When stakeholder pressure drives the circular economy: Measuring the mediating role of innovation capabilities

Purpose The purpose of this paper is to explore the impact of stakeholder pressures on firm’s circular economy (CE) initiatives. The organizational responses are quite heterogeneous even when the firms face similar pressure. The authors have tried to explain this heterogeneity by using innovative capability as mediating variables. Design/methodology/approach Empirical survey data from Indian manufacturing firms are obtained to test the proposed hypotheses. The hypotheses are grounded in resource-based view of the firm. The authors used structural equation modeling approach with maximum likelihood methods of approximation. Findings The results indicate that exploratory innovation positively influences the firms to adopt CE practices. Whereas, exploitative innovation capability inhibits the adoption of CE practices. Practical implications This study guides business managers to focus on develop exploratory innovative capabilities before the adoption of CE practices. This study also provides guidance to policy maker about the role of regulatory mechanism plays to encourage/inhibits firms for adoption of CE practices. Originality/value This is first study to analyze the idiosyncratic behavior of the firms when subjected to stakeholder pressure for CE practices adoption. Innovative capabilities (exploratory/exploitative) are able to explain the reason for diverse response to stakeholder response.