Keywords:
village-owned enterprises
sustainability performance
social capital
innovation capability

  • Abstract

    This research investigates the role of social capital—both internal and external—in influencing the sustainability performance of Village-Owned Enterprises (VOEs) in Indonesia, with a particular focus on innovation capability as a mediating variable. Given the growing significance of VOEs in local economies, particularly in rural and underdeveloped regions, understanding the drivers of their sustainability performance is crucial for promoting long-term viability. The study draws on a sample of 209 VOEs across Indonesia, collected through a structured survey questionnaire. The data were analyzed using Partial Least Squares (PLS) method to examine the relationships between social capital, innovation capability, and sustainability performance. The findings suggest that internal social capital does not have a direct effect on the sustainability performance of VOEs. Instead, internal social capital affects sustainability performance indirectly by enhancing the innovation capability, which in turn drives better sustainability outcomes. This indicates a full mediation effect of innovation capability in the relationship between internal social capital and sustainability performance. On the other hand, external social capital—representing the connections and networks between VOEs and external stakeholders—has a more direct impact on sustainability performance. It not only positively influences sustainability performance directly but also strengthens it through its indirect effect via innovation capability, suggesting a partial mediation effect. These results underline the importance of both types of social capital in shaping the sustainability performance of VOEs. The study contributes to the existing literature by demonstrating that innovation capability is a critical mediating factor in the relationship between social capital and the sustainability performance of VOEs. The findings highlight the need for VOEs to foster both internal and external social capital, as well as to prioritize the development of innovation capabilities, in order to achieve enhanced sustainability outcomes.

  • References

    1. Acosta-Prado, J. C., & Tafur-Mendoza, A. A. (2024). Examining the mediating role of dynamic capabilities in the relationship between information and communication technologies and sustainable performance. VINE Journal of Information and Knowledge Management Systems, 54(3), 561-577. https://doi.org/10.1108/VJIKMS-10-2021-0257
    2. Akintimehin, O. O., Eniola, A. A., Alabi, O. J., Eluyela, D. F., Okere, W., & Ozordi, E. (2019). Social capital and its effect on business performance in the Nigeria informal sector. Heliyon, 5(7).
    3. Ali, A., Jiang, X., & Ali, A. (2023). Social ties, absorptive capacity, and the adoption of green innovation: a social capital perspective. International Journal of Manpower, 44(2), 214-230. https://doi.org/ 10.1108/IJM-10-2021-0597
    4. Aliasghar, O., Sadeghi, A., & Rose, E. L. (2023). Process innovation in small-and medium-sized enterprises: The critical roles of external knowledge sourcing and absorptive capacity. Journal of Small Business Management, 61(4), 1583-1610. https://doi.org/10.1080/00472778.2020.1844491
    5. Allal-Chérif, O., Climent, J. C., & Berenguer, K. J. U. (2023). Born to be sustainable: How to combine strategic disruption, open innovation, and process digitization to create a sustainable business. Journal of Business Research, 154, 113379. https://doi.org/10.1016/j.jbusres.2022.113379
    6. Ambarwati, D., Safa’at, R., Hamidah, S., & Sulistyarini, R. (2023). Strengthening Sustainable Economic Concept Through Village-Owned Enterprises. 3rd Universitas Lampung International Conference on Social Sciences (ULICoSS 2022),
    7. Annamalah, S., Paraman, P., Ahmed, S., Dass, R., Sentosa, I., Pertheban, T. R., Shamsudin, F., Kadir, B., Aravindan, K. L., & Raman, M. (2023). The role of open innovation and a normalizing mechanism of social capital in the tourism industry. Journal of Open Innovation: Technology, Market, and Complexity, 9(2), 100056. https://doi.org/10.1016/j.joitmc.2023.100056
    8. Arifin, B., Wicaksono, E., Tenrini, R. H., Wardhana, I. W., Setiawan, H., Damayanty, S. A., Solikin, A., Suhendra, M., Saputra, A. H., & Ariutama, G. A. (2020). Village fund, village-owned-enterprises, and employment: Evidence from Indonesia. Journal of rural studies, 79, 382-394. https://doi.org/10.1016/j.jrurstud.2020.08.052
    9. Barroso-Castro, C., Villegas-Periñan, M. d. M., & Casillas-Bueno, J. C. (2016). How boards’ internal and external social capital interact to affect firm performance. Strategic Organization, 14(1), 6-31.
