P-ISSN: 2827-9832
E-ISSN: 2828-335x
http://ijsr.internationaljournallabs.com/index.php/ijsr
1028
THE EFFECT OF SUSTAINABILITY REPORT DISCLOSURE
COMPLIANCE ON THE COMPANY’S FINANCIAL PERFORMANCE
Amelia Rahmadhani Putri Amrigan, Masyhuri Hamidi*, Fajri Adrianto
Faculty of Economic and Business, Universitas Andalas
ameliaamrigan@gmail.com , masyhurihamidi@eb.unand.ac.id,
fajriadrianto@eb.unand.ac.id
ABSTRACT
The issue of the sustainability of a company today is very important. Where the company must think ahead
to how the business carried out can be beneficial not only for internal but also external companies at this
time and in the future. This study aims to determine the effect of compliance on sustainability reports
disclosure (economic disclosure, environmental disclosure, and social disclosure) on financial performance
as measured using Tobin's Q ratio. The sample in this study were all companies that received bronze to
platinum ratings on ASRRAT for the 2018-2021 period and were listed on the stock exchange. The data
used is secondary data obtained from the ASRRAT website and from each company's website. This study
used panel data regression analysis; the Fixed Effect Model with the help of STATA 14.2. The results of this
study are that economic disclosure has a negative effect and significance, environmental disclosure has a
negative effect but no significance and social disclosure has a positive effect and significance.
Keywords: Sustainability report, Economic disclosure, Environmental disclosure, Social disclosure,
Financial Performance
This article is licensed under CC BY-SA 4.0
INTRODUCTION
Generating large profits is generally the main goal of a business. This can further intensify
competition between companies. According to Latifah & Luhur (2017), the more competitive
economic agents are to generate greater profits, the higher the development of resources.
Gunawan & Mayangsari (2015), also revealed that companies seeking maximum profit explore
uncontrolled natural resources and communities to meet stakeholder demands. This can cause
global problems in terms of natural damage, climate change, global warming, social crises, and
ultimately economic crises that can occur all over the world (Nor et al., 2016).
In a company, there are many stakeholders, namely creditors, investors, bondholders,
employees, management, and others (Martynova & Renneboog, 2011). Each of these
stakeholders has an interest in knowing the company's financial performance. In this company's
financial performance, we can see how well a company is in generating revenue in managing
the assets they have, liabilities, and interests of stakeholders and shareholders. There are many
ways to measure financial performance, indicating a different business perspective. On of the
ways used to measure the financial performance of a company is to use Tobins'Q indicating
market perspective.
Arowoshegbe et al (2016) said that John Elkington in 1997 his book “Cannibals with
Forks, the Triple Bottom Line of Twentieth Century Business” popularized the term triple
bottom line. Where this concept tells the company that in order to grow sustainably apart from
increasing company revenue (profit), the company is also responsible for protecting the earth
(planet) and caring for humans (people) both employees and the community outside the
company. Therefore, this concept shows that the disclosure of information by companies is not
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Performance
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only limited to one aspect of performance, but also all indicators of sustainability performance,
namely economic, social and environmental performance.
So, When we take a deeper look at the business world today, we will see very significant
changes to the activities carried out by companies in the world. In the past, companies were
very focused on making as much profit as possible without paying attention to other things.
But this is different from now when many companies have started to pay attention to other
things. Not only financial problems or company profits but also by thinking about the
sustainability of the company.
In the Brundtland report, the term sustainability was first defined. The meaning of
sustainability is defined as a process of economic growth, environmental protection, and social
equality. In the business world, sustainability refers to economic, environmental, social, and
opportunity risks (Brundtland et al., 1987). The aim is that shareholders can obtain more
comprehensive information to assess the performance, risks and, business projects, as well as
the viability of a company. The Global Reporting Initiative (GRI) issues disclosure standards
used by companies around the world as a reference for writing sustainability reports. Not only
that, the World Business Council for Sustainable Development (1999) also stated that the
Global Reporting Initiative Report is a standard in sustainability reporting that can be applied
and widely accepted by companies in the world.
