Abstract
This study aims to test the influence of environmental performance in Indonesia associated with the cost of capital. This research is motivated by previous findings which stated that the environmental performance received a good response from investors as reflected in increased stock prices (Ba et al., 2013; Middleton, 2015). The development hypothesis of the research is based on the theory of stakeholder, legitimacy and the theory of signal and some previous research such as the studies that have been done (Guenster et al., 2011; Sarumpaet et al., 2017). This type of research is research explanatory, the determination of the sample using the method of purposive sampling with number of samples to qualify as many as 215 observation data derived from the annual financial reports of companies listed on the stock exchange in 2015 until 2017. The results of the statistical analysis show that there are significant negative not significant on the relationship of environmental performance with cost of capital, it can be explained that only a small fraction of investors understand the performance information of the environment, and make it as a basis for making the decision to invest.
Highlights
This research is motivated by previous findings which stated that the environmental performance received a good response from investors as reflected in increased stock prices (Ba et al, 2013; Middleton, 2015), and the importance of the issue of the sustainability of the environment (Khoiruman & Haryanto, 2017)
We find that Environmental Performance (PROPER) and Total Assets (LNTA) has a significant influence on the Cost of Capital (COC)
Environmental performance is measured by Performance Rating Program in Environmental Management (PROPER) negatively affect the cost of capital
Summary
This research is motivated by previous findings which stated that the environmental performance received a good response from investors as reflected in increased stock prices (Ba et al, 2013; Middleton, 2015), and the importance of the issue of the sustainability of the environment (Khoiruman & Haryanto, 2017). Yusoff et al (2018) said in the context of the natural environment, the organization is responsible towards the environment by preserving the environment and/or minimize the environmental impact of their activities, and report any efforts made towards environmental sustainability. This study will test the performance of the environment in Indonesia is associated with cost of capital. Assessment of environmental performance in Indonesia is measured from the achievements of the company to follow Performance Rating Program in Environmental Management (PROPER). This Program is one of the efforts made by the Ministry of Environment to the structuring of the company in the management of the environment (Indonesian Ministry of Environment No 3/2014). Sarumpaet et al (2017) found the influence of environmental performance on profitability These results confirm that environmental performance has value relevance, which will affect the future earnings expected from the company (Hassel et al, 2005; Fisher-Vanden & Thorburn, 2011). While Orlitzky et al (2003) found the relationship not significant between environmental performance and financial performance (Semenova & Hassel, 2016)
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