    10. Bhat, A. A., Mir, A. A., Allie, A. H., Lone, M. A., Al-Adwan, A. S., Jamali, D., & Riyaz, I. (2024). Unlocking corporate social responsibility and environmental performance: Mediating role of green strategy, innovation, and leadership. Innovation and Green Development, 3(2), 100112. https://doi.org/10.1016/j.igd.2023.100112
    11. Blaique, L., Abu-Salim, T., Asad Mir, F., & Omahony, B. (2024). The impact of social and organisational capital on service innovation capability during COVID-19: the mediating role of strategic environmental scanning. European Journal of Innovation Management, 27(1), 1-26. https://doi.org/10.1108/EJIM-01-2022-0023
    12. Blumberg, B., Cooper, D., & Schindler, P. (2014). EBOOK: Business Research Methods. McGraw Hill.
    13. Chatkaewnapanon, Y., & Lee, T. J. (2022). Planning sustainable community-based tourism in the context of Thailand: Community, development, and the foresight tools. Sustainability, 14(12), 7413. https://doi.org/10.3390/su14127413
    14. Chin, W. W., Marcolin, B. L., & Newsted, P. R. (2003). A partial least squares latent variable modeling approach for measuring interaction effects: Results from a Monte Carlo simulation study and an electronic-mail emotion/adoption study. Information systems research, 14(2), 189-217.
    15. Chowdhury, M. S., Rahman, K. S., Chowdhury, T., Nuthammachot, N., Techato, K., Akhtaruzzaman, M., Tiong, S. K., Sopian, K., & Amin, N. (2020). An overview of solar photovoltaic panels’ end-of-life material recycling. Energy Strategy Reviews, 27, 100431. https://doi.org/10.1016/j.esr.2019.100431
    16. Chowdhury, P., Paul, S. K., Kaisar, S., & Moktadir, M. A. (2021). COVID-19 pandemic related supply chain studies: A systematic review. Transportation Research Part E: Logistics and Transportation Review, 148, 102271. https://doi.org/10.1016/j.tre.2021.102271
    17. Chumnangoon, P., Chiralaksanakul, A., & Chintakananda, A. (2023). How closeness matters: The role of geographical proximity in social capital development and knowledge sharing in SMEs. Competitiveness Review: An International Business Journal, 33(2), 280-301. https://doi.org/10.1108/CR-03-2021-0038
    18. Dabić, M., Maley, J. F., Švarc, J., & Poček, J. (2023). Future of digital work: Challenges for sustainable human resources management. Journal of Innovation & Knowledge, 8(2), 100353. https://doi.org/10.1016/j.jik.2023.100353
    19. Denford, J. S. (2013). Building knowledge: developing a knowledge‐based dynamic capabilities typology. Journal of Knowledge Management, 17(2), 175-194. https://doi.org/10.1108/13673271311315150
    20. Dixon, S., Meyer, K., & Day, M. (2014). Building dynamic capabilities of adaptation and innovation: A study of micro-foundations in a transition economy. Long range planning, 47(4), 186-205.
