Decoding the Financial Efficiency Drivers for Indian Green MSMEs: A DEA-SEM Approach

Given the importance of sustainable business practices in the contemporary scenario, thisstudy delves into the financial efficiency and performance of Indian micro, small, and mediumenterprises (MSMEs) in the green sector from 2012 to 2021. This research challenges assumptionsabout the impact of human capital and research and development spending on the financialdynamics of green MSMEs. Instead, it illuminates the crucial roles of financial literacy, tradecredit utilisation, state-backed credit, productivity, and cash flow stability in influencing thesuccess of environmentally conscious businesses. Using an innovative methodology combiningData Envelopment Analysis and Structural Equation modelling, the study challenges existingtheories and offers theoretical insights and practical strategies. This study provides practicalinsights that empower green MSMEs with strategies for resilience, benchmarking, continuousimprovement, and an integrated approach to navigating and excelling in the ever-evolvingbusiness landscape.Keywords: Financial Efficiency, SBM-DEA, Structural equation modelling, Green FirmsJEL Classifications: C3, C6, G3, Q3, Q5* Corresponding authorE-mail: [email protected]: School of Management Sciences, Chanakya University, Bangalore, India