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On the adoption of circular economy practices by small and medium-size enterprises (SMEs): does “financing-as-usual” still matter?

Author

Listed:
  • Claudia Ghisetti

    (Catholic University of Milan)

  • Sandro Montresor

    (Social Sciences, Gran Sasso Science Institute (GSSI) of l’Aquila (IT))

Abstract

This paper investigates the extent to which the adoption of Circular Economy (CE) practices by Small and Medium-sized Enterprises (SMEs) correlates with the choices they make in their financing. Referring to the debate about CE business models (CEBM) and intersecting it with emerging research on the CE barriers/enablers revealed by SMEs, we focus on the argument that “financing-as-usual”, by relying on standard financial sources according to the “pecking-order-theory”, could not work in supporting the CE transition of SMEs. Using data on more than 2000 European SMEs from the 2016 Eurobarometer, we instead find that financing as usual still matters for the sake of CE. Self-financing (extended to some forms of capital sources) appears a significant enabler of the adoption of generic CE practices, as well as debt financing, and the latter matter less than the former, consistent with the “pecking-order-theory”. Public funds do also matter, having a larger impact than self-financing, but a lower one than debt financing. On the other hand, not only does the availability of alternative forms of financing not support CE(BM), but it even crowds-out the resort to CE, possibly in favor of more linear-risk activities. With some few interesting exceptions, the previous results are confirmed when the adoption of specific kinds CE(BM) practices is considered, as well as the SMEs’ capacity of extending their portfolio.

Suggested Citation

  • Claudia Ghisetti & Sandro Montresor, 2020. "On the adoption of circular economy practices by small and medium-size enterprises (SMEs): does “financing-as-usual” still matter?," Journal of Evolutionary Economics, Springer, vol. 30(2), pages 559-586, April.
    • Handle: RePEc:spr:joevec:v:30:y:2020:i:2:d:10.1007_s00191-019-00651-w
    DOI: 10.1007/s00191-019-00651-w
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    Cited by:

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    3. Tarlan Ahmadov & Susanne Durst & Wolfgang Gerstlberger & Elisabeth Kraut, 2025. "SMEs on the way to a circular economy: insights from a multi-perspective review," Management Review Quarterly, Springer, vol. 75(1), pages 289-322, February.
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    5. Garrido-Prada, Pablo & Lenihan, Helena & Doran, Justin & Rammer, Christian & Perez-Alaniz, Mauricio, 2021. "Driving the circular economy through public environmental and energy R&D: Evidence from SMEs in the European Union," Ecological Economics, Elsevier, vol. 182(C).
    6. Federica Scandurra & Roberta Salomone & Sandra Caeiro & Ana Pinto Moura, 2025. "Circular Economy in the Agri-Food Sector: Insights into Portuguese Companies’ Practices," Circular Economy and Sustainability, Springer, vol. 5(1), pages 25-50, February.
    7. Sébastien Bourdin & Nicolas Jacquet, 2025. "Closing the loop at the local scale: Investigating the drivers of and barriers to the implementation of the circular economy in cities and regions," Post-Print hal-04991196, HAL.
    8. Jens Horbach, 2020. "The Importance of regional Spill-over Effects for Eco-Innovations in German Start-ups," SEEDS Working Papers 1620, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Dec 2020.
    9. Agustí Segarra‐Blasco & Mercedes Teruel & Josep Tomàs‐Porres, 2024. "Circular economy and public policies: A dynamic analysis for European SMEs," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 3532-3549, May.
    10. Miranda, Bruno Varella & Monteiro, Guilherme Fowler A. & Rodrigues, Vinicius Picanço, 2021. "Circular agri-food systems: A governance perspective for the analysis of sustainable agri-food value chains," Technological Forecasting and Social Change, Elsevier, vol. 170(C).
    11. Milena Angelova, 2023. "Factors for Boosting the Green Transition of the European Micro, Small and Medium-Sized Enterprises," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 59-77.
    12. Honjo, Yuji & Kwak, Charee & Uchida, Hirofumi, 2022. "Initial funding and founders’ human capital: An empirical analysis using multiple surveys for start-up firms," Japan and the World Economy, Elsevier, vol. 63(C).
    13. Nathalia Suchek & Cristina I. Fernandes & Sascha Kraus & Matthias Filser & Helena Sjögrén, 2021. "Innovation and the circular economy: A systematic literature review," Business Strategy and the Environment, Wiley Blackwell, vol. 30(8), pages 3686-3702, December.
    14. Matloob, Sheema & Raza, Ali & Waqas, Ali & Khan, Mohammad Jamal & Nisar, Nabeel, 2025. "Does resource orchestration theory ensure the better SME performance: A three-wave time lag investigation among manufacturing SMEs of the developing economies," Technological Forecasting and Social Change, Elsevier, vol. 210(C).
    15. Nathalia Suchek & João J. Ferreira & Paula O. Fernandes, 2022. "A review of entrepreneurship and circular economy research: State of the art and future directions," Business Strategy and the Environment, Wiley Blackwell, vol. 31(5), pages 2256-2283, July.
    16. Stefano Bonnini & Michela Borghesi & Massimiliano Giacalone, 2025. "Nonparametric analysis of firm size and innovation intensity in Circular Economy adoption," Quality & Quantity: International Journal of Methodology, Springer, vol. 59(2), pages 1345-1367, April.
    17. Kucher, Lesia & Kucher, Anatolii & Morozova, Hanna & Pashchenko, Yulia, 2022. "Development of circular agricultural economy: potential sources of financing innovative projects," Agricultural and Resource Economics: International Scientific E-Journal, Agricultural and Resource Economics: International Scientific E-Journal, vol. 8(2), June.
    18. Liping Wang & Zhijia Wang & Lili Tian & Chuang Li, 2022. "Evolutionary Game and Numerical Simulation of Enterprises’ Green Technology Innovation: Based on the Credit Sales Financing Service of Supply Chain," Sustainability, MDPI, vol. 15(1), pages 1-25, December.
    19. Centobelli, Piera & Cerchione, Roberto & Esposito, Emilio & Passaro, Renato & Shashi,, 2021. "Determinants of the transition towards circular economy in SMEs: A sustainable supply chain management perspective," International Journal of Production Economics, Elsevier, vol. 242(C).
    20. Arttu Saarinen & Leena Aarikka-Stenroos, 2023. "Financing-Related Drivers and Barriers for Circular Economy Business: Developing a Conceptual Model from a Field Study," Circular Economy and Sustainability, Springer, vol. 3(3), pages 1187-1211, September.
    21. Wen-Kuo Chen & Ching-Torng Lin, 2021. "Interrelationship among CE Adoption Obstacles of Supply Chain in the Textile Sector: Based on the DEMATEL-ISM Approach," Mathematics, MDPI, vol. 9(12), pages 1-24, June.

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