According to GRI, a sustainability report is a report that discloses company activities to
internal and external parties as an organizational responsibility in realizing sustainable
development goals. The sustainability report consists of three disclosures: 1) Economic
disclosure concerning the organization's impact on the economic conditions of stakeholders
and on the economic system at the local, national, and global levels. The economic aspects
reported in the sustainability report are more on the company's contribution to the size of the
economic system. 2) Environmental disclosure concerns the direct implications of company
activities on ecosystems, both living and non-living. Disclosure of the environmental
dimension in a sustainability report is considered important to increase the reputation and trust
of stakeholders because by disclosing environmental performance, the company shows the
company's existence and participation in dealing with environmental problems. 3) Social
disclosure relates to the impact of the organization on the surrounding community and the risks
faced by the company from other social institutions.
This study aims to examine the effect of sustainability report disclosure on a company
financial performance. Financial performance is proxied by Tobin's Q ratio. Companies that
report sustainability reports are predicted to have good financial performance. More
specifically, there are three sustainability report disclosures that will be tested, namely
economic disclosure, environmental disclosure, and social disclosure. Companies that comply
in reporting sustainability reports are predicted to have high profitability and good stock
performance.
METHOD
The research uses quantitative methods with the technique used for sampling this research
is purposive sampling. Purposive sampling is a research sampling technique that is non-random
and has special criteria. Therefore, not all companies participating in the Asia Sustainability
Reporting Rating 2021 can be used as samples in this study.
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When viewed based on the pattern of relationships, this is a type of research that tests
hypotheses. Hypothesis testing is testing the relationship that is considered reasonable between
several factors which are stated as testable statements (Sekaran & Bougie, 2016). By testing
the hypothesis, it is believed that the problems contained in the research can be resolved.
In this study, researchers used secondary data obtained through empirical data from the
official websites of each selected company and any information related to the study like
https://ncsr.id/id/asia-sr-rating/ and https://id.investing.com/ to find out the stock price.
According to Hasan (2002), secondary data is data obtained or collected by people who conduct
research from existing sources. Meanwhile, Daniel (2002) defines secondary data as data that
is available in various forms.
The sample used as the object of research this time is a company that has a bronze to a
platinum rating in the Asia Sustainability Reporting Rating and reports a sustainability report
for the 2017-2021 period and is listed on the Indonesia Stock Exchange. The technique used
for sampling in this study was purposive sampling. Based on these criteria, a sample of 27
companies was obtained. Thus, the number of observations in this stemware 101 observations.
Table 1
Sample of the research
No.
Code
Company Name
1
ANJT.JK
PT Austindo Nusantara Jaya Tbk
2
BBRI.JK
PT Bank Rakyat Indonesia (Persero), Tbk.
3
BNII.JK
PT Bank Maybank Indonesia Tbk
4
BBNI.JK
PT Bank Negara Indonesia (Persero) Tbk
5
BJTM.JK
PT Bank Pembangunan Daerah Jawa Timur Tbk
6
INTP.JK
PT Indocement Tunggal Prakarsa Tbk.
7
ITMG.JK
PT Indo Tambangraya Megah Tbk
8
TINS.JK
PT TIMAH Tbk
9
UNTR.JK
PT United Tractors Tbk
10
INCO.JK
PT Vale Indonesia Tbk
11
BJBR.JK
PT BPD Jawa Barat & Banten, Tbk. (Bank BJB)
12
ABMM.JK
PT ABM Investama Tbk
13
BTPN.JK
PT Bank BTPN Tbk
14
PTBA.JK
PT Bukit Asam Tbk
15
POWR.JK
PT Cikarang Listrindo Tbk
16
PPRO.JK
PT PP Properti Tbk
17
WIKA.JK
PT WIJAYA KARYA (Persero) Tbk
18
PGAS.JK
PT Perusahaan Gas Negara Tbk
19
BTPS.JK
PT Bank BTPN Syariah Tbk
20
BUMI.JK
PT BUMI Resources Tbk.
21
EXCL.JK
PT XL Axiata Tbk
22
ASII.JK
PT Astra International Tbk
23
BNGA.JK
PT Bank CIMB Niaga Tbk
The Effect of Sustainability Report Disclosure Compliance on the Company’s Financial
Performance
1031 2., 4., March 2023
24
ELSA.JK
PT Elnusa Tbk
25
ANTM.JK
PT ANTAM Tbk
26
BBKP.JK
PT Bank Bukopin Tbk
27
GIAA.JK
PT Garuda Indonesia (Persero) Tbk
This research consists of 7 variables which are divided into 1 dependent variable, 3
independent variables, and 3 control variables. Table 2 explain all definition and measurement
of research variables.
