*Corresponding Author: [email protected]
How Does Corporate Social Responsibility Disclosure Affect Firm Value: Firm Maturity and Firm Financial Risk Context
INTAN NURJANAH*
CHOIRUNNISA ARIFA
Fakultas Ekonomika dan Bisnis, Universitas Gadjah Mada, Indonesia
Abstract: Corporate Social Responsibility (CSR) is an activity based on altruistic reasons, but CSR disclosure also requires careful consideration so that CSR disclosure becomes a tool that benefits various parties, both for different stakeholders and for the company. This study aims to examine the level of firm maturity and firm financial risk in moderating the relationship between CSR disclosure and firm value. The sample of this research is a non-financial company listed on the Indonesia Stock Exchange. The final sample size is 28 companies consisting of 168 observations from 2014 to 2019.
The data in this study were analyzed using multiple linear regression analysis and moderated regression analysis. The results show that CSR disclosure reduces firm value in Indonesia. However, the maturity of the company can moderate the direction of the influence of CSR on firm value from negative to positive at a significant level.
Furthermore, the firm financial risk is also able to moderate the direction of the influence of CSR and firm value to be positive and significant. These two moderating variables are empirically important contingency factors in moderating CSR disclosure and firm value in Indonesia. This shows that the influence of CSR and firm value is not entirely positive or negative but is influenced by certain conditions that make CSR disclosure beneficial to all parties. This study is expected to provide an overview for company management to carry out CSR implementation through careful consideration starting from planning to evaluation, to produce CSR disclosures that increase firm value and provide value to all parties.
Keywords: CSR, Firm Maturity, Financial Risk, Firm Value
Abstrak: Corporate Social Responsibility (CSR) merupakan aktivitas yang didasari atas alasan altruistik, namun pengungkapan CSR juga memerlukan pertimbangan yang matang sehingga pengungkapan CSR menjadi alat yang menguntungkan berbagai pihak, baik bagi para pemangku kepentingan yang berbeda maupun bagi perusahaan.
Penelitian ini bertujuan untuk menguji tingkat kematangan perusahaan dan risiko keuangan perusahaan dalam memoderasi hubungan pengungkapan CSR dan nilai perusahaan. Sampel penelitian ini adalah perusahaan non-keuangan yang terdaftar di Bursa Efek Indonesia. Jumlah sampel akhir adalah 28 perusahaan yang terdiri dari 168 observasi dari tahun 2014 hingga tahun 2019. Data dalam penelitian ini dianalisis menggunakan analisis regresi linier berganda dan moderated regression analysis.
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Hasil penelitian menunjukkan bahwa pengungkapan CSR menurunkan nilai perusahaan pada perusahaan di Indonesia. Namun demikian, variabel kematangan perusahaan mampu memoderasi arah pengaruh CSR terhadap nilai perusahaan yang awalnya negatif menjadi positif pada tingkat yang signifikan. Lebih lanjut, variabel risiko keuangan perusahaan juga mampu memoderasi arah pengaruh CSR dan nilai perusahaan menjadi positif dan signifikan. Dua variabel moderasi tersebut secara empiris menjadi faktor kontinjensi yang penting dalam memoderasi CSR dan nilai peusahaan di Indonesia. Ini menunjukkan bahwa pengaruh CSR dan nilai perusahaan tidak sepenuhnya positif maupun negatif, namun dipengaruhi oleh kondisi tertentu yang menjadikan pengungkapan CSR memiliki manfaat bagi semua pihak. Penelitian ini diharapkan dapat memberikan gambaran bagi manajemen perusahaan untuk melakukan implementasi CSR melalui pertimbangan yang matang mulai dari perencanaan hingga evaluasi, sehingga menghasilkan pengungkapan CSR yang meningkatkan nilai perusahaan dan memberikan nilai bagi semua pihak.
