Firms under pressure: Open Innovation as a path to Circular Economy

In response to growing regulatory and environmental pressures, firms are increasingly called to adopt circular economy (CE) practices. While Institutional Theory posits that coercive, normative, and mimetic pressures shape organizational behavior, the mechanisms through which these pressures drive CE adoption remain unclear. This study investigates whether open innovation (OI) mediates the relationship between institutional pressures and CE practices. Using data from 7,021 Italian firms from the Community Innovation Survey (CIS), we apply a generalized structural equation modeling (g-SEM) approach to test three hypotheses. Results show that all three types of institutional pressure positively affect CE adoption, with coercive pressure having the strongest impact. OI is also positively associated with both institutional pressures and CE; however, its mediating role is limited. A possible explanation is firms’ insufficient absorptive capacity—the ability to assimilate and exploit external knowledge—which may constrain the full potential of OI to support circular transformation. The study contributes to Institutional Theory by framing OI as a complementary, though not primary, mechanism for responding to institutional demands. Practically, it highlights the need for policy frameworks that combine regulatory enforcement with support for capability development and inter-organizational collaboration.