Introduction The rapid expansion of peri-urban spaces has brought numerous managerial and environmental challenges. According to Afrakhteh (2020), these areas face land-use conflicts and inefficient waste management due to their location at the urban-rural interface. In this regard, the concept of “Circular Economy” (CE) has emerged as an alternative to the linear take-make-dispose model, emphasizing regeneration, recovery, and redesign (Ellen MacArthur Foundation, 2015). Sahana et al. (2023) argue that implementing CE in peri-urban areas can balance economic development and environmental protection. However, the transition to CE requires social drivers. Zahra et al. (2009) believe that Social Entrepreneurship (SE), focusing on social and environmental value creation, is the missing link in improving peri-urban business performance. This study aims to analyze the impact of CE on non-financial performance with the mediating role of SE.

Methodology This study is applied in purpose and descriptive-analytical in method using a quantitative approach. The statistical population consists of economic activists and businesses in peri-urban spaces. Based on Cochran’s formula, 384 questionnaires were distributed. The data collection tool was a standard questionnaire including CE items (derived from Geissdoerfer et al., 2017), SE items (based on Schumpeter, 1934 and Zahra, 2009), and business performance scales. Structural Equation Modeling (PLS-SEM) using SmartPLS 3 was employed for data analysis. Content validity was confirmed by experts, and reliability was verified through Cronbach’s alpha and Composite Reliability (CR) values, all exceeding 0.7. For construct validity, Average Variance Extracted (AVE) values were above 0.5 and all factor loadings were greater than 0.5. The overall Cronbach’s alpha for the questionnaire was 0.933.Results and discussion The findings from the structural model indicated that the circular economy has a direct, positive, and significant effect on the performance of businesses in peri-urban spaces, with a path coefficient of 0.306. This result aligns with the findings of Remøy et al. (2019), who stated that waste management and resource recycling enhance operational sustainability. Furthermore, the circular economy positively influences social entrepreneurship with a path coefficient of 0.332. Among the direct paths in the model, social entrepreneurship demonstrates the strongest impact on business performance, with a path coefficient of 0.427, highlighting the pivotal role of this variable in enhancing firm performance.In the analysis of the mediating role, the results showed that the circular economy affects business performance not only directly but also indirectly through social entrepreneurship. The indirect effect was estimated at 0.142, indicating the presence of complementary partial mediation. This implies that when peri-urban businesses adopt circular models to address environmental challenges, social entrepreneurial potentials are strengthened, ultimately leading to improved performance and enhanced environmental and social indicators in these areas. The coefficient of determination (R²) values also signify the model’s high explanatory power; the independent and mediating variables were able to explain 61.1% of the variance in business performance (R² = 0.611) and 52% of the variance in social entrepreneurship (R² = 0.520).Conclusion This study demonstrated that transitioning from a linear to a circular economy in peri-urban spaces is not only an environmental necessity but also a socio-economic strategy for enhancing business performance. The results showed that SE, as a “mediating driver,” strengthens the link between resource recycling and spatial performance improvement. It is recommended that policymakers support environmental startups in urban fringes and provide facilities to zero-waste businesses to achieve social justice and physical sustainability. The main limitation was the focus on non-financial indicators; future research should assess these variables’ impact on financial productivity.This study demonstrated that transitioning from a linear to a circular economy in peri-urban spaces is not only an environmental necessity but also a socio-economic strategy for enhancing business performance.This study demonstrated that transitioning from a linear to a circular economy in peri-urban spaces is not only an environmental necessity but also a socio-economic strategy for enhancing business performance.The results showed that SE, as a “mediating driver,” strengthens the link between resource recycling and spatial performance improvement. It is recommended that policymakers support environmental startups in urban fringes and provide facilities to zero-waste businesses to achieve social justice and physical sustainability.The results showed that SE, as a “mediating driver,” strengthens the link between resource recycling and spatial performance improvement. It is recommended that policymakers support environmental startups in urban fringes and provide facilities to zero-waste businesses to achieve social justice and physical sustainability