Table 2
Operational Definition and Measurement of Variables
Variables
Type
Financial Performance
Dependent
Economic Disclosure, EcD
Independent
Environmental Disclosure,
EnD
Independent
Social Disclosure, ScD
Independent
Firm Age, FA
Control
Firm Size, FS
Control
Firm Leverage, FL
Control
In this research used Panel Data Regression Analysis and to see the relationship between
variables in this study used the application STATA 14.2 for windows. The formula formed for
this research is as follows:
FP = α + β1EcD + β2EnD + β3ScD + β4FS + β5FA +β6FLit+ ε
Where:
FP = Financial Performance
α = Constanta
EcD = Economic Disclosure
EnD = Environmental Disclosure
ScD = Social Disclosure
FS = Firm Size
FA = Firm Age
FL = Firm Leverage
β1 − β6 = Regression Coefficient
ε = Term Error
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The determination of the estimation model for this panel data regression analysis are
Common Effect Model (CEM), Fixed Effect Model (FEM), and Random Effect Model (REM).
And to choose the most appropriate model for this regression, there are several tests that can
be done, the Chow test, Hausman test, and Lagrange Multiplier. And for hypothesis testing will
use 3 types of hypothesis testing namely the first T-test Apart from these criteria, the conclusion
of the significance of each variable in the partial t-test can be known from the value of Prob >
(t), provided that: if the value of α < 0.05 then Ha is accepted. And if the value of α > 0.05 then
Ha is rejected. The second is F-test, if the simultaneous value is > 0.05 then the hypothesis
cannot be accepted. But if the simultaneous value is < 0.05 then the hypothesis can be accepted.
And the last R2 test, If the value (R2) = 0 or close to zero, it means that there is no relationship
or small effect between the independent variable and the dependent variable.
The hypothesis of this study is as follows:
H1: Economic disclosure has a negative effect and is signed on the company’s financial
performance
H2: Environmental disclosure has a positive effect and significance on a company’s
financial performance
H3: Social disclosure has a positive effect and is signed on the company’s financial
performance
RESULTS AND DISCUSSION
Research Results
Descriptive statistics are part of statistics that investigates how to collect and present data
with the aim of making it easier to understand. Table 3 below is the result of a descriptive
analysis of this study which was obtained using STATA 14.2 for Windows. This table is a
summary of the descriptive statistics of the variables contained in the study.
Table 3
Descriptive Statistics
Variable
Obs
Mean
Std. dev.
Min
Max
FP (Tobin’s Q)
101
1.162707
0.3578555
0.4575
2.6644
EcD
101
0.6245743
0.1863107
0.2773
1
EnD
101
0.4890248
0.2286125
0
0.9014
ScD
101
0.5801663
0.1605075
0.2739
0.9608
FA
101
1.275737
0.120145
0.776
1.4469
FS
101
3.707819
0.0791281
3.5618
3.8961
FL
101
0.7568168
0.1988834
0.02
0.9805
Source: Results of Data Processing Using STATA 14.2 for Windows
The three independent variables in this study are Economic disclosure, Environmental
disclosure, and Social disclosure, all of which are measured using the ratio of sustainability
report disclosures to the total disclosures that must be disclosed contained in the sustainability
reports of each of these companies. Then, for the dependent variable of this study is the
The Effect of Sustainability Report Disclosure Compliance on the Company’s Financial
Performance
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company's financial performance as measured using the company's Tobins Q during the study
period. Not only that, this study is also equipped with three control variables to clarify the
results of the study which consist of Firm age, Firm size, and Firm leverage.
