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Ethical culture as a catalyst for SMEs’ financial sustainability: The role of sustainability innovations and regenerative environmental practices

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  • Leung, Tiffany C.H.
  • Ng, Peggy M.L.
  • Wan, Calvin
  • Chan, Jason K.Y.

Abstract

Ethical culture is increasingly important to sustainable performance. This study explores the extent to which firms adopt ethical culture to foster financial sustainability via sustainability-oriented innovation (i.e., social and environmental innovations) and sustainability practices (i.e., circular economy and biodiversity protection). 522 surveys were collected from SMEs in China. The data was examined by using Partial Least Square – Structural Equation Modeling (PLS-SEM) to validate the proposed five hypotheses. Drawing on institutional theory, the results suggest that the regulative, cultural-cognitive, and normative environments are positively correlated with ethical culture. The results highlight the crucial role of ethical culture in fostering a conducive environment for driving social and environmental innovations among SMEs. The results show that social and environmental innovations enhance circular economy among SMEs, while only social innovation can influence biodiversity protection among SMEs. Both circular economy and biodiversity protection have a positive impact on financial sustainability for SMEs. This study offers implications for both policymakers and businesses, highlighting the crucial role of fostering an ethical culture within SMEs in promoting financial sustainability through social and environmental innovations and targeting regenerative sustainability practices.

Suggested Citation

  • Leung, Tiffany C.H. & Ng, Peggy M.L. & Wan, Calvin & Chan, Jason K.Y., 2026. "Ethical culture as a catalyst for SMEs’ financial sustainability: The role of sustainability innovations and regenerative environmental practices," Research in International Business and Finance, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:riibaf:v:88:y:2026:i:c:s0275531926001790
    DOI: 10.1016/j.ribaf.2026.103452
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