    21. Duodu, B., & Rowlinson, S. (2020). The effect of social capital on exploratory and exploitative innovation: Modelling the mediating role of absorptive capability. European Journal of Innovation Management, 23(4), 649-674. https://doi.org/10.1108/EJIM-08-2018-0178
    22. Eisenhardt, K. M., & Martin, J. A. (2000). Dynamic capabilities: what are they? Strategic management journal, 21(10‐11), 1105-1121. https://doi.org/10.1002/1097-0266(200010/11)21:10/11<1105::AID-SMJ133>3.0.CO;2-E
    23. Felício, J. A., Couto, E., & Caiado, J. (2014). Human capital, social capital and organizational performance. Management Decision, 52(2), 350-364. https://doi.org/10.1108/MD-04-2013-0260
    24. Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of marketing research, 18(1), 39-50.
    25. Gutierrez-Broncano, S., Linuesa-Langreo, J., Ruiz-Palomino, P., & Yánez-Araque, B. (2024). General manager servant leadership and firm adaptive capacity: The heterogeneous effect of social capital in family versus non-family firms. International Journal of Hospitality Management, 118, 103690. https://doi.org/10.1016/j.ijhm.2024.103690
    26. Hair, J. F., Risher, J. J., Sarstedt, M., & Ringle, C. M. (2019). When to use and how to report the results of PLS-SEM. European business review, 31(1), 2-24.
    27. Hair Jr, J. F., Sarstedt, M., Hopkins, L., & Kuppelwieser, V. G. (2014). Partial least squares structural equation modeling (PLS-SEM): An emerging tool in business research. European business review, 26(2), 106-121. https://doi.org/10.1108/EBR-10-2013-0128
    28. Harrison, J. S., & Wicks, A. C. (2013). Stakeholder theory, value, and firm performance. Business Ethics Quarterly, 23(1), 97-124. https://doi.org/10.5840/beq20132314
    29. Hartwig, T., & Nguyen, T. T. (2023). Local infrastructure, rural households' resilience capacity and poverty: evidence from panel data for Southeast Asia. Journal of Economics and Development, 25(1), 2-21. https://doi.org/10.1108/JED-10-2022-0199
    30. Henseler, J., Ringle, C. M., & Sarstedt, M. (2015). A new criterion for assessing discriminant validity in variance-based structural equation modeling. Journal of the academy of marketing science, 43, 115-135.
    31. Hoang Tien, N., Minh, H. T. T., Minh Duc, L. D., Mai, N. P., & Thuc, T. D. (2020). Social entrepreneurship and corporate sustainable development. Evidence from Vietnam. Cogent Business & Management, 7(1), 1816417. https://doi.org/10.1080/23311975.2020.1816417
    32. Hossain, M. I., Tabash, M. I., Siow, M. L., Ong, T. S., & Anagreh, S. (2023). Entrepreneurial intentions of Gen Z university students and entrepreneurial constraints in Bangladesh. Journal of Innovation and Entrepreneurship, 12(1), 12. https://doi.org/10.1186/s13731-023-00279-y
    33. Ince, H., Imamoglu, S. Z., & Karakose, M. A. (2023). Entrepreneurial orientation, social capital, and firm performance: The mediating role of innovation performance. The International Journal of Entrepreneurship and Innovation, 24(1), 32-43. https://doi.org/10.1177/14657503211055297
    34. Ishaque, M. (2021). Managing conflict of interests in professional accounting firms: A research synthesis. Journal of Business Ethics, 169(3), 537-555. https://doi.org/10.1007/s10551-019-04284-8
    35. Jamshidi, M. H. M., & Kenarsari, N. H. (2015). The effect of social capital on creativity of employees. A case study: Productive firms of electrical household appliances in the North of Iran. Journal of Asian Scientific Research, 5(4), 205-218. https://doi.org/10.18488/journal.2/2015.5.4/2.4.205.218
    36. Jong-Dae, P. (2022). The significance of Korea’s Saemaul Undong (new village movement) for Africa’s development. Korea, 16(1), 77-129. https://doi.org/10.30885/RIE.2022.16.1.077
    37. Jordan, E. J., Kim, H. R., Arcila, M. E., Barron, D., Chakravarty, D., Gao, J., Chang, M. T., Ni, A., Kundra, R., & Jonsson, P. (2017). Prospective comprehensive molecular characterization of lung adenocarcinomas for efficient patient matching to approved and emerging therapies. Cancer discovery, 7(6), 596-609.
