The Nexus between Proactive Eco-Innovation and Firm Financial Performance: A Circular Economy Perspective

Satirenjit Kaur Johl and Md Abu Toha
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Satirenjit Kaur Johl: Department of Management and Humanities, Universiti Teknologi PETRONAS, Seri Iskandar 32610, Malaysia
Md Abu Toha: Department of Management and Humanities, Universiti Teknologi PETRONAS, Seri Iskandar 32610, Malaysia

Sustainability, 2021, vol. 13, issue 11, 1-25

Abstract: Eco-innovation has gained considerable attention in the academic and corporate world due to its potential in mitigating a firm’s sustainability issues. Most previous studies focused on the reactive approaches of eco-innovation using primary data. This study mitigates the existing research gap by highlighting proactive eco-innovation and using a secondary panel dataset. The prime objective of this study is to investigate the relationship between proactive eco-innovation and firms’ financial performance. Hence, the study will introduce the proactive eco-innovation index with the help of secondary panel data. In addition to that, the paper will also explore how proactive eco-innovation relates to circular economy. The theory of Resource-Based View (RBV) was used to explain the relationship among the variables. This study was conducted on 31 Malaysian public listed energy companies from 2015 to 2019. A proactive eco-innovation index was inferred by adapting three dimensions of eco-innovation (product, process, and technology) which is applicable for the energy sector. By applying random-effects GLS regression equation modeling, it was found that proactive eco-innovation (product eco-innovation, process eco-innovation, and technology eco-innovation) has a direct effect on firm financial performance. Furthermore, product and process eco-innovation is directly related to a circular economy through a sustainable product development process. The findings suggest that policymakers in the firm should proactively adopt eco-innovative practices. It will positively affect the circular economy as it will be cost-effective and help to reduce potential industrial pollution in the environment.

Keywords: eco-innovation; proactive eco-innovation; proactive eco-innovation index; firm financial performance; panel data; circular economy (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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