Environmental Disclosure And Firm Performance: Does Environmental Performance Really Matter?

The long debate of the relationship between environmental performance and firm performance in emerging economies still remain inconclusive and offer further explorations, especially in the context of emerging countries, which its rapid growth does not only carry social progress but also environmental challenges. Recent empirical findings reveal that on average, while 42% of emerging-market companies supports environmental commitments in the form of policies or statements, they remain weaker on implementation and progress tracking. Little empirical research on the effect of environmental disclosure together with environmental performance on firm performance is done in Southeast Asian countries. This study extends the literature that has been done mostly in western societies by proposing a further linkage between environmental disclosure, environmental performance, and financial performance, which is rarely investigated in developing societies. The study analyzed 33 Indonesian manufacturing firms that are listed in Indonesian Stock Exchange (IDX) and report their environmental performance assessment to the Ministry of Environment Indonesia. Statistic methods used for testing the hypothesis are T-test and multivariate regression model. The empirical results reveal that environmental performance has significantly influenced financial performance of the Indonesian manufacturing firm. However, one striking finding in this study is the insignificant influence of environmental disclosure on firm financial performance. Meanwhile, environmental performance and disclosure simultaneously have significant effect on firm financial performance. These results explicitly show how firms in emerging countries are going to be more concerned with environmental sustainability and long-run profitability.