Circular economy adoption by European small and medium-sized enterprises: influence on firm performance

Abstract Purpose This study aims to analyze the elements that influence the adoption of circular economy (CE) activities by European small and medium enterprises (SMEs) and how these activities affect firm performance, following a multi-level approach. Theoretical framework To improve essential transformations, CE implementation must take place simultaneously in the micro, meso, and macro systems (multi-level approach); this is necessary to help underscore the holistic, systemic change that the CE requires. Furthermore, it is hard for SMEs to visualize the economic benefits, as the implementation of CE practices often involves making additional investments that SMEs may not consider profitable. Design/methodology/approach We developed seven hypotheses and a theoretical model based on the literature review to answer the research question. The model and hypotheses were tested using the path analysis method, applying the model to a sample of 4,550 European SMEs. Our empirical analysis uses data from the Flash Eurobarometer 441 (European SMEs and the Circular Economy) and the 2016 EUROSTAT database. Findings The results support the idea that the financial impact of adopting a CE is positive and is affected by the level of national economic and environmental performance. Practical & social implications of research By connecting the emergence of the CE to the national context, our study highlights the importance of considering macro-level factors when analyzing the impact of CE adoption on firm performance. Public direct investment policies, especially in countries with higher economic performance rates where firms operate at a higher level of competitiveness, can improve firm performance indicators and make CE adoption more attractive. Originality/value Studies on the exploration of the CE have a predominance of qualitative research with a single case; however, as the CE is a practice-oriented paradigm, the use of a quantitative methodology has become crucial to research articles in this field. This paper develops frameworks and metrics for assessing the CE at the country, industry, and firm levels using a quantitative methodology.