Tsabita Karima, Kadarisman Hidayat, Nilai Firdausi Nuzula, Cacik Rut Damayanti
This study investigates the moderating effect of sustainability reports on the relationships between risk and firm value, as well as profitability and firm value, within Indonesia's mining sector from 2013 to 2020. The mining industry faces unique challenges including environmental pressures, climate change impacts, geopolitical tensions, and technological disruptions, making it an ideal context for examining risk-value relationships. Despite growing emphasis on sustainable development and ESG reporting, the role of sustainability disclosure in moderating financial relationships remains understudied, particularly in emerging markets. The research employs a comprehensive theoretical framework integrating Pecking Order Theory, Modigliani-Miller Theory, Signaling Theory, and Energy Economic Theory to examine five key variables: risk, capital structure, profitability, firm value, and sustainability reporting. Using purposive sampling, the study analyzes 160 observations from 20 publicly listed mining companies on the Indonesia Stock Exchange. The methodology utilizes Structural Equation Modeling with Partial Least Squares (SEM-PLS) and Multi-Group Analysis (MGA) to test both direct and moderating effects. The findings reveal significant direct relationships among variables. Risk demonstrates a positive effect on firm value (coefficient: 0.146, p-value: 0.029), supporting the risk-return paradigm. Conversely, risk negatively affects both profitability (coefficient:-0.191, p-value: 0.007) and capital structure (coefficient:-0.158, p-value: 0.020). Capital structure shows a negative relationship with profitability (coefficient:-0.161, p-value: 0.018), while profitability positively influences firm value (coefficient: 0.250, p-value: <0.001). The moderation analysis yields mixed results. Surprisingly, sustainability reports do not moderate the risk-firm value relationship (p-value: 0.189), suggesting that investors in Indonesia's emerging market may not yet fully incorporate sustainability information when evaluating risk-adjusted returns. This finding may reflect the novelty of sustainability reporting, voluntary disclosure nature, and short-term investment horizons. However, sustainability reports significantly moderate the profitability-firm value relationship (p-value: <0.001), strengthening this positive association. This supports signaling theory, indicating that sustainability disclosure amplifies the value-enhancing effect of profitability by demonstrating corporate commitment to long-term viability. The study contributes to literature by providing empirical evidence from an emerging market where sustainability practices are evolving. It extends research by examining sustainability reports as moderating variables rather than direct determinants. The findings have important implications for corporate managers, investors, and policymakers. Mining companies should recognize that while sustainability reporting may not immediately alter risk perceptions, it enhances profitability's value impact. Policymakers might consider transitioning from voluntary to mandatory sustainability reporting to improve market efficiency. Future research should examine cross-industry comparisons, sustainability report quality metrics, and longer-term effects of sustainability disclosure on value creation. © Author et al.
Department of Administrative Science, Brawijaya University, Indonesia
