The Impact of Artificial Intelligence–Driven Financial Analytics on Strategic Decision-Making and Profit Optimization in Small and Medium Enterprises (SMEs)

https://doi.org/10.5281/zenodo.19134738

Abstract

This work examines the effect of artificial intelligence (AI) based financial analytics on strategic decision making and profit optimization of small and medium enterprises (SMEs). The research is based on 267 SMEs that participated in primary survey to validate relationships between AI adoption, quality of decision making and profitability outcomes using structural equation modeling (SEM). The results present that the quality of decisions improves considerably when AI adoption is used, especially in regions where the adoption can be applied, including cash-flow forecasting and fraud detection, and significantly, that the quality of decision-making mediates powerfully between AI adoption and optimal use of profits. Although AI has a direct impact on taking profitability, it is maximised when it increases the rate at which decisions are made, their accuracy and their certainty. The difference in the adoption rates and the resulting financial advantages of manufacturing SMEs compared to the retail and service firms through sectoral comparison indicates that the availability of data and the level of maturity of the processes impact the overall efficacy of the AI. Test-retest with reliability and validity tests demonstrate the robustness of the constructs, and model-fit indices demonstrate the structural model. All in all, the research proves that AI-based financial analytics can offer SMEs with a dynamic capability that furthers the competitiveness of these businesses as it makes their strategic decisions smarter and delivers their better financial performance, with barriers to adopting it (including cost, skills, and explainability) still a challenge. The results indicate a contribution to theory by supporting the mediating role of the decision-making quality of the AI-performance relationship and offer useful insights to managers, policymakers, and technology providers aiming to improve resilience and profitability of SMEs in the digital age.