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Journal of Business and Organization ManagementJournal of Business and Organization Management

This study aims to determine the effect of social capital and entrepreneurial leadership on business performance mediated by innovation capability in fashion industry MSMEs in Yogyakarta City. The main focus of this research is business competition in Indonesia, which continues to increase from year to year, which requires MSMEs to be able to maintain their existence and improve their performance. The method in this study uses descriptive and quantitative analysis. The population of this research is fashion MSMEs in Yogyakarta City. Data collection was carried out through distributing questionnaires face to face and through Google Forms which were distributed to 96 fashion MSMEs in Yogyakarta City. The method used to analyze the data used Partial Least Square (SEM-PLS). The results of the analysis in this study show that: 1) social capital has a positive and significant effect on business performance, 2) entrepreneurial leadership has a positive and significant effect on business performance, 3) social capital has a positive and significant effect on innovation capability, 4) entrepreneurial leadership has a positive and significant effect on innovation capability, 5) innovation capability has a positive and significant effect on business performance, 6) innovation capability successfully mediates the effect of social capital on business performance, 7) innovation capability successfully mediates the effect of entrepreneurial leadership on business performance.

The study concludes that social capital and entrepreneurial leadership positively and significantly influence business performance in Yogyakartas fashion MSMEs.Furthermore, both social capital and entrepreneurial leadership significantly enhance innovation capability.Crucially, innovation capability effectively mediates the relationship between both social capital and entrepreneurial leadership with business performance, highlighting its pivotal role in achieving success.

Future research should explore the influence of digital technology adoption on the relationship between social capital, entrepreneurial leadership, and innovation within fashion MSMEs, considering the increasing importance of Industry 4.0. Additionally, a longitudinal study could investigate how these factors evolve over time and their long-term impact on business sustainability, providing a more dynamic understanding of their interplay. Finally, research could examine the role of government policies and support programs in fostering social capital and entrepreneurial leadership among fashion MSMEs, identifying effective strategies for enhancing their competitiveness and resilience in the face of market challenges.

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