    38. Jordan, P. J., & Troth, A. C. (2020). Common method bias in applied settings: The dilemma of researching in organizations. Australian Journal of management, 45(1), 3-14. https://doi.org/10.1177/0312896219871
    39. Jum'a, L., Zimon, D., & Madzik, P. (2024). Impact of big data technological and personal capabilities on sustainable performance on Jordanian manufacturing companies: the mediating role of innovation. Journal of Enterprise Information Management, 37(2), 329-354. https://doi.org/10.1108/JEIM-09-2022-0323
    40. Kania, I., Anggadwita, G., & Alamanda, D. T. (2021). A new approach to stimulate rural entrepreneurship through village-owned enterprises in Indonesia. Journal of Enterprising Communities: People and Places in the Global Economy, 15(3), 432-450. https://doi.org/10.1108/JEC-07-2020-0137
    41. Kanwal, F., Tang, C., Ur Rehman, A., Kanwal, T., & Fawad Sharif, S. M. (2022). Knowledge absorptive capacity and project innovativeness: the moderating role of internal and external social capital. Knowledge Management Research & Practice, 20(5), 686-703.
    42. Kimbal, R. W. (2021). The practice of womens social capital as the pillars of the family economic in rural area. International Journal of Communication and Society, 3(2), 140-151. https://doi.org/10.31763/ijcs.v3i2.336
    43. Lewis, B. P., Burge, C. B., & Bartel, D. P. (2005). Conserved seed pairing, often flanked by adenosines, indicates that thousands of human genes are microRNA targets. cell, 120(1), 15-20. https://doi.org/10.1016/j.cell.2004.12.035
    44. Lönnqvist, A. (2004). Measurement of intangible success factors: case studies on the design, implementation and use of measures. Tampere University of Technology.
    45. Mahajan, R., Lim, W. M., Sareen, M., Kumar, S., & Panwar, R. (2023). Stakeholder theory. Journal of Business Research, 166, 114104. https://doi.org/10.1016/j.jbusres.2023.114104
    46. Maldonado-Guzmán, G., Garza-Reyes, J. A., Pinzón-Castro, S. Y., & Kumar, V. (2019). Innovation capabilities and performance: are they truly linked in SMEs? International Journal of Innovation Science, 11(1), 48-62. https://doi.org/10.1108/IJIS-12-2017-0139
    47. Memon, M. A., Ting, H., Cheah, J.-H., Thurasamy, R., Chuah, F., & Cham, T. H. (2020). Journal of Applied Structural Equation Modeling.
    48. Migdadi, M. M. (2022). Social capital impact on mass customization capability and innovation capabilities: the mediating role of absorptive capacity. Journal of Business & Industrial Marketing, 37(12), 2488-2500. https://doi.org/10.1108/JBIM-06-2021-0312
    49. Miles, S. (2017). Stakeholder theory classification, definitions and essential contestability. In Stakeholder management (pp. 21-47). Emerald Publishing Limited.
    50. Musthofa, B. M., Pranita, D., Rasul, M. S., & Haidlir, B. M. (2023). Institutional Dynamics of Halal Tourism Development in Indonesia and Malaysia. JAS (Journal of ASEAN Studies), 11(1), 21-41. https://doi.org/10.21512/jas.v11i1.9431
    51. Nahapiet, J. (1998). Zander & Kogut, 1995) And Several Other Authors (Boisot (Vol. 23, Issue 2, Pp. 242–266). In: Spender.
