Abstract
This research seeks to find the effect of environmental compliances on profitability in the agricultural business sector. This research is quantitative by testing the nexus between environmental compliances (environmental cost and reputational incentive) and agricultural profitability. The sample of this study identified agricultural public firms in Indonesia including five sub-sectors consisting of farming, fisheries, livestock, plantation, and forestry. Financial statements and annual reports in terms of the environment were utilized in this research. Final samples were 12 public agricultural companies. The research model was analysed using the regression with common, fixed and random effect models and were checked the robustness using Generalized Method of Moment (GMM). The result of this research found no effects on the nexus between environmental cost and profitability. It indicates that the environmental cost spent by agricultural firms doesn’t reduce the profitability. The emerging effect can be found on reputational incentive leading the increase into the extent of agricultural profitability both return on assets and return on equity.
Highlights
Agricultural industry refers to business sector with the activity of utilizing biological resources to produce food, industrial raw materials, or energy sources, and to have the responsibility to manage the impact of the environmental practices enabling emerge as a result of the production process[1]
The objective of this research is to answer the assumption that environmental compliances are very costly and can’t bring the increase of agricultural profitability
ROA and random effect (ROE) are employed for measurements of profitability as well as firm age and size are used as a set of control variables
Summary
Agricultural industry refers to business sector with the activity of utilizing biological resources to produce food, industrial raw materials, or energy sources, and to have the responsibility to manage the impact of the environmental practices enabling emerge as a result of the production process[1]. The agricultural sector has the strategic role due to leading the national growth. Agriculture sector could provide an increasing effect on the economy if they perform their operational business well [3]. Public companies in agricultural sector have strong power in determining the economy. If companies could provide positive impacts on the environmental practices, their existence would obtain good a feed-back from stakeholders
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