ACCOUNTING INFORMATION SYSTEMS AND THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES: EVIDENCE FROM ISTANBUL MARKET, ERIGAVO, SOMALILAND, FOR DECENT WORK, ECONOMIC GROWTH, AND INNOVATION

Abstract

Small and medium enterprises (SMEs) are the main source of decent work and economic growth in Somaliland, yet most still rely on informal, manual bookkeeping that weakens financial control, decision-making, and profitability, and no empirical evidence exists on accounting information systems (AIS) in Erigavo. This study examines the effect of four AIS components, namely record-keeping, financial reporting, budgetary control, and cash management systems, on the financial performance of SMEs operating in Istanbul Market, Erigavo District. Grounded in the Technology Acceptance Model, the Decomposed Theory of Planned Behavior, and Agency Theory, the study employs a census of all 20 AIS-using SMEs in the market and their 60 owners, managers, and employees; primary data were collected through a structured five-point Likert questionnaire and analyzed in SPSS using descriptive statistics and multiple linear regression. Cronbach's alpha ranged from 0.797 to 0.834, confirming reliability. The results show that the four AIS components jointly explain 55.8% of the variance in financial performance (R = 0.747, R² = 0.558, adjusted R² = 0.526, F(4, 55) = 17.374, p < 0.001). Record-keeping systems were the strongest predictor (B = 0.529, β = 0.484, p < 0.001), followed by cash management systems (B = 0.459, β = 0.241, p = 0.039), financial reporting systems (B = 0.128, β = 0.083, p = 0.037), and budgetary control systems (B = 0.089, β = 0.070, p = 0.043). The findings suggest that a formalized AIS is a decisive, innovation-driven determinant of SME profitability and competitiveness in a fragile, cash-based economy, with transaction-level records and liquidity controls mattering more than periodic reporting and budgeting, thereby supporting industry, innovation, and infrastructure and sustainable economic growth.