Abstract: Introduction The era of knowledge plays an essential role in the economic growth and development of all enterprises (Foray, 2004; Mosconi & Roy, 2013). With the arrival of globalization, knowledge has become an intangible resource generator of permanent competitive advantage (Ikujiro & Hiroshi, 2013; Tunc Bozbura, 2007) and contributes to the generation of intellectual capital and to the economic activities of organizations (Kristandl & Bontis, 2007). In these times of constant motion, small and medium-sized enterprises (SMEs) require the extraction of knowledge from both domestic sources and foreign sources to achieve greater participation in the markets, foster innovation, and improve performance (Gold, Malhotra, & Segars, 2001; Morgan & Berthon, 2008). Knowledge management (KM) is a comprehensive approach that includes capture, receipt, and transfer of information in a company that considers the policies, procedures, knowledge, and experience of employees (Duhon, 1998). In addition, technology systems influence the behavior of employees and strengthen a culture based on the use and transfer of information (Davenport, 1994). KM is a business practice that integrates essential strategies, policies, techniques, and procedures (Davenport, 2013; Lavergne & Earl, 2006). The alignment of corporate strategy with KM is vital for adding value and achieving results (Chuang, 2004; M. H. Zack & Singh, 2010). KM influences business systems by increasing profitability, creating a harmonious atmosphere among employees, and ensuring businesses' sustainability and competitiveness (Darvish, Mohammadi, & Afsharpour, 2012; Darvish & Nazari, 2013). However, KM is not sufficiently widespread in SMEs, mainly due to the lack of strategic planning, lack of financial resources, distaste to change cultural, uncertainty regarding benefits, and technological immaturity, which are typical in these organizations (Edvardsson & Durst, 2013; Yew Wong, 2005). A reasonable number of empirical studies have analyzed the impact of KM and innovation in SMEs (Constantinescu, 2009; C. Yu, Yu-Fang, & Yu-Cheh, 2013). However, the relationship between innovation and performance is still a wide field for exploration (Price, Stoica, & Boncella, 2013; Vaccaro, Parente, & Veloso, 2010). Works on KM have placed minimal emphasis on the benefits generated in SMEs; the majority of research focuses on large organizations (Darroch, 2005; Roxas, Battisti, & Deakins, 2014). In addition, minimal understanding of how companies create, transfer, and use knowledge has led to difficulty in transforming knowledge into a competitive advantage (C. Lin, Wu, & Yen, 2012; Perrin, Vidal, & McGill, 2006). The difficulty of measuring KM in SMEs provides a reasonable explanation for the scarcity of empirical studies in this developing discipline (Becerra-Fernandez & Sabherwal, 2014; Choi, Poon, & Davis, 2008). By the great influence of the KM in the progress and development of SMEs, it is important to develop this type of study more regularly (Imran, 2014; Vaccaro et al., 2010). The objective of this work is to empirically analyze the relationships between KM, innovation, and performance in SMEs in the region of Murcia, Spain. In the current competitive global environment, it is important to analyze the key factors that affect the development and growth of these companies. The research questions that we attempt to answer are as follows: 1. Does knowledge management influence innovation activities in SMEs? 2. Does business innovation exert any influence on SME performance? Literature reveals that KM can help SMEs to professionally develop employees, improve innovation processes, grow sales, satisfy customers and thus achieve organizational success (Edvardsson & Durst, 2013; Lopez-Nicolas & Merono-Cerdan, 2011; Madrid-Guijarro, Garcia, & Van Auken, 2009). …