The associations between environmental disclosures with financial performance, environmental performance, and firm value

Abstract

This study aims to investigate both the direct and indirect associations of environmental disclosures with financial performance, environmental performance, and firm value. The samples are companies listed on the Indonesia Stock Exchange in the agriculture industry, mining industry, basic industry and chemicals, miscellaneous industry, and consumer goods industry, and that are participating in the Performance Rating Assessment Programme on Environment Management (PROPER/Program Penilaian Peringkat Kinerja Perusahaan) of the Ministry of the Environment Republic of Indonesia or have been awarded the Green Industry Award by the Ministry of Industry Republic of Indonesia in year 2012–2014. Data are collected from sustainability reports, annual reports, and annual financial statements. We employed Simultaneous Equation Modelling (SEM) and panel data regression analysis to analyse the data. We find that the financial performance does not affect the environmental disclosures, while the lagged environmental performance has a positive effect on the current environmental disclosures, the environmental disclosures do not affect the firm market value, and environmental disclosures do not mediate the effect of financial performance and environmental performance on firm value. Our study comprehensively examines both the direct and indirect association of environmental disclosures with financial performance, environmental performance and firm value, which is rarely examined in extant studies.