Environmental Regulations and Government Support Drive Green Innovation Performance: Role of Competitive Pressure and Digital Transformation

Small and medium-sized enterprises (SMEs) are facing a critical moment in the face of growing global environmental concerns, which are fueled by rapid economic growth and industrialization. Environmental problems, from overuse of resources to air and water pollution, have worsened. Environmental degradation emphasizes companies, particularly SMEs, through environmental regulations to manage their environmental impact. Therefore, there is an urgent need to focus on the green innovation performance of SMEs. Hence, this study examines the multifaceted relationships (considering government support, competitive pressure, and digital transformation) between environmental regulations and the performance of green innovation, with a particular emphasis on SMEs. Data were collected from 217 SMEs in Jiangsu province, China, through an online survey and analyzed using partial least square structured equation modeling in SmartPLS (version 4.0) to provide outcomes concerning environmental sustainability. The findings obtained through structured equation modeling acknowledge that environmental regulations (flexible and non-flexible) play a significant role in influencing the development of green innovation performance. However, the green innovation of SMEs increases when government support is provided in the form of finances, technological aid, and market information. Moreover, managers’ focus on competitive pressure and digital transformation positively increases green innovation performance. The conclusions of this study fall under the viewpoint of the “contingency theory of management" and fill the gaps in the literature through novel relationships and theoretical framework. The study provides ways for managers of SEMs to handle environmental regulations and green innovation performance.