Entrepreneurial orientation and the digital transformation of family SMEs: a longitudinal study of financial performance

Purpose This study examines whether the innovativeness, proactiveness, and risk-taking dimensions of entrepreneurial orientation predict later digital transformation in family small and medium-sized enterprises (SMEs), and whether digital transformation is associated with subsequent financial performance. Design/methodology/approach Drawing on upper echelon theory and the socioemotional wealth perspective, the study develops and tests a three-wave longitudinal model in which entrepreneurial orientation is measured at Time 1, digital transformation at Time 2, and financial performance at Time 3. The empirical context is Lebanon, where family SMEs operate under persistent uncertainty and where digital renewal has become strategically important for continuity and competitiveness. Using a stratified random panel of 347 family SMEs observed across three annual waves, the study employs covariance-based structural equation modeling and robustness checks based on composite regressions, sector and governorate fixed effects, and endogeneity diagnostics. Findings Innovativeness, proactiveness, and risk-taking at Time 1 are all positively associated with digital transformation at Time 2. Digital transformation, in turn, is positively associated with financial performance at Time 3 after accounting for prior performance, firm size, firm age, leverage, cash holdings, sector, and governorate. Innovativeness shows the strongest association with later digital transformation, followed by risk taking and proactiveness. Supplementary indirect-effect estimates are consistent with digital transformation operating as a longitudinal mechanism linking entrepreneurial orientation to subsequent performance. Research limitations/implications The study focuses on family SMEs operating in Lebanon and relies on a parsimonious measure of digital transformation centered on readiness and commitment. Future research could examine broader digital transformation manifestations, additional family-governance contingencies, and other institutional settings. Practical implications The findings suggest that managers of family SMEs should treat digital transformation as an entrepreneurial renewal process rather than as a stand-alone technology project. In particular, they should build experimentation routines, proactive market scanning, and staged resource commitments that lower implementation anxiety while sustaining strategic momentum. Social implications Because family SMEs are central to employment and local economic continuity in emerging economies, strengthening their digital readiness and commitment can contribute to business resilience, adaptive capacity, and regional development. Originality/value The paper does not claim that the underlying pairwise relationships are entirely unprecedented. Its contribution lies in providing a stronger temporal test that disaggregates entrepreneurial orientation, models digital transformation as the intervening mechanism linking strategic posture to later financial performance, and offers evidence from family SMEs in a high-uncertainty emerging-economy context.