The influence of capital structure on technological innovation and business performance: examining the moderating role of absorptive capacity

Purpose - This study aims to examine the relationship between capital structure, technological innovation and business performance in small and medium-sized enterprises (SMEs) within the manufacturing industries in Mexico, offering insights to enhance their growth and competitiveness. Design/methodology/approach - A quantitative, cross-sectional study was conducted using 200 SMEs in Guanajuato, Mexico. The research employs variance-based structural equation modeling (PLS-SEM), integrating a hierarchical components model and the sequential scoring method for latent variables. Findings - The results highlight the critical role of capital structure in driving technological innovation. A well-structured financial base significantly enhances innovation efforts, leading to higher productivity, competitiveness and profitability. Additionally, technological innovation is a key determinant of business performance, with absorptive capacity (ACAP) moderating this relationship. SMEs with higher ACAP effectively capitalize on their innovation initiatives, achieving superior performance outcomes. Practical implications - Findings provide actionable insights for policymakers and industry stakeholders. Policymakers can develop innovation-friendly policies, while SMEs can use these insights to strategically allocate resources and optimize innovation-driven growth. Originality/value - This study contributes to the literature by providing empirical evidence on the capital structure-innovation-performance nexus in Mexican SMEs. It also sheds light on ACAP's moderating role, deepening our understanding of innovation and competitiveness mechanisms in resource-constrained firms.