Does Green Reporting Pay Off? Evidence from Indonesian Manufacturing Firms

Cheng-Wen Lee; Avi Sunani

doi:10.59890/ijsas.v4i5.439

Authors

Cheng-Wen Lee Department of International Business, College of Business, Chung Yuan Christian University, Taoyuan City
Avi Sunani Ph.D. Program in Business, Chung Yuan Christian University, 200 Zhong Bei Road, Zhong Li District, Taoyuan City, 32023

DOI:

https://doi.org/10.59890/ijsas.v4i5.439

Keywords:

Environmental disclosure, financial performance, manufacturing firms, panel data analysis, green innovation

Abstract

This study aims to investigate the association between environmental disclosure and the financial performance of Indonesian manufacturing companies. Utilizing panel data collected from 2020 to 2024, comprising 425 firm-year observations, the research tests fixed-effects panel regression specifications alongside System Generalized Method of Moments (GMM) to account for potential endogeneity. The results show that environmental disclosure is positively and statistically significantly associated with Return on Assets (ROA). Furthermore, the disclosure-performance relationship is interconnected with institutional quality, firm characteristics, and genuine environmental performance. Sectoral heterogeneity is striking, with chemical and automotive manufacturing companies exhibiting a stronger association between environmental disclosure and financial returns compared to food processing companies. Specifically, the study presents evidence that disclosure should be backed by demonstrable environmental benefits, given that disclosure without corresponding performance improvements can induce adverse selection in low-resource, emerging markets. These results contribute to legitimacy and stakeholder theory by supporting the notion that environmental accountability is associated with sustainable competitive advantages when buttressed by operational improvements and adequate governance.

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