Understanding the MSME Environmental Transition: Nonlinear and Moderation Effects of Digitalization and Institutional Context

Abstract

The necessary environmental transition involves a substantial challenge for micro, small and medium enterprises (MSMEs). Moreover, in the Ibero-American context, it is even more challenging. Our study aims to shed light on the scarce and inconclusive evidence in this regard, analysing the influence of digitalization, given its inclusion in the so-called MSMEs' double transition, as well as the effect of the institutional setting. The so-called double transition is more sensitive in emergin areas. By means of analysing direct and moderation effects on a representative database of 17.498 Ibero-American MSMEs, we aim to show the existence of linear and nonlinear relationships that determine the level of environmental involvement of those organizations. Our results show that the expected positive effect of digitalization exists, but it is not linear, but U-shaped. The extension of the Kuznets curve confirmed for digitalization in MSMEs. Additionally, the institutional context's positive influence also moderates this nonlinear influence. These findings involve the need for not only digital technologies but also a transformational internal process, which is influenced by institutional quality. Managers need understand the importance of substantial organizational commitment in their own transformational capacity in the dual transition to avoid negative effects. In this vein, institutions must focus on reducing the duration of the downward part of the U-shape influence of digitalization. Ultimately, digital transformation and institutional quality must move forward to sustainable change in MSMEs aligned.