Circular economy practices and their effect on corporate financial performance

Economic Annals-XXI: Volume 207, Issue (1-2), Pages: 4-9

Citation information:
Shavkatov, N., Abdurakhimova, D., Sherkuziyeva, N., Omonov, S., & Rakhmedova, M. (2024). Circular economy practices and their effect on corporate financial performance. Economic Annals-XXI, 207(1-2), 4-9. doi: https://doi.org/10.21003/ea.V207-01

Navruzbek Shavkatov
PhD (Economics),
Department of Corporate Finance and Securities,
Tashkent State University of Economics
49 Islam Karimov Str., Tashkent, 100066, Uzbekistan
n.shavkatov@tsue.uz
ORCID ID: https://orcid.org/0000-0003-1305-2507

Dilora Abdurakhimova
PhD (Economics),
Department of Corporate Finance and Securities,
Tashkent State University of Economics
49 Islam Karimov Str., Tashkent, 100066, Uzbekistan
dilora.abduraximova@tsue.uz
ORCID ID: https://orcid.org/0000-0003-1588-2686

Nasiba Sherkuziyeva
PhD (Economics),
Department of Corporate Finance and Securities,
Tashkent State University of Economics
49 Islam Karimov Str., Tashkent, 100066, Uzbekistan
n.sherkuziyeva@tsue.uz
ORCID ID: https://orcid.org/0000-0001-5415-3393

Sardor Omonov
PhD (Economics),
Department of Corporate Finance and Securities,
Tashkent State University of Economics
49 Islam Karimov Str., Tashkent, 100066, Uzbekistan
s.omonov@tsue.uz
ORCID ID: https://orcid.org/0000-0003-2679-6599

Madinakhon Rakhmedova
PhD (Economics),
Department of Corporate Finance and Securities,
Tashkent State University of Economics
49 Islam Karimov Str., Tashkent, 100066, Uzbekistan
raxmedova.m@tsue.uz
ORCID ID: https://orcid.org/0000-0002-1325-649X

Circular economy practices and their effect on corporate financial performance

Abstract. In this study, we investigate the relationship between circular economy (CE) practices and financial performance in European manufacturing firms. A longitudinal analysis of 200 companies from 2018 to 2022 was conducted using a custom Circular Economy Index (CEI) and various financial metrics. Panel data regression analysis revealed a positive, statistically significant relationship between CEI and financial performance. A one-point increase in CEI was associated with increases of 0.152 percentage points in ROI, 0.087 in Gross Profit Margin, 0.063 in Net Profit Margin, and 0.203 in Total Shareholder Return. Lag analysis showed this relationship strengthened over time, with the effect on ROI increasing from 0.152 (no lag) to 0.225 (3-year lag). Slight diminishing returns were observed at very high levels of circular economy implementation. Subgroup analysis indicated stronger effects for larger firms, high-tech manufacturers, and companies in Northern Europe. Brand value and operational efficiency were identified as partial mediators. These findings provide robust evidence supporting the business case for circular economy transitions in manufacturing, with implications for managerial decision-making and policy development in sustainable manufacturing.

Keywords: Circular Economy; Financial Performance; Manufacturing Sustainability; Panel Data Analysis; Corporate Strategy; Company; ROI; CEI; Northern Europe; Total Shareholder Return; TSR

JEL Classifications: Q56; M14; L60; G30

Acknowledgements and Funding: The authors received no direct funding for this research.

Contribution: The authors contributed equally to this work

Data Availability Statement: The dataset is available from the author upon request.

DOI: https://doi.org/10.21003/ea.V207-01

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Received 22.08.2023
Received in revised form 19.09.2023
Accepted 23.09.2023
Available online 22.02.2024