DIGITAL GOVERNANCE, AI-BASED AUDIT, AND FINANCIAL SUSTAINABILITY:A STUDY ON THE BATIK INDUSTRY IN CIREBON, WEST JAVA, INDONESIA

Abstract

This study investigates the influence of digital governance and artificial intelligence (AI)-based auditing on financial sustainability within the batik industry in Cirebon, West Java, Indonesia, with digital technology adoption as a moderating variable. The Cirebon batik industry represents a leading small and medium-sized enterprise (SME) sector currently undergoing digital transformation, yet remaining limited in the implementation of technology-based governance and auditing systems. A quantitative survey approach was employed. Primary data were collected through structured questionnaires administered to 120 batik entrepreneurs registered with the Cirebon City Office of Cooperatives and SMEs. Multiple linear regression and Moderated Regression Analysis (MRA) were performed using SPSS 26. The findings demonstrate that: (1) digital governance exerts a positive and significant effect on financial sustainability (β = 0.312; p < 0.001); (2) AI-based audit positively and significantly affects financial sustainability (β = 0.278; p < 0.001); (3) digital technology adoption strengthens the relationship between digital governance and financial sustainability (β = 0.183; p < 0.01); and (4) digital technology adoption reinforces the relationship between AI-based audit and financial sustainability (β = 0.157; p < 0.05). An R-squared value of 0.681 indicates that the independent and moderating variables collectively explain 68.1% of the variance in financial sustainability. This research contributes theoretically to the SME governance literature in the Industry 4.0 era while providing practical policy implications for stakeholders in the cultural creative industry sector.