When stakeholder pressure drives the circular economy: measuring the mediating role of innovation capabilities

Purpose - This paper has explored the impact of stakeholder pressures on firm’s circular economy initiatives. The organisational responses are quite heterogeneous even when the firms face similar pressure. We have tried to explain this heterogeneity by using innovative capability as mediating variables.

Design/methodology/approach - Empirical survey data from Indian manufacturing firms are obtained and used to test the proposed hypotheses. The hypotheses are grounded in resource-based view of the firm. We used structural equation modelling approach with maximum likelihood methods of approximation.

Findings - The results indicate that exploratory innovation positively influences the firms to adopt circular economy practices, whereas, exploitative innovation capability inhibits the adoption of circular economy practices.

Practical implications - This study provides some guidelines for business managers to focus on developing exploratory innovative capabilities before the adoption of circular economy practices. It further inform policy makers about the role regulatory mechanism plays to encourage/inhibits firms for adopting circular economy practices.

Originality/value - This study is the first to analyze the idiosyncratic behavior of the firms when subjected to stakeholder pressure for circular economy practices adoption. Innovative capabilities (exploratory/exploitative) are able to explain the reason for diverse response to stakeholder response.