Developing the interconnection between green employee behavior, tax avoidance, green capability, and sustainable performance of SMEs through corporate social responsibility

Small and medium-sized enterprises (SMEs) are essential to any economy, as they contribute significantly to the gross domestic product (GDP) and create jobs. Nonetheless, the negative environmental impact of SMEs draws attention to the sustainability of SMEs. In order to achieve sustainable performance, businesses must possess a combination of factors that confer a competitive advantage and facilitate the attainment of objectives that culminate in a triple-bottom-line performance. Although prior research has identified the effects of employee behavior and corporate social responsibility (CSR) on firm performance, less is known about the effects of green employee behavior (GEB), green capability (GC), and CSR (to the community – to the environment) on sustainable firm performance (SFP). Current research bridges the literature gaps by answering how GC, GEB, and tax avoidance (TA) in SMEs correlate to achieving SFP. The study utilized a sample of 375 small and medium-sized textile enterprises in Pakistan and employed partial least square structural equation modeling (PLS-SEM) to analyze the data. The findings suggest that the relationship between corporate social responsibility (CSR) and sustainable firm performance is mediated by green capability. Additionally, corporate social responsibility to the environment does not influence the link between tax avoidance and sustainable firm performance, which still does not shadow the importance of tax avoidance and requires serious attention from the management.