Nonfinancial government support and village-owned enterprises’ performance: the mediating role of organizational sustainability

Abstract

Purpose This study aims to examine the role of nonfinancial government support in enhancing regional development through village-owned enterprises (VOEs) in Indonesia. Specifically, it investigates the direct and indirect effects of nonfinancial support – such as regulation, coordination, training and supervision – on financial, social and environmental performance, with organizational sustainability serving as a mediating mechanism. Design/methodology/approach The study surveyed 136 randomly selected VOEs in Bengkalis Regency, Riau Province. Respondents included directors, secretaries, treasurers and supervisors. A total of 424 valid responses were obtained from 680 distributed questionnaires. Data were analyzed using structural equation modeling (SEM). Findings The results show that nonfinancial government support has a significant direct effect on social and environmental performance, but not on financial performance. However, it exerts a significant indirect effect on all three performance dimensions – financial, social and environmental – through organizational sustainability as a mediating variable. Research limitations/implications This study is limited by its focus on nonfinancial government support, without specifically measuring financial assistance or capital participation. The scope is restricted to VOEs in one district in Riau, limiting generalizability. Financial performance measurement also faced validity issues in one indicator, possibly due to perception differences, cross-sectional design or indicator relevance. As all data were self-reported, potential bias may exist. Future research should extend to other regions, incorporate objective financial data and compare the effects of financial and nonfinancial support in shaping VOEs’ financial and social outcomes. Practical implications The findings highlight the importance of structured nonfinancial government interventions – including regulation, training, mentoring and supervision – in fostering sustainable financial, social and environmental outcomes in VOEs’ operations. Social implications This study underscores the role of VOEs as instruments for social transformation in rural areas. Government support – particularly in the form of training, mentoring and regulation – can enhance VOEs’ capacity to generate employment, improve community welfare and increase citizen engagement. However, these social benefits are realized only when VOEs possess strong internal sustainability mechanisms. Policies should therefore promote inclusive participation, especially of marginalized groups, and encourage social innovation at the village level. Strengthening VOEs’ legitimacy and community trust is essential for sustaining long-term social impact and reducing rural–urban disparities in access to services and economic opportunities. Originality/value This study contributes to the literature by clarifying how nonfinancial government support influences the performance of VOEs through organizational sustainability. Drawing on institutional theory, it demonstrates how capacity building, training and regulatory facilitation promote the internalization of accountable and legitimate practices under institutional pressures. The findings offer both theoretical insights and practical guidance for policymakers and practitioners seeking to strengthen sustainable, community-based enterprises.