The mediating role of environmental performance between entrepreneurial orientation and economic performance of manufacturing SMEs in developing countries

Abstract

This study examines how Entrepreneurial Orientation (EO) influences the economic performance (ECONP) of manufacturing SMEs in Yemen, with environmental performance (EP) tested as a mediating factor. Unlike prior research that has largely focused on developed economies, this paper provides new insights into sustainability pathways in resource-constrained and institutionally unstable contexts. Grounded in Contingency Theory and the Resource-Based View, the study employs a quantitative design using a cross-sectional survey of 199 Yemeni manufacturing SMEs. Structural Equation Modeling with Partial Least Squares (PLS-SEM) was applied to test the hypothesized relationships. Results indicate that EO positively affects both EP and ECONP, and that EP partially mediates the EO–ECONP link. This finding underscores the strategic importance of environmental practices for economic resilience in developing-country SMEs. The novelty of this study lies in being the first to empirically test the mediating role of EP in the EO–ECONP relationship within Yemeni SMEs, thereby extending sustainability research to a context that has been largely overlooked. The use of PLS-SEM confirmed the hypothesized relationships, showing EO’s positive effects and EP’s partial mediation, while demonstrating the methodological suitability of this approach for complex, multidimensional sustainability outcomes. Future research should extend this framework to other regions and incorporate social performance dimensions to provide a more comprehensive view of sustainable SME performance.