Despite a vast body of eco-innovation literature investigating the assumption that environmental regulations encourage the implementation of eco-innovative practices, previous research on eco-innovation and environmental regulations has yielded inconsistent findings. By considering the heterogeneity of environmental regulation and eco-innovations, this study sheds light on how different environmental regulation instruments can facilitate and enhance eco-innovation practices, along with the role of environmental orientation in mediating the relationships. The study surveyed 188 managers and owners and utilised the partial least squares-structural equation model as the analytical method. Results showed that environmental regulatory mechanisms have no direct impact on eco-innovation. However, the study has found that environmentally oriented SMEs respond to strict environmental policies and regulations by undertaking eco-innovation practices. Furthermore, market-based instruments provide firms with strong environmental orientation and economic incentives to foster eco-process innovations. The study offers practical insights for policymakers and SME managers, in addition to advancing the knowledge base.
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Mady et al. (2024) studied this question.
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