LAUSR

This research evaluates the importance of government support in the financial and environmental performance of SMEs with the mediating role of differentiation and cost leadership strategy. For testing the model, data were collected from 315 owners/managers of Pakistani SMEs through a survey. The results of the structural equation modeling spectacle that both financial and non-financial incentives of government have a significant positive influence on financial performance, environmental performance, differentiation and cost leadership strategy. Differentiation strategy partially mediates the paths between government incentives (financial and non-financial) and firms’ performance (financial and environmental). However, cost leadership strategy fully mediates the relationship between government financial incentives and environmental performance, while it partially mediates the connection between government non-financial support and environmental performance. In addition, the cost leadership strategy partially mediates the path between government incentives (financial and non-financial) and financial performance. This research recommends the government and policymakers to provide financial and non-financial incentives to the industrial sector that can configure their competitive advantage and performance. In turn, these firms will able to contribute to environmental and economic growth. Additionally, firms need to build ties with the government to get valuable resources that are beneficial for competitiveness as well as environment and financial performance.