How does innovation matter for sustainable performance? Evidence from small and medium-sized enterprises

This study explores, through the lens of the resource-based view (RBV) and Schumpeter’s innovation theories, the role of innovation in sustainable performance in the context of small and medium-sized enterprises (SMEs) that practice the circular economy (CE). Drawing from the RBV theory, we find that R&D and patents are positively related to sustainable performance. We focus on the internal mechanisms and contingent conditions of the relationships between innovation and social, environmental, and economic performance in achieving the sustainable development goals. The results show that innovation is positively related to social and environmental performance. Meanwhile, R&D investment can improve economic performance. Moreover, the study verifies the mediating role of social and environmental performance, indicating that patents and efficient innovation can indirectly enhance SMEs’ profitability through social performance, while environmental performance does not. Furthermore, firm age and ownership type moderate the relationship between innovation and economic performance. This study extends our knowledge of the relationship between innovation and sustainable performance and provides theoretical guidance for successful SME innovation practices that contribute to sustainable development.