    52. Ortiz, B., Donate, M. J., & Guadamillas, F. (2017). Relationships between structural social capital, knowledge identification capability and external knowledge acquisition. European Journal of Management and Business Economics, 26(1), 48-66. https://doi.org/10.1108/EJMBE-07-2017-004
    53. Otache, I., & Usang, O. U. E. (2022). Innovation capability and SME performance in times of economic crisis: does government support moderate? African Journal of Economic and Management Studies, 13(1), 76-88. https://doi.org/10.1108/AJEMS-08-2021-0362
    54. Pant, S. C., Kumar, S., & Joshi, S. K. (2024). Social capital and performance of farmers' groups in producer organizations in India: examining the mediating role of self-efficacy. Journal of Agribusiness in Developing and Emerging Economies, 14(3), 519-535.
    55. Pinto, J. (2019). Key to effective organizational performance management lies at the intersection of paradox theory and stakeholder theory. International Journal of Management Reviews, 21(2), 185-208.
    56. Podsakoff, P. M., MacKenzie, S. B., Lee, J.-Y., & Podsakoff, N. P. (2003). Common method biases in behavioral research: a critical review of the literature and recommended remedies. Journal of applied psychology, 88(5), 879. https://doi.org/10.1037/0021-9010.88.5.879
    57. Prayitno, G., Auliah, A., Ari, I. R. D., Effendi, A., Hayat, A., Delisa, A., Siankwilimba, E., & Hiddlestone-Mumford, J. (2024). Social capital for sustainable tourism development in Indonesia. Cogent Social Sciences, 10(1), 2293310.
    58. Rababah, A., Javed, S., & Malik, A. (2022). Is social capital a key factor to enhance firm’s performance via manager’s intangible capabilities? IIM Kozhikode Society & Management Review, 11(2), 207-221. https://doi.org/10.1177/22779752211065798
    59. Rahayu, M. J., Mukaromah, H., & Mulyanto, M. (2024). Social capital-based strategy of sustainable village-owned enterprises (BUMDes) development. International Journal of Social Economics, 51(3), 297-312.
    60. Revilla, M. A., Saris, W. E., & Krosnick, J. A. (2014). Choosing the number of categories in agree–disagree scales. Sociological methods & research, 43(1), 73-97. https://doi.org/10.1177/0049124113509
    61. Rokhim, R., Wahyuni, S., Wulandari, P., & Pinagara, F. A. (2017). Analyzing key success factors of local economic development in several remote areas in Indonesia. Journal of Enterprising Communities: People and Places in the Global Economy, 11(4), 438-455. https://doi.org/10.1108/JEC-09-2015-0049
    62. Russo, A., & Perrini, F. (2010). Investigating stakeholder theory and social capital: CSR in large firms and SMEs. Journal of Business Ethics, 91, 207-221. https://doi.org/10.1007/s10551-009-0079-z
    63. Sabet, N. S., & Khaksar, S. (2024). The performance of local government, social capital and participation of villagers in sustainable rural development. The Social Science Journal, 61(1), 1-29.
