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

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.