Jurnal Economia, Volume 14, Nomor 1, April 2018 240 The Impact of Digitalization on MSMEs’ Financial Performance: The Mediating Role of Dynamic Capability Maya Indriastuti 1* , Indri Kartika 2 1,2 Department of Accounting, Faculty of Economics, Universitas Islam Sultan Agung, Indonesia 1 maya@unissula.ac.id, 2 indri@unissula.ac.id *Corresponding author Abstract The COVID-19 pandemic has negatively affected the 82.9% of MSMEs. They experienced a significant decrease in operating profit due to fixed production costs or increased production costs while the sales declined. Therefore, it requires various strategies to boost the financial performance of MSMEs through digitalization and dynamic capability. The sample consisted of 282 respondents from MSMEs in Central Java which then all primary data were processed using structural equation model analysis. The results of the study showed that digitalization and dynamic capability could enhance the MSMEs' financial performance and the variable of dynamic capability succeeded in mediating the effect of digitalization on the MSMEs' financial performance. Keywords: digitalization, dynamic capability, MSMEs' financial performance Dampak Digitalisasi Terhadap Kinerja Keuangan UMKM: Peran Mediasi dari Kapabililtas Dinamis Abstrak Pandemi COVID-19 telah menyebabkan 82,9% UMKM mengalami dampak negatif yakni penurunan profit usaha secara signifikan akibat biaya produksi tetap atau bahkan meningkat sementara penjualan menurun. Oleh karena itu di butuhkan berbagai strategi untuk mendongkrak kinerja keuangan UMKM melalui digitalization dan dynamic capability. Sampel penelitian ini sebanyak 282 responden dari UMKM di Jawa Tengah yang kemudian semua data primer diolah menggunakan analisis Structural Equation Modeling. Hasil penelitian menunjukkan bahwa variabel digitalization dan dynamic capability mampu meningkatkan kinerja keuangan UMKM serta variabel dynamic capability berhasil memediasi pengaruh digitalization dengan kinerja keuangan UMKM. Kata kunci: digitalisasi, kapabilitas dinamis, kinerja keuangan UMKM History: Received: 31 July 2021 Revised: 18 January 2022 Accepted: 2 October 2022 Citation (APA 6 th ): Indriastuti, M., & Kartika, I., (2022). The Impact of Digitalization on MSMEs’ Financial Performance: The Mediating Role of Dynamic Capability. Jurnal Economia, 18(2), 240-255. https://doi.org/10.21831/economia.v18i2.42790 INTRODUCTION Financial performance is the ability of MSMEs to operate efficiently, earn adequate income, survive, and develop by observing environmental opportunities and threats (Arthur et al., 2013). The financial performance of MSMEs is measured by operating profit, turnover or sales volume, and business capital adequacy at a certain period. The COVID-19 pandemic has negatively affected the 82.9% of MSMEs (www.bps.go.id). They experienced a significant decrease in operating profit due to fixed production costs or increased production costs while the sales declined. Business costs that underwent an increase during the pandemic were from the sector of raw materials, transportation, and Jurnal Economia, Vol. 18, No. 2, October 2022, 240-255 P-ISSN: 1858-2648 Website: https://journal.uny.ac.id/index.php/economia E-ISSN: 2460-1152