Sustaining MSME Competitiveness through Innovation: The Mediating Effect of Innovation on Intellectual Capital and Corporate Social Responsibility

Abstract

This study aims to examine the influence of Intellectual Capital (IC) and Corporate Social Responsibility (CSR) on the performance of Micro, Small, and Medium Enterprises (MSMEs) in Indonesia, with a focus on the mediating role of innovation. This study employed a quantitative research design, with data collected from MSME owners and managers across multiple provinces in Indonesia. Structural Equation Modeling (SEM) was applied to test the relationships among IC, CSR, innovation, and performance. The results indicated that both IC and CSR have a significant indirect effect on MSME performance through innovation, confirming full mediation. Among the IC dimensions, relational and technological capital have the strongest influence on innovation. CSR also enhances innovation through initiatives related to social welfare, environmental sustainability, and operational efficiency. These findings demonstrate that innovation acts as a strategic bridge linking knowledge assets and social responsibility to business success. The findings suggested that MSME leaders prioritize innovation-driven strategies supported by intellectual and social capital. Policymakers should design programs that integrate CSR and innovation development to strengthen MSME competitiveness and sustainability. This study contributes to the Knowledge-Based View and Stakeholder Theory by establishing innovation as a full mediator between IC, CSR, and performance. The proposed model provides a novel theoretical framework and empirical evidence explaining how MSMEs in developing economies can achieve superior performance through the synergy of knowledge, responsibility, and innovation.