Effect of Environmental Performance on Firm Value in Indonesian Stock Exchange: Intervening Role of Profitability
- Masculine Muhammad Muqorobin Tidar University, Magelang, Indonesia
-
Alex Johanes Simamora
*
Tidar University, Magelang,
Indonesia
Abstract
This study aims to examine the effect of environmental performance on firm value, with profitability serving as a mediating variable. The research sample consists of 171 manufacturing companies listed on the Indonesia Stock Exchange and participating in the PROPER program during the period 2017–2019. Environmental performance is measured using the PROPER environmental performance rating. Firm value is measured using Tobin’s Q, while profitability is measured by return on equity (ROE). The analysis method employed includes regression analysis to test direct effects and the Sobel test to assess indirect effects. Based on the results of data analysis, this study demonstrates that (1) environmental performance has a positive effect on profitability, (2) profitability positively affects firm value, and (3) environmental performance also has a direct positive impact on firm value. Furthermore, the study confirms the mediating role of profitability, indicating that environmental performance indirectly enhances firm value through improved profitability. This research contributes to fulfil the inconsistent findings reported in prior Indonesian studies.
References
Afzali, M., Colak, G., & Vähämaa, S. (2025). Climate Change Denial and Corporate Environmental Responsibility. Journal of Business Ethics, 196(1), 31–59. https://doi.org/10.1007/s10551-024-05625-y
Ahmad, H., Yaqub, M., & Lee, S. H. (2023). Environmental-, social-, and governance-related factors for business investment and sustainability: a scientometric review of global trends. Environment, Development and Sustainability. https://doi.org/10.1007/s10668-023-02921-x
Amaya, N., López-Santamaría, M., Acosta, Y. A. C., & Hinestroza, M. P. G. (2021). A step-by-step method to classify corporate sustainability practices based on the Signaling Theory. MethodsX, 8, 101538. https://doi.org/10.1016/j.mex.2021.101538
Aydoğmuş, M., Gülay, G., & Ergun, K. (2022). Impact of ESG performance on firm value and profitability. Borsa Istanbul Review, 22, S119–S127. https://doi.org/10.1016/j.bir.2022.11.006
Chen, W., Xie, Y., & He, K. (2024). Environmental, social, and governance performance and corporate innovation novelty. International Journal of Innovation Studies, 8(2), 109–131. https://doi.org/10.1016/j.ijis.2024.01.003
Faria, J. R., Tindall, G., & Terjesen, S. (2022). The Green Tobin’s q: theory and evidence. Energy Economics, 110, 106033. https://doi.org/10.1016/j.eneco.2022.106033
Fauzi, T. H. (2022). The Effect of Environmental Performance on Firm Value with Mediating Role of Financial Performance in Manufacturing Companies in Indonesia. Academic Journal of Interdisciplinary Studies, 11(3), 256. https://doi.org/10.36941/ajis-2022-0081
Ferriswara, D., Sayidah, N., & Agus Buniarto, E. (2022). Do corporate governance, capital structure predict financial performance and firm value?(empirical study of Jakarta Islamic index). Cogent Business & Management, 9(1), 2147123. https://doi.org/10.1080/23311975.2022.2147123
Fitriah, N., & Amarini, I. (2021). Existence of Protected Forest Function as Protection Area. Jurnal Dinamika Hukum, 21(2), 331. https://doi.org/10.20884/1.jdh.2021.21.2.3435
Fosu, E., Fosu, F., Akyina, N., & Asiedu, D. (2024). Do environmental CSR practices promote corporate social performance? The mediating role of green innovation and corporate image. Cleaner and Responsible Consumption, 12, 100155. https://doi.org/10.1016/j.clrc.2023.100155
Foulon, B., & Marsat, S. (2023). Does environmental footprint influence the resilience of firms facing environmental penalties? Business Strategy and the Environment, 32(8), 6154–6168. https://doi.org/10.1002/bse.3478
Hall, J. H. (2024). Corporate shareholder value creation as contributor to economic growth. Studies in Economics and Finance, 41(1), 148–176. https://doi.org/10.1108/SEF-06-2021-0255
Hermundsdottir, F., & Aspelund, A. (2022). Competitive sustainable manufacturing - Sustainability strategies, environmental and social innovations, and their effects on firm performance. Journal of Cleaner Production, 370, 133474. https://doi.org/10.1016/j.jclepro.2022.133474
Keselman, H. J., Wilcox, R. R., Othman, A. R., & Fradette, K. (2002). Trimming, Transforming Statistics, And Bootstrapping: Circumventing the Biasing Effects Of Heterescedasticity And Nonnormality. Journal of Modern Applied Statistical Methods, 1(2), 288–309. https://doi.org/10.22237/jmasm/1036109820
Khanifah, K., Udin, U., Hadi, N., & Alfiana, F. (2020). Environmental Performance and Firm Value: Testing the Role of Firm Reputation in Emerging Countries. International Journal of Energy Economics and Policy, 10(1), 96–103. https://doi.org/10.32479/ijeep.8490
Liao, F., Hu, Y., & Ye, S. (2024). Corporate social responsibility and green supply chain efficiency: conditioning effects based on CEO narcissism. Humanities and Social Sciences Communications, 11(1), 1. https://doi.org/10.1057/s41599-023-02237-1