Table 4
Data Panel Regression Result from Fixed Effect Model
FP
(Tobin’s
Q)
Coefficient
Std. err.
t
P>|t|
[95% conf. interval]
EcD
0.250773
0.3192289
0.79
0.435
-0.3862384
0.8877843
EnD
-0.4837238
0.1850316
-2.61
0.011
-0.8529487
-0.1144989
ScD
-0.1509863
0.386534
-0.39
0.697
-0.9223029
0.6203304
FA
-2.251767
2.182069
-1.03
0.306
-6.606018
2.102485
FS
-5.71989
3.90784
-1.46
0.148
-13.51786
2.078083
FL
0.2399305
0.3489943
0.69
0.494
-0.4564768
0.9363377
_cons
25.22962
13.86565
1.82
0.073
-2.438852
52.8981
Sigma u
0.64611993
Sigma e
0.22881081
rho
0.88856628
Source: Results of Data Processing Using STATA 14.2 for Windows
Table 5
T-test Result
FP (Tobin’s Q)
t
P>|t|
EcD
-2.43
0.017
EnD
-0.94
0.349
ScD
2.04
0.044
FA
-1.79
0.077
FS
1.22
0.224
FL
-1.06
0.292
_cons
-0.27
0.786
Source: Results of Data Processing Using STATA 14.2 for Windows
Based on Table 5 it can be seen that the economic disclosure variable has a significant
negative effect on financial performance. The environmental disclosure variable has no
significant negative effect on financial performance. And social disclosure has a significant
positive effect on financial performance. Meanwhile, Firm age and firm leverage have no
significant negative effect on financial performance. And Firm size has no significant positive
effect on financial performance.
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Table 6
F-test Result
F (6, 94) = 1.86
Prob > F = 0.0950
Based on Table 6 above, it can be seen that the value of Prob > F = 0.0950. The Alpha
value of the research is 0.05. This means that the Prob > F value is greater than the Alpha value
of the study. Thus, all independent variables, namely economic disclosure, environmental
disclosure, and social disclosure, as well as control variables, namely firm age, firm size, and
firm leverage, do not affect the dependent variable, namely financial performance
simultaneously.
Table 7
R-squared Result
R-squared = 0.1064
Adj R-squared = 0.0493
Based on Table 7 it can be seen that this study has an R-squared value of 0.1064. This
means that the dependent variable financial performance which is measured using Tobins Q
can be explained by the independent variables – economic disclosure, environmental
disclosure, social disclosure – as well as control variables – firm age, firm size, firm leverage
– of 10.64%. Then the remaining 89.36% is explained by other variables outside the research.
DISCUSSION
The effect of Economic Disclosure Compliance on The Company’s Financial
Performance
The economic disclosure (EcD) variable in this research has a value of P>|t| is 0.017. In
addition, economic disclosure has a negative coefficient value of -0.7550331. This means that
economic disclosure has a negative and significant effect on the dependent variable of this
study, namely financial performance as measured by Tobins Q. This is because the value of
P>|t| owned by this variable is smaller than the Alpha value owned by the research, which is
0.05 and the variable coefficient is negative. So, the H1 is accepted.
This research has the same results as previous studies, namely Suwandi (2019), and
Bukhori (2017) where the Sustainability Report economic dimension has a significant negative
effect on financial performance as measured by the company's market performance. These
results indicate that companies that disclose economic dimensions of sustainability reports
cause financial performance as measured by Tobin's Q to experience a decline. According to
Suwandi (2019), these results are somewhat confusing because the company's efforts to
disclose the impact of macroeconomic changes should help investors assess the company's
The Effect of Sustainability Report Disclosure Compliance on the Company’s Financial
Performance
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prospects going forward. It is possible that the information on the economic dimension is not
trusted by investors, so they carry out their own analysis in assessing the macroeconomic
impact on the company's future prospects.
The effect of Environmental Disclosure Compliance on The Company’s Financial
Performance
The environmental disclosure (EnD) variable in this study has a value of P>|t| of 0.349
which is smaller than the Alpha value of 0.05 and a negative coefficient of -0.1836496. This
means that environmental disclosure (EnD) has a negative and no significant effect on the
dependent variable of this study, namely financial performance as measured by Tobins Q. Thus
this explains that the higher the environmental disclosure owned by the company, the lower
the financial performance provided by the company. So, the H2 is rejected.
This condition indicates that the company's ethical behavior in the form of social
responsibility towards the surrounding environment has a negative impact and has no effect on
improving financial performance. This result is certainly contrary to previous research, namely
Bukhori (2017), Puspitandari & Septiani (2017), Saini & Singhania (2019) states in their
research that the disclosure of environmental disclosure shows a significant positive effect on
the company's financial performance because the disclosure of environmental performance is
very vital to show the existence and participation of companies in dealing with environmental
problems.
