DIGITAL CAPABILITY AS AN ENABLER OF CIRCULAR ECONOMY READINESS: EVIDENCE FROM VIETNAMESE FIRMS WITH MODERATING EFFECT OF INSTITUTIONAL SUPPORT

Abstract

This study examines the role of digital capability in enabling circular economy readiness within the Technology–Organization–Environment (TOE) framework. While prior research has emphasized the importance of external drivers, limited attention has been paid to the internal mechanisms through which these factors translate into circular economy outcomes. Using survey data from 516 Vietnamese firms, this study employs partial least squares structural equation modelling (PLS-SEM) to test the proposed model. The results indicate that technological, organizational, and environmental factors significantly influence digital capability, which in turn exerts a strong positive effect on circular economy readiness. Digital capability also plays a significant mediating role, highlighting its function as a key mechanism that transforms external drivers into actionable circular practices. In contrast, although institutional support has a direct positive effect on circular economy readiness, its moderating role is not supported. This suggests that institutional conditions act as enabling environments rather than contingent factors shaping firm-level capabilities. This study contributes to the literature by extending the TOE framework through the integration of digital capability as a central mediating construct and by offering a political economy perspective that conceptualizes digital capability as a form of productive infrastructure. The findings provide important implications for firms and policymakers in emerging economies seeking to advance circular economy transitions.