Digital Capability and MSME Performance in Bauchi State, Nigeria. Does Entrepreneurial Skill Matter

Abstract Micro, small, and medium enterprises (MSMEs) account for nearly 80 percent of employment and over 40 percent of GDP in Nigeria, yet many MSMEs in Bauchi State continue to record weak and unstable performance despite growing digitalisation pressure. This study examines the effect of digital capability on MSME performance and the mediating role of entrepreneurial skills among MSME owner-managers in Bauchi State, Nigeria. Drawing on Dynamic Capabilities Theory and Human Capital Theory, the study hypothesizes that digital capability improves MSME performance both directly and indirectly through the entrepreneurial skills it builds. Data were collected from 395 valid MSME owner-manager respondents, drawn from an accessible population using Yamane's (1967) formula and stratified random sampling, and analysed using regression-based mediation analysis via Hayes' PROCESS macro (Model 4) in SPSS Version 27, with bootstrapping of 5,000 resamples. The results show that digital capability significantly improves MSME performance directly (c' = 0.215, p = .005), significantly predicts entrepreneurial skills (a = 0.865, p < .001), entrepreneurial skills significantly improves MSME performance (b = 0.543, p < .001), and entrepreneurial skills partially mediates the digital capability-performance relationship, carrying 68.6 percent of digital capability's total effect. The study offers an integrated capability-based account of how firm-level digital competency converts into MSME performance gains primarily through the entrepreneurial behaviour it enables, with implications for MSME support policy and business development services in resource-constrained Nigerian contexts.