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Purpose This study aims to investigate how digital platform capability (DPC) facilitates circular economy practices (CEP) among Malaysian manufacturing SMEs. It explores the mediating role of innovation orientation (IO) and the moderating effect of environmental regulatory pressure (ERP), integrating the resource-based view, dynamic capabilities view and institutional theory to understand internal and external enablers of circular transitions. Design/methodology/approach Using structural equation modeling, data gathered from dual respondents from 237 manufacturing SMEs in Malaysia were analyzed. Findings The results reveal that DPC significantly enhances both IO and CEP. IO also positively influences CEP and mediates the DPC-CEP relationship. ERP was found to positively moderate the IO-CEP relationship, amplifying the effectiveness of innovation in high-regulatory contexts. However, ERP did not moderate the DPC-CEP link, suggesting that digital capabilities operate independently of external regulatory intensity. Originality/value This study contributes to circular economy literature by identifying DPC as an organizational capability that enables firms to leverage digital platforms for CEP and IO as a behavioral mechanism critical to sustainable transitions. By incorporating ERP as a contextual moderator, it advances understanding of how institutional pressures shape the digital-innovation-sustainability nexus, offering strategic insights into SMEs and policy interventions targeting sustainable industrial development in emerging economies.
Al‐Swidi et al. (Mon,) studied this question.