Mahajan, R., Lim, W. M., Sareen, M., Kumar, S., & Panwar, R. (2023). Stakeholder theory. Journal of Business Research, 166, 114104. https://doi.org/10.1016/j.jbusres.2023.114104
Mamoori, A. T. Al, Yusoff, W. F. W., & Khudari, M. (2025). Verifying the Role of Dividends as a Mediator in the Impact of Cash Flows on Bank Stock Returns on the Iraq Stock Exchange: An Empirical Analysis. Journal of Risk and Financial Management, 18(2), 102. https://doi.org/10.3390/jrfm18020102
Mar’ati, F. S., & Darsono, D. (2023). The Impact of Environmental Performance and Environmental Disclosures on Economic Performance. Accounting Analysis Journal, 11(1), 54–63. https://doi.org/10.15294/aaj.v11i1.59280
Moez, D. (2024). Does Managerial Power Explain the Association between Agency Costs and Firm Value? The French Case. International Journal of Financial Studies, 12(3), 94. https://doi.org/10.3390/ijfs12030094
Muliani, A., & Rijal, M. (2018). Industrialisasi, Pencemaran Lingkungan dan Perubahan Struktur Kesehatan Masyarakat. Biosel: Biology Science and Education, 7(2), 178–186. https://doi.org/10.33477/bs.v7i2.654
Nie, J., & Yin, L. (2022). Do dividends signal safety? Evidence from China. International Review of Financial Analysis, 82, 102123. https://doi.org/10.1016/j.irfa.2022.102123
Ningsih, N., Alimuddin, Nagu, N., & Madein, A. (2022). The Effect of Corporate Social Responsibility on Return on Assets, Return on Equity, and Net Profit Margin: Study of Food and Beverage Sub-Sector Companies Listed in the Indonesia Stock Exchange, 2016-2021. European Journal of Business and Management Research, 7(6), 297–303. https://doi.org/10.24018/ejbmr.2022.7.6.1759
Otero-González, L., Durán-Santomil, P., Rodríguez-Gil, L.-I., & Lado-Sestayo, R. (2021). Does a Company’s Profitability Influence the Level of CSR Development? Sustainability, 13(6), 3304. https://doi.org/10.3390/su13063304
Pham, D. C., Do, T. N. A., Doan, T. N., Nguyen, T. X. H., & Pham, T. K. Y. (2021). The impact of sustainability practices on financial performance: empirical evidence from Sweden. Cogent Business & Management, 8(1), 1912526. https://doi.org/10.1080/23311975.2021.1912526
Rahmawati, R., Setiawan, D., Aryani, Y. A., & Kiswanto, K. (2024). Role Environmental Performance on Effect Financial Performance to Carbon Emission Disclosure. International Journal of Energy Economics and Policy, 14(1), 196–204. https://doi.org/10.32479/ijeep.15031
Rivera, L., Ortiz, N., Moreno, G., & Páez-Gabriunas, I. (2023). The Effect of Company Ownership on the Environmental Practices in the Supply Chain: An Empirical Approach. Sustainability, 15(16), 12450. https://doi.org/10.3390/su151612450
Sekretariat PROPER. (2019). Program Penilaian Peringkat Kinerja Perusahaan Dalam Pengelolaan Lingkungan 2019: PROPER 4.0 as SIMPEL as It Is. KLHK.
Sheehy, B., & Farneti, F. (2021). Corporate Social Responsibility, Sustainability, Sustainable Development and Corporate Sustainability: What Is the Difference, and Does It Matter? Sustainability, 13(11), 5965. https://doi.org/10.3390/su13115965
Shmelev, S. E., & Gilardi, E. (2025). Corporate Environmental, Social, and Governance Performance: The Impacts on Financial Returns, Business Model Innovation, and Social Transformation. Sustainability, 17(3), 1286. https://doi.org/10.3390/su17031286
Srivastava, V. K. (2024). Impact of Corporate Social Responsibility (CSR) initiatives on brand reputation: A study on how CSR activities enhance brand reputation and consumer loyalty in the context of sustainable marketing practices. International Journal of Science and Research Archive, 13(1), 1910–1930. https://doi.org/10.30574/ijsra.2024.13.1.1869
Sun, Y. (2025). The effect of corporate social responsibility on total factor productivity: Insights into managerial myopia and innovation mediation. Finance Research Letters, 75, 106854. https://doi.org/10.1016/j.frl.2025.106854
Tran, N. T. (2022). Impact of corporate social responsibility on customer loyalty: Evidence from the Vietnamese jewellery industry. Cogent Business & Management, 9(1), 2025675. https://doi.org/10.1080/23311975.2022.2025675
Vuong, T. K., & Bui, H. M. (2023). The role of corporate social responsibility activities in employees’ perception of brand reputation and brand equity. Case Studies in Chemical and Environmental Engineering, 7, 100313. https://doi.org/10.1016/j.cscee.2023.100313
Wahyuni, W., Syamsidar, S., Indasari, F., & Bualemo, L. E. G. (2024). Corporate Environmental Accountability: A Qualitative Study of Stakeholder Expectations and Corporate Practices. Advances: Jurnal Ekonomi & Bisnis, 2(6), 323–336. https://doi.org/10.60079/ajeb.v2i6.352
West, R. M. (2022). Best practice in statistics: The use of log transformation. Annals of Clinical Biochemistry: International Journal of Laboratory Medicine, 59(3), 162–165. https://doi.org/10.1177/00045632211050531
Yunita, E., & Triadi, I. (2024). Tindak Pidana Dalam Kasus Lumpur Lapindo. Amandemen: Jurnal Ilmu Pertahanan, Politik Dan Hukum Indonesia, 1(3), 92–102. https://doi.org/10.62383/amandemen.v1i3.263
Copyright (c) 2025 Masculine Muhammad Muqorobin, Alex Johanes Simamora
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under Creative Commons Attribution 4.0 International License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (Refer to The Effect of Open Access).
