The Impact of External Financial Factors on the Eco-Innovation Practices of Small and Medium-Sized Businesses

Abstract

This paper aims to explain how different external financing factors influence SMEs’ adoption of eco-innovation. The effect of various external financial variables on adopting green operations of 5873 SMEs was examined using binary logistic regression. The findings indicate that traditional external financing approaches including standard bank loans and green loans positively affect renewable energy but have no significant impact on other circular eco-innovation applications. Established forms of public external financing, including EU funds and government grants, have a positive impact on the application of water re-design, renewable energy, and energy re-planning activities, but no influence on waste minimization and product re-design practices. The effects of newer forms of external funding are markedly different; the results reveal that crowdfunding has a significant favorable effect on the implementation of all green actions. Green banks can significantly impact the adoption of water re-planning and waste minimization practices. Peer-to-peer lending is positively correlated to the adoption of actions to minimize waste. Furthermore, business angels and the capital market positively influence product re-design related to green innovations. Risk or venture capital does not affect any form of circular eco-innovations. As a result, some important managerial implications for decision-makers are given.

Keywords

• SME
• eco‐innovation
• entrepreneurial finance
• sustainability
• logistic regression

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