhances SME performance. We employ partial least squares structural equation modeling (PLS-SEM) to test our hypotheses. Using a sample of 581 Ghanaian SMEs with microfinance, the results of the PLS-SEM support our hypotheses. We further conducted a qualitative analysis of comments provided by the SMEs (n = 144) to gain a deeper understanding of exploratory innovation in developing economies. Our findings show that SMEs purposefully attempt to strengthen their exploratory innovation in microfinance. We discuss the theoretical and practical implications of these findings as well as future research avenues.