Does circular economy affect financial performance? The mediating role of sustainable supply chain management in the automotive industry

The implementation of stricter sustainable policies and the tightening of environmental laws are forcing manufacturing companies, particularly those that make up the automotive industry, to make changes and im-provements involving Circular Economy (CE) practices. However, CE practices do not always lead to an improvement in firm performance. This study analyzes the effects of the implementation of CE practices on the financial performance (FIP) of manufacturing companies in the automotive industry of Mexico, considering the mediating effect exerted by sustainable supply chain management (SSCM). The proposed model is validated through PLS-SEM using a sample of 460 companies. The results show that the FIP is strengthened through the implementation of the CE and that this effect is mediated by the commitment of the company to promote a better SSCM. This study contributes to the CE and SSCM theories by providing evidence about the positive effect that the implementation of these activities has on the performance of the automotive industry and how a SSCM equally exerts a direct and indirect effect on this. In the same way, managers can use this study and its results to make their operations more efficient and to demonstrate the effects of sustainability on the financial performance of the company.

Automated summary

This study analyzes the effects of CE practices on the financial performance of manufacturing companies in the automotive industry of Mexico, finding that the effect is mediated by the commitment of the company to promote a better SSCM.