IMPACT OF SUSTAINABLE BUSINESS MODEL ON RETURN ON EQUITY IN COMPANIES IN CROATIA

Abstract

Companies around the world recognize that sustainability is not merely a regulatory requirement or moral choice, but a source of competitive advantage. Every day, companies are shifting from a conservative to a sustainable business model. Return on equity (ROE) is considered a key gauge of a corporation's profitability and its ability to generate those profits efficiently. The main objective of this paper is to examine how the transition from a conservative to a sustainable business model affects ROE, while also analyzing the impact of company size, industry sectors, years and their interaction effects. This study utilized panel data for a random sample of 1,830 observations (230 Croatian companies over 6 years). A linear mixed model was used in the SPSS program to perform statistical analysis. The results show that the business model significantly influences ROE. Overall, the model indicates that business model, year, sector, company size, and their key interactions (particularly year-sector and multi-way interactions) significantly contribute to the variation in ROE. The main limitation of this study is a small and country-limited sample. Future research should focus on increasing the sample size in other European countries and examining additional accounting and market profitability indicators. ROE is rarely researched, especially in emerging market economies, and the main contribution of this paper is to fill this gap. The findings offer valuable implications for corporations, showing that implementing a sustainable business model can maximize shareholder wealth.