Ethical leadership, management control systems and circular economy in SMEs in an emerging economy, the UAE

Prior literature on the transition to a circular economy has focused primarily on societal, institutional, and technical levels and has paid less attention to people- and organization-driven factors such as leadership and management control. Further, few studies have considered the circular economy in the context of small and medium enterprises in emerging economies. Thus, through this empirical study, we aim to fill these research gaps by investigating the concurrent effects of ethical leadership and management control systems on the extent of the circular economy in small and medium-sized enterprises in the United Arab Emirates. The survey data were collected from 111 enterprises. We performed a confirmatory factor analysis to validate the instrument and tested the theoretical model through structural equation modelling. The findings support our theoretical propositions and show that both ethical leadership and management control systems are positively associated with the extent of circular economy practices in these enterprises. Interestingly, our findings demonstrate that management control systems fully mediate the relationship between ethical leadership and the extent of the circular economy. The results suggest that ethical leadership requires the support of management control systems to convey its positive effects in terms of circular economy practices. Overall, the findings help explain how ethical leadership and management control systems are important driving mechanisms for enabling small and medium enterprises to deploy a circular economy effectively. The implications of these findings for research and practice are also discussed.