Artificial Intelligence Adoption and Firm Financial Performance: The Mediating Role of Digital Innovation and Organizational Agility

Abstract

Artificial intelligence (AI) is increasingly positioned as a determinant of firm competitiveness, yet evidence on how AI adoption translates into financial performance remains fragmented. This study examines whether digital innovation and organizational agility mediate the relationship between AI adoption and firm financial performance, drawing on the resource-based view, dynamic capabilities theory, and digital transformation theory. A quantitative, explanatory design was used, and data were collected from 312 senior managers and executives at manufacturing, financial services, and retail firms operating in Indonesia and three other ASEAN economies. Partial least squares structural equation modeling (PLS-SEM) was applied to test the measurement and structural models, with bootstrapping (5,000 resamples) used to assess mediation. The results show that AI adoption has a positive effect on digital innovation (β = 0.612, p < 0.001) and organizational agility (β = 0.487, p < 0.001), and that both constructs in turn affect firm financial performance (β = 0.398 and β = 0.276, respectively, p < 0.01). The direct path from AI adoption to firm financial performance is positive but weaker (β = 0.184, p < 0.05), consistent with partial mediation through both digital innovation and organizational agility. The model explains 54.3 percent of the variance in firm financial performance. These findings indicate that AI functions less as a standalone driver of profitability than as an enabler of innovation and adaptive capacity, which then convert into financial returns. The study offers a dual-mediation account of AI-driven performance gains and provides managers with a basis for sequencing AI investment around innovation and agility outcomes rather than expecting immediate returns