Asian Journal of Economics, Business and Accounting

This study examines the influence of digital trust and Artificial Intelligence (AI) literacy on the sustainability of micro, small, and medium-sized enterprises (MSMEs), with innovation capability serving as a mediating variable. As key drivers of Indonesia’s economy, MSMEs continue to face challenges such as uneven digital adoption and limited AI comprehension, both of which hinder long-term competitiveness. This research adopts a quantitative explanatory design, using survey data from 120 MSMEs in Surabaya and Malang, analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The results show that the model explains 77.4% of the variance in innovation capability and 82.2% of the variance in business sustainability, with a strong predictive level. Innovation capability was found to mediate 34.1% of the influence of digital trust and 28.4% of the influence of AI literacy on sustainability. These findings confirm that digital trust and AI literacy play an important role in driving innovation, which in turn enhances business competitiveness and resilience. This research enriches the technology acceptance model and dynamic capability framework by incorporating digital trust and AI literacy into the study of MSMEs' sustainability. Beyond its academic contribution, the study also provides empirical evidence from the underexplored Indonesian MSME, while offering practical recommendations for policymakers and business practitioners to strengthen digital trust, enhance AI competencies, and design innovation-based strategies that support sustainable growth.