The Influence of Accounting Information Systems, Knowledge Management Capabilities, and Innovation on Organizational Performance in Iraqi SMEs

Introduction

Small and medium enterprises (SMEs) remain as one of the drivers in the economic development of any country. However, SMEs now face a double challenge represented by the lack of security, which seriously affects SMEs, and the new players at competitive prices in the business environment of Iraqi SMEs. In addition, 89 percent of SMEs did not have access to capital, and 33 percent experienced low demand and closed the firm temporarily (IOM, 2018a, 2018b). SMEs still face enormous pressure to remain competitive in domestic and global markets due to the lack of resources required to improve business. Ghobakhloo et al. (2011), and Nugroho et al. (2017) realized that, unfortunately, SMEs have various weaknesses at the managerial, organizational, individual, technological, and environmental levels. The use of high accounting information quality is required to improve the quality of financial reporting that will reduce the risk of making wrong decisions (Bushman & Smith 2001, 2003; Houcinel & Kolsi 2017). Accounting information systems (AIS) are extensively used in making financial and managerial decisions, many of which have considerable cost implications, particularly in developing economies, which leads to annual profits or losses when such decisions are rightly or poorly made (Sallem & Nasir, 2017). In the context of the business environment, the existing literature needs a comprehensive view of the information technology that leads to effective utilization of AIS (Klovienė & Gimzauskiene, 2015; Bachmid, 2016). SMEs need to change and protect themselves as well as recognize the importance of improving knowledge management capabilities (KMC) and keeping abreast of the latest technologies in the current market. Knowledge management represents the process of using accurate steps to acquire and share knowledge by organizations to achieve greater performance. Managers should recognize the importance of improving knowledge management capabilities, as these will help to minimize risks. Therefore, when knowledge is used rather than neglected it can present special characteristics that distinguish it from tangible resources to add creation and sustainability in order to gain competitive advantage (Curado, 2006; Zhang et al., 2018). Nowadays, SMEs are increasingly reliant on information technology because of the rapidly growing business environment. Therefore, in addition to AIS and KMC, SMEs need to be innovative, through internal or external elements, to survive in a competitive market and achieve competitive advantage. Nevertheless, little attention has been paid to this aspect of innovation being necessary for SMEs to achieve sustained performance (Nugroho et al., 2017; Ferreira et al., 2018; Yunis et al., 2018).