Advancing Circular Economy Implementation in Malaysian SMEs: The Role of Financial Resources, Operational Alignment, and Absorptive Capacity

This study explores the factors influencing circular economy (CE) implementation among small and medium-sized enterprises (SMEs) in Malaysia, with a focus on the service and manufacturing sectors. Drawing on the Theory of Planned Behavior (TPB), Resource-Based View (RBV), and Absorptive Capacity Theory (ACT), the research examines the roles of attitudes, financial investment, management support, operational alignment, absorptive capacity, and compatibility. Employing Partial Least Squares Structural Equation Modeling (PLS-SEM) on survey data from 350 SMEs, the findings reveal that financial investment and operational readiness significantly drive CE adoption, while absorptive capacity moderates the relationship between resource deployment and implementation. However, management support shows limited direct influence, highlighting the importance of tangible resources over leadership endorsement alone. The study provides actionable insights for policymakers and business leaders, emphasizing the need for financial incentives, capacity-building programs, and the integration of enabling technologies to foster sustainable practices. Practical measures include enhancing SMEs’ operational infrastructure, aligning CE strategies with market demands, and leveraging knowledge-sharing networks to overcome adoption barriers. By advancing theoretical and practical understanding, this research contributes to promoting CE adoption in resource-constrained SME contexts.