Digital capability as a bridge between leadership, entrepreneurial ambidexterity, and sustainable performance: the role of government support in SMEs

This study examines the interplay between paradoxical leadership, entrepreneurial ambidexterity, and sustainable performance in small and medium-sized enterprises (SMEs), with digital capability as a mediating mechanism and government support as a moderating factor. Drawing on the Resource-Based View (RBV) and Stakeholder Theory, this study extends prior research by conceptualizing paradoxical leadership and entrepreneurial ambidexterity as dynamic capabilities that enable SMEs to transform internal resources into stakeholder-oriented sustainability outcomes through digital capability. A quantitative approach using partial least squares structural equation modeling (PLS-SEM) was applied to data collected from 195 culinary SMEs in Indonesia, representing an emerging economy context characterized by resource constraints and evolving institutional support. The results reveal that digital capability significantly mediates the relationship between paradoxical leadership and entrepreneurial ambidexterity on sustainable performance. Furthermore, government support strengthens the impact of digital capability on sustainable performance, highlighting its role as a critical institutional enabler. This study contributes theoretically by integrating RBV and Stakeholder Theory to explain how internal capabilities and external institutional factors jointly shape SME sustainability. Practically, the findings suggest that SME managers should prioritize the development of digital capabilities to translate leadership and entrepreneurial strategies into sustainability outcomes. Additionally, policymakers should enhance targeted support mechanisms, such as digital infrastructure, training programs, and financial incentives, to maximize the sustainability impact of SMEs in developing economies.