Kata Kunci: CSR, Kematangan perusahaan, Risiko Keuangan, Nilai Perusahaan
1. Introduction
The Paris Agreement and Sustainable Development Goals adopted in 2015 reflect a new social contract in which companies are expected to play a relevant role in global efforts to achieve SDGs and reduce carbon dioxide emissions. As part of the Southeast Asia Region, Indonesia is a signatory to the 2015 Paris climate agreement but is also one of the largest greenhouse gas emitters in the world (Nicholas, 2020). Furthermore, deforestation contributes to almost half of Indonesia's emissions, especially by pulp paper and palm oil production companies (Prakash, 2018). Plastic pollution is also a big challenge for many companies in Indonesia to work together with the government to reduce this pollution through its products (World Bank, 2021). It is from 7.8 million tons of plastic waste, and 4.9 is mismanaged annually. In addition, according to 2018 Occupational Safety and Health (K3) data from the Ministry of Manpower, it was noted that from 2010 to 2017, the total work accidents increased by 24,330 cases, with a total compensation increase of 733 billion. This indicates that the company still faces challenges in running its business without compromising regulations and ethics to achieve optimal profits without damaging its stakeholders' value. It makes social
395 responsibility disclosure important for outsiders to assess how the company is concerned about its sustainability.
A way for stakeholders to find out how far a company is carrying out its social responsibility is through disclosures made by the company itself. This prevents asymmetric information that is detrimental to the company when the company has good performance. CSR investment without proper disclosure will also have little or no contribution to company performance (Oyewumi et al., 2018). It is supported by Puteri et al. (2018), who found that social performance is positively related to CSR disclosure.
This shows that CSR disclosure significantly impacts outsiders' assessment of the company. As for the owners, they know how their share of profits translates through more responsible activities without breaking the value of their investment. For the community, they can comprehensively assess how companies disclose the impact of its economic, social, and environmental activities without prejudice. The government can carry out supervision through existing CSR reports and provide certain rewards and sanctions, which in turn can support a broader and better CSR practice climate. As a third-world country, Indonesia needs to be supported by the business world (Resnawati, 2019). Therefore, the company significantly contributes to society's welfare and the success of sustainable development programs in Indonesia.
Cases such as illegal land burning and a poor job security system can lead to negative evaluations from outsiders, either by owners as the company's main capital contributors and workers or communities affected by company activities. On the other hand, a survey from Greenpeace Indonesia (2021) states that consumers will give good evaluations to companies that care about environmental sustainability. The company’s goal is to get good value from stakeholders, which indicates that the community can accept the company and that its operations are under regulations and ethics. The way is to carry out its activities under good governance and, more specifically, carry out activities responsibly. This enables the company to achieve positive business sustainability. CSR is positively related to stock returns (Mohammadi and Saeidi, 2022;
Shirasu and Kawakita, 2021) and offsets the negative effect of periods of uncertainty (Rjiba et al., 2020), which is ultimately reflected through high and sustainable corporate
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value. However, on the other hand, Masulis and Reza (2015) found that CSR carried out by companies is not shown to maximize corporate value but is a channel that serves managerial personal interests. Based on the CSR literature, there is still inconclusive about whether CSR fully increases firm value or otherwise. Several studies in Indonesia have also found that CSR has a positive effect on firm value (Handayati et al., 2022;
Shalihin et al., 2020), but several other studies have shown the opposite (Sugiyanto et al., 2022; Mukhtaruddin et al., 2019). Therefore, examining how CSR affects firm value in the Indonesian context is essential.
Big companies, especially those listed as public companies, go through a long process to achieve a good reputation that is widely known by the public. Through this process, access to resources and how management makes strategic decisions will also differ, ultimately shaping CSR activities and behavior (Lee and Choi, 2018). Gamal et al. (2022) stated that a firm's life cycle has excellent explanatory power over a company's sustainability performance, and CSR initiatives should be integrated into company decisions and resource allocation. Diebecker (2017) finds that the sustainability performance of companies is lower before and after the firm's mature stage. In the mature stage, profit stability and liquidity are higher among other life cycle stages, so investing in corporate sustainability is essential. This can indicate that the relationship between CSR and firm value tends to be more significant when the company is more mature.
