Tarlan Ahmadov, PhD Candidate, School of Business and Governance, Tallinn University of Technology, Ehitajate tee 5, Tallinn 19086, Estonia, This email address is being protected from spambots. You need JavaScript enabled to view it. & Visiting Researcher at RISE, Research Institute of Sweden, Gothenburg, Sweden
Susanne Durst, Dr. Prof., Department of Business and Economics, Reykjavik University, Menntavegur 1, 102 Reykjavik, Iceland & School of Business and Governance, Tallinn University of Technology, Ehitajate tee 5, Tallinn 19086, Estonia, e-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.
Wolfgang Gerstlberger, Dr. Assoc. Prof., School of Business and Governance, Tallinn University of Technology, Ehitajate tee 5, Tallinn 19086, Estonia, This email address is being protected from spambots. You need JavaScript enabled to view it.
Quang M. Nguyen, PhD Candidate, Department of Economic Analysis, University of Valencia, Avd. Tarongers sn, Valencia 46022, Spain, This email address is being protected from spambots. You need JavaScript enabled to view it.

Abstract

PURPOSE: This study examines the interplay between stakeholder pressure (internal and external), circular economy (CE) practices, firm size, and their impact on the sustainability and economic performance of Small and Medium sized Enterprises. This research underscores firm size as a key moderator in the relationship between stakeholder pressures and CE adoption, aiming to provide a comprehensive understanding of this dynamic in SMEs. METHODOLOGY: Based on a cross-sectional survey of 124 SMEs in Estonia, Latvia, and Lithuania, with respondents primarily being owners and managers of firms, a three-step approach tested the proposed model for CE practices. First, Confirmatory Factor Analysis (CFA) was used to ensure that the observed variables represented latent constructs. Second, Ordinary Least Squares (OLS) and Weighted Least Squares (WLS) regression methods were used to control for factors influencing CE adoption. Finally, the interaction terms assessed the moderating role of firm size. FINDINGS: The research shows that firm size moderates these effects, with external stakeholder pressure significantly influencing CE adoption more than internal pressure. These finding underscores how firm size shapes SMEs’ responses to stakeholder pressure when adopting CE practices. IMPLICATIONS: This study provides empirical evidence that stakeholder pressure significantly influences SMEs in the Baltic States to adopt CE practices, thus impacting economic and sustainability performance. Smaller firms can enhance CE practices by strategically managing stakeholders, whereas larger SMEs should align with external stakeholder expectations for more effective CE initiatives, leading to improved organizational performance. ORIGINALITY AND VALUE: This study demonstrates how stakeholder pressures drive CE practices and impact organizational sustainability and economic performance. Firm size plays a crucial role as a moderator amplifying the influence of external stakeholder pressure on CE practices.

Keywords: Stakeholder Pressure, Circular Economy Practices, Small and Medium-sized Enterprise, Sustainability Performance, Economic Performance, Baltic States