    64. Saunila, M. (2016). Performance measurement approach for innovation capability in SMEs. International Journal of Productivity and Performance Management, 65(2), 162-176. https://doi.org/10.1108/IJPPM-08-2014-0123
    65. Saunila, M., & Ukko, J. (2012). A conceptual framework for the measurement of innovation capability and its effects. Baltic journal of management, 7(4), 355-375. https://doi.org/10.1108/17465261211272139
    66. Scuotto, A., Cicellin, M., & Consiglio, S. (2023). Social bricolage and business model innovation: a framework for social entrepreneurship organizations. Journal of Small Business and Enterprise Development, 30(2), 234-267. https://doi.org/10.1108/JSBED-02-2022-0094
    67. Shamsuzzoha, A., Suihkonen, A.-M., Wahlberg, C., Jovanovski, B., & Piya, S. (2023). Development of value proposition to promote green innovation for sustainable organizational development. Cleaner Engineering and Technology, 15, 100668. https://doi.org/10.1016/j.clet.2023.100668
    68. Sinnaiah, T., Adam, S., & Mahadi, B. (2023). A strategic management process: the role of decision-making style and organisational performance. Journal of Work-Applied Management, 15(1), 37-50. https://doi.org/10.1108/JWAM-10-2022-0074
    69. Siswanti, Y., Heriningsih, S., & Novianti, D. (2023). Institutional Innovation Model to Create Successful Entrepreneurs in a Competitive Era in Village-Owned Enterprises (BUM Desa) Tridadi Sleman, Yogyakarta, Indonesia. International Research Journal of Economics and Management Studies IRJEMS, 2(3). https://doi.org/10.56472/25835238/IRJEMS-V2I3P165
    70. Sofyani, H., & Darma, E. S. (2024). Effect of architecture and efficiency of mobile banking application on the intention to continue using Islamic bank: does data security matter? Journal of Islamic Marketing, 15(6), 1479-1497. https://doi.org/10.1108/JIMA-07-2023-0220
    71. Stasa Ouzký, M., & Machek, O. (2024). Family firm performance: the effects of organizational culture and organizational social capital. Journal of Family Business Management, 14(2), 353-373. https://doi.org/10.1108/JFBM-06-2023-0089
    72. Sutanto, L., Tjahjadi, B., & Nadia, F. N. D. (2023). The impact of human capital readiness on business performance: the mediating role of innovation capability. Journal of Accounting Science, 7(2), 130-145. https://doi.org/10.21070/jas.v7i2.1725
    73. Tameno, N., Tomasowa, O. L., & Nope, D. C. (2023). Potential optimization for Bumdes development (case study: Duarato Village, Lamaknen District, Belu Regency). International Journal of Humanities Education and Social Sciences, 2(6). https://doi.org/10.55227/ijhess.v2i6.557
    74. Tehseen, S., Ramayah, T., & Sajilan, S. (2017). Testing and controlling for common method variance: A review of available methods. Journal of management sciences, 4(2), 142-168.
    75. Thomas, V., Bliemel, M., Shippam, C., & Maine, E. (2020). Endowing university spin-offs pre-formation: Entrepreneurial capabilities for scientist-entrepreneurs. Technovation, 96, 102153. https://doi.org/10.1016/j.technovation.2020.102153
    76. Valentinov, V., & Hajdu, A. (2021). Integrating instrumental and normative stakeholder theories: a systems theory approach. Journal of Organizational Change Management, 34(4), 699-712. https://doi.org/10.1108/JOCM-07-2019-0219
    77. Varadarajan, P. R., & Jayachandran, S. (1999). Marketing strategy: an assessment of the state of the field and outlook. Journal of the academy of marketing science, 27, 120-143. https://doi.org/10.1177/0092070399272002
    78. Vicente, M., Abrantes, J. L., & Teixeira, M. S. (2015). Measuring Innovation Capability In Exporting Firms: The Innovscale. International Marketing Review, 32(1), 29-51. https://doi.org/10.1108/IMR-09-2013-0208
    79. Wicks, A. C. (2003). What Stakeholder Theory is Not. Business Ethics Quarterly, 13(4).
    80. Zhang, S., Hu, B., & Zhou, M. (2024). Top management team social capital and business model innovation: moderating role of business ecosystem health. European Journal of Innovation Management. https://doi.org/10.1108/EJIM-11-2023-0954
Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Copyright (c) 2025 The Authors

How to cite

Suryanto, R., Widiastuti, H., Sofyani, H., Murtin, A., Yani, I., Thamrin, D. A. F., & Utami, T. P. (2025). Enhancing the sustainability performance of village-owned enterprises (VOEs): The mediation role of innovation capability. Multidisciplinary Science Journal, 7(9), 2025360. https://doi.org/10.31893/multiscience.2025360
Crossref
Scopus
Google Scholar
Europe PMC
  • Article viewed - 215
  • PDF downloaded - 26