Abstract
This paper analyzes the impact of the European economy's digitalization on the financial performance of European small and medium enterprises (SMEs) during COVID-19. Using a panel data from 2017 to 2022 of 12,179 European SMEs and a European transformed digitalization index, we find that the financial performance of SMEs is significantly and negatively associated with the COVID-19 pandemic. Digitalization seems to have played a key role in helping SMEs to combat the effects of the pandemic. We find that digitalization significantly increases SMEs’ financial performance, as measured by various performance measurements and mediates the COVID-19 negative effect. Digitalization is more significant during the COVID-19 era compared to the pre-pandemic period. Our results are robust to alternative performance measures.
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