Corporate sustainability and economic performance in small and medium sized enterprises

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Various studies have investigated drivers of corporate sustainability, however only a few attempts have been made to link corporate sustainability and economic performance of enterprises by measuring labour productivity in new European Union member states that have transitioned from socialism. This paper analyses the link between corporate sustainability and economic performance, by simultaneously using the following control variables: human capital, the innovation process, leadership, and European Union policy for small and medium sized enterprises. Findings from a sample of 645 Slovenian small and medium sized enterprises reveal that the corporate sustainability and economic performance of enterprises represent complementary performances. Thus, enterprises should constantly balance their economic performance with social responsibility and environmental protection to maintain successful sustainable operations in the highly competitive markets. It was also shown that leadership has a significant positive effect on corporate sustainability. Additionally, leadership should create a favourable and collaborative environment for the innovation process and invest in human capital. Human capital causes innovation, which has a significant positive influence on corporate sustainability, which in turn has an effect on the economic performance of enterprises. Small and medium sized enterprises could improve corporate sustainability also by familiarising themselves with European Union policy support mechanisms that target their growth, development and competitiveness. The findings helped to develop an original structural equation model on simultaneous causalities between corporate sustainability and economic performance with selected control variables.