The growth of young investors is high in Indonesia (KSEI, 2021), and young people are often described as "the most zealous environmentalists" in the media (Kantar, 2019). and reports that Indonesian consumers are now paying more attention to environmentally friendly products can indicate how important the level of CSR carried out by companies is, which is expected to explain the firm's value. Furthermore, the relationship is estimated to be stronger when the firm is more mature due to better resource access and management capability functions. Therefore, this study aims to empirically examine the effect of moderating firm maturity on CSR disclosure and firm value.
397 The role of CSR as a form of corporate value arises from the various benefits offered through responsible and pro-social activity. In addition to increasing corporate value through economic aspects, CSR also provides potential benefits as a form of value protection (Chen et al., 2020; Godfrey et al., 2009). Kim et al. (2021) suggest that CSR has protective benefits, which are more prominent in companies with growth opportunities, high leverage levels, or uncertainty. On the other hand, CSR can reduce idiosyncratic risk (Hu et al., 2021), reduce systematic risk and increase firm value (Albuquerque et al., 2019). Friske et al. (2020) state that firm-specific characteristics influence CSR reporting, and managers must consider the risks and opportunities of CSR initiatives and how they impact different stakeholders. This indicates that investors and other stakeholders appreciate and provide value to the risk reduction potential provided by CSR. Therefore, investors will view CSR incentives as an appropriate business if they can reduce excess risk and not an overinvestment that damages the firm value. This study specifically focuses on financial risk. Financial risk is essential in operating and financing decisions (Hsu and Chen, 2015). The basic argument states that CSR carried out by companies will only add value under certain conditions (Servaes and Tamayo, 2013), and how investors estimate corporate CSR as valuable can consider the firm's specific context (Lu et al., 2021). Thus, it is essential to provide empirical evidence regarding how financial risk affects the strength of the relationship between CSR and firm value, especially in a developing country like Indonesia.
The Indonesian capital market is dominated by young age (KSEI, 2021), and research has found that young investors who are curious, intellectual, and like to learn new things have a high-risk tolerance (Mathur and Natani, 2019). Thus, the firm- specific risk condition factor becomes essential for making investments and other vital decisions by different stakeholders. These specific factors influence how managers make the best decisions for all parties, including the most appropriate CSR initiatives, so they positively impact firm value. Furthermore, limited research seeks explicitly to take a financial risk as an essential factor influencing the relationship between CSR and firm value in Indonesia. Therefore, this study aims to empirically examine the moderating effect of firm financial risk on CSR disclosure and firm value.
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Although it is suspected that several companies in Indonesia are still not optimal in terms of their social responsibility, several other companies can become successful examples of implementing CSR by integrating their corporate missions and strategies.
First, United Tractor Tbk can contribute to education by building schools that specifically produce the skilled human resources the company needs, such as mechanics and equipment operators. Since 2008-2017, their school has graduated 17,205 with a nearly 100% employment rate. Unlike Indosat Ooredoo, they carry out social initiatives through digital technology, one of which is empowering rural women and ex-Indonesian blue-collar workers who are retired by offering technology training for entrepreneurship and providing capital. In addition, Indosat is holding an innovation contest that collects technological innovation ideas and can produce successful developers, one of whom is the founder of big e-commerce in Indonesia, BukaLapak. The two companies have varied programs and have continuity in the concept and strategy of their social initiatives, which is relevant to their core business, which goes beyond the concept of philanthropy, namely empowerment. They can see existing challenges as opportunities for the sustainability of their business without sacrificing owner value.
This research brings out several unique aspects. First, based on the description above, it is known that CSR is not always positively valued by the market, and its relationship is estimated to be influenced by certain situations. So, through the support of the literature, this study attempts to examine how the level of company maturity and financial risk can be a contingent factor affecting the relationship between CSR disclosure and firm value in Indonesian companies, finding out there is still limited evidence on these variables as contingent factors. Moreover, in the recent CSR literature, the results of CSR activities are associated with various important aspects of the company. Second, this research sample is a company with a CSR score on the Thomson Reuters database. This database offers a more comprehensive assessment, but limited CSR studies in Indonesia still attempt to use this score.
