Impact of sustainability reporting and governance on firm value: insights from the Indonesian manufacturing sector

Abstract

This study investigates the impact of sustainability reporting (SR) and good corporate governance (GCG) on firm value in the Indonesian manufacturing sector, with a focus on financial performance (ROA) as a mediating variable. Theoretical frameworks underpin the rationale for considering financial performance as a pathway that captures the economic outcomes of SR and GCG practices. The study utilizes quantitative methods and secondary data sourced from reports of companies listed on the Indonesia Stock Exchange (IDX) between 2018 and 2022. Contrary to expectations, SR does not directly impact firm value, nor does financial performance mediate this relationship. However, financial performance significantly mediates the relationship between GCG and firm value, indicating that effective governance enhances firm valuation through improved financial health. Methodologically, variance inflation factor (VIF) analysis and partial least squares structural equation modeling (PLS-SEM) address potential concerns about multi-collinearity and redundancy, ensuring a clear differentiation between the operational impacts of SR and GCG and their financial implications. The study underscores the importance of integrating robust governance frameworks to enhance firm valuation. By clarifying the mediating role of financial performance, this research contributes to the discourse on corporate sustainability and governance in emerging markets, emphasizing strategic considerations for enhancing firm value.

Keywords

• Sustainability report
• good corporate governance
• financial performance
• firm value
• manufacturing sector in Indonesia
• Nor Shaipah Abdul Wahab, Taylor’s University - Lakeside Campus, Malaysia