How does CEO ethical leadership transform Saudi SMEs into green firms? A moderated mediation model

AbstractIn the aftermath of global warming, companies face huge pressure to minimize waste, reduce carbon emissions, and generally become more responsible in their operations. Against this backdrop, researchers argue that top management can significantly shape a firm's environmental performance (EP). This research aims to investigate the impact of CEO ethical leadership style on Saudi firms' EP in the presence of green human resource management (GHRM) practices as a mediator and stakeholder pressure as a moderator. We utilize the resource‐based view and stakeholder theory to develop hypotheses on these relationships. Multisourced data were collected from 272 small and medium‐sized manufacturing enterprises (SMEs) in Saudi Arabia. Our findings revealed that CEO ethical leadership positively influences firm EP via GHRM practices. The results also indicated that stakeholder pressure moderates the direct relationship between CEO ethical leadership and GHRM practices. Moreover, the stakeholder pressure moderates the indirect effect of CEO ethical leadership on firms' EP via GHRM. This study suggests that stakeholder pressure and GHRM practices are important mechanisms between CEO ethical leadership and firms' EP. Our research highlights essential theoretical and empirical contributions and provides insights for HR practitioners when and why SMEs engage in environment‐friendly practices.