Abstract:

This paper analyzes the impact of the European economy digitalization on the financial performance of the European 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 financial performance of SMEs is significantly and negatively associated with the COVID-19 pandemic. Digitalization of the European economy significantly increases SMEs’ financial performance measured by various performance measurements and mediates the COVID-19 negative effect. Digitalization is more significant during COVID-19 era compared to the pre-pandemic period. Our results are robust to alternative performance measures.