The effect of Social Disclosure Compliance on The Company’s Financial Performance
Social disclosure has a value of P|t| of 0.044 which is smaller than the research Alpha value
of 0.05. Then, social disclosure (ScD) has a positive coefficient value of 0.782028. This means
that this variable has a positive and significant influence on the dependent variable. Thus this
explains that the higher the social disclosure owned by the company, the higher the financial
performance provided by the company. So, the H3 is accepted.
The results of this study are in accordance with the explanation of one of the theories used
in this study, namely the legitimacy theory. This research is in accordance with previous
researchers, namely Bukhori (2017), Puspitandari and Septiani (2017), and Saini and
Sanghania (2018) stated that the disclosure of social performance aspects has a significant
positive effect on financial performance in companies.
The effect of Firm Age on The Company’s Financial Performance
Firm age (FA) is the age of the company as measured from the year the company was
founded. The firm age in this study is measured using the ln formula (firm age). The t-test
results for the firm age variable have a value of P|t| of 0.077. This means the value of P|t| greater
than the value of Alpha research which is worth 0.05. Meanwhile, firm age has a negative
coefficient value of -0.6636293. If the value of P|t| is greater than the Alpha value and has a
negative coefficient, this means that firm age has a negative and no significant effect on the
dependent variable.
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A higher age is considered larger and more profitable. Based on Megawati (2019) Younger
companies are usually weaker in the face of risk and as a result, can achieve high failure rates.
This is due to limited resources, lack of experience with employees and external networks
(Ahlstrom et al., 2008). Meanwhile, according to Stinchcombe (1965) companies with an older
age have better resources and there are no limitations that can make companies take more risks
so this can reduce their failure rate. This means that only a few companies that are sampled
have firm ages higher than the average firm age of the companies that are sampled. In addition,
this also means that the sample companies have a small firm age.
The effect of Firm Size on The Company’s Financial Performance
Firm size (FS) is the size of the company which in this study is measured by the formula
ln (total assets owned by the company). As for the value of P|t| from the firm size of 0.224.
Meanwhile, this variable has a positive coefficient value of 0.769038. This means that this
variable has a positive and no significant influence on the dependent variable in the research.
These results explain that the larger the firm size, the higher the financial performance
provided by the company. The results of this study are in accordance with research conducted
by Buallay (2019), which showed that the sustainability disclosure indicators tended to be
higher with banks that had more assets. And also Desai et al (2022), said firm size has a
positive impact on disclosure. It predicts that large firms are more expected to disclose data
as compared to small firms.
The effect of Leverage on The Company’s Financial Performance
The results of the t-test for firm leverage have a value of P|t| of 0.292. This means that the
value is greater than the research Alpha of 0.05. Meanwhile, the coefficient value of firm
leverage is -0.2365454. Thus, firm leverage has a negative and insignificant effect on the
dependent variable of the study.
These results explain that the higher the level of debt owned by the company, the lower
the financial performance provided by the company. Based on Buallay (2019) and (Bansal et
al., 2021) state that high levels of leverage tend to have a negative impact on financial
performance.
CONCLUSION
This study aims to look at the effect of compliance disclosure of economic,
environmental, and social performance on the financial performance of companies in
Indonesia. Based on the above objectives, this study uses quantitative analysis which is carried
out on companies that get bronze to platinum ratings on the Asia Sustainability Reporting
Rating for the 2017-2021 period as well as listing on the Indonesia Stock Exchange for the
period. During this period, there were 27 companies that met the criteria for this research
sample. Based on the results of panel data regression analysis, there are three research results
which will be explained below:
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The first research result, namely economic disclosure has a negative and significant effect
on the dependent variable of this study, namely financial performance as measured by Tobins
Q.
The second research result is that environmental disclosure has a negative and no
significant effect on the dependent variable of this study, namely financial performance as
measured by Tobins Q. This condition indicates that the company's ethical behavior in the
form of social responsibility towards the surrounding environment has a negative impact and
has no effect on improving financial performance.
The final research result is that social disclosure has a positive and significant effect on
the dependent variable of this study, namely financial performance as measured by Tobins Q.
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