Impact of Financial Inclusion, Green Growth, and Environment Sustainability on the Firm Performance: Mediating Role of Institutional Quality

Abstract

The research study discusses how financial inclusion, green growth, and environmental sustainability affect the firm performance with specific reference made to the mediating effect of the institutional quality in the context of the Small and Medium Enterprises (SMEs) in Pakistan. The study has a quantitative design that is grounded on a positivist paradigm, and is founded on primary data that was gathered among 480 SME managers in Lahore and Karachi. The relationships between the variables are analyzed with the help of Structural Equation Modeling (SEM). The results indicate that financial inclusion, green growth, and environmental sustainability positively affect the performance of firms significantly. The most influential of these is the green growth, and environmental sustainability and financial inclusion. The institutional quality becomes the most important variable, and it not only has a strong direct impact on firm performance but also has a powerful mediating role in the relationships among the independent variables and firm performance. This demonstrates that the success of financial and sustainability strategies highly relies on the institutional frameworks. Moreover, the findings reveal that there are regional variations in the relationships, with Karachi showing higher relationships than Lahore, which may be due to different institutional and economic factors. The study is a contribution to the extant literature by incorporating the institutional quality as a key linking mechanism between financial and environmental variables and the performance of firms. The results have valuable implications on policy makers, financial institutions and SME managers in fostering sustainable and inclusive economic growth.