Abstract: This paper aims to fill research gaps in the existing literature on the effect of electronic business on financial firm performance within the specific context of manufacturing Small and Medium Enterprises (SMEs). More specifically, this research analyzes not only the direct effects of e-business on firm performance but also the mediating effect of organizational innovation the relationship. Building on the knowledge and resource-based views, the proposed research model and its associated hypotheses are tested by using partial least squares (PLS) structural equation modeling on a dataset of Spanish manufacturing SMEs. Results suggest that electronic business has a direct effect on financial performance and is positively associated to organizational innovation. In addition, results show that the relationship between electronic business and financial performance is mediated by organizational innovation.

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