This study is expected to contribute to the CSR literature in Indonesia by providing new findings regarding firm maturity and financial risk factors in influencing CSR and company value. Practically, through this study, companies are expected to be able to
399 integrate CSR into corporate strategy, which indicates that CSR requires careful budgeting and planning by management as well as targeted results. Then, outsiders can value the company's CSR, whether CSR is only limited to implementation without thorough planning or becomes a disclosure that consists of information that brings value to all company stakeholders.
2. Theoretical Framework and Hypothesis Development
This study uses three main theories as a foundation to develop a hypothesis—first, stakeholder theory. Stakeholder theory has two main premises (Jones et al., 2002). First, to have good performance, managers need to pay attention to stakeholders, and secondly, it should be included and goes beyond shareholders. Stakeholder theory appears to understand and fix at least two problems that management faces: how value is created and managed and the problems linking ethics and capitalism (Parmar et al., 2010).
Second, Resource-Based Theory. Resource-Based Theory (RBT) is that corporate strategic resources are the basis for a company to gain a sustainable competitive advantage to achieve superior performance in the market in which the company operates (Idowu et al., 2013: 2019). Helfat and Peteraf (2003) analyze the capability life cycle with a more dynamic approach related to resource-based theory. However, this does not result in a new theory because this dynamic can become a resource for the strategy itself (Dagnino, 2012: 127).
Managers and the public often do not have the same wealth of information (Brigham and Houston, 2009: 439). Signaling theory refers to companies providing signals about business processes and prospects to the public. Furthermore, Brigham and Houston (2009: 439-440) relate signal theory to the company's capital structure as part of financial information. Stakeholders can distinguish high-value companies from low- value companies through alternatives and the composition of the company's capital.
They stated that companies with good performance prospects avoid issuing new shares.
Furthermore, companies with favorable prospects tend to choose debt as an increase in new capital requirements.
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2.1. Corporate Social Responsibility
Corporate social responsibility (CSR) is a company's commitment to improving the welfare of society through business practices and voluntary contributions of company resources (Kotler and Lee, 2005:9). In line with the concept of the Triple Bottom Line which underlies the idea of social responsibility, which focuses not only on the economic value they add but also on environmental and social values to produce balance and sustainability for the company in the long term (Henrique and Richardson, 2013: 3). Broadly speaking, socially and economically interdependent.
2.2. Firm Maturity
Companies develop through evolutionary lines influenced by internal and external factors (Dickinson, 2011). Furthermore, Dickinson (2011) states that at a mature level, companies have large resources through easy access and experienced management in seeing the company's position, thus creating strategic decisions in allocating resources to investments that can provide long-term benefits. Companies at this stage are often characterized by superior financial performance and have competitive advantages that the company must maintain to maintain the company's reputation and value. Company performance and firm maturity levels increase (Mallinguh et al., 2020). This implies an increase in productivity and profitability.
2.3. Financial Risk
According to Brigham and Houston (2009: 419), there are two dimensions of risk:
business risk and financial risk. First, business risk is inherent in the company's activities, regardless of the type of financing used by the company. Second, financial risk refers to the additional risk that occurs if the company chooses an alternative to debt financing, and the shareholders bear this risk. When business risk becomes significant through operating uncertainty, the presence of financial risk (debt) becomes an additional risk borne by shareholders because the lender's rights take priority before the rights of claim of the shareholders. However, using debt through good decisions increases the return on equity ratio.
401 2.4. Firm Value
With the change in the way of doing business that pays more attention to sustainability and the demands of stakeholders for the company to contribute more beyond the interests of maximizing profits, social programs must be aligned with the company's mission and business strategy (Hendriani and Tjahjono, 2018: 3). Firm value is translated as the result of company performance which is reflected through the supply and demand for share prices and as a form of public assessment of management performance (Ningrum, 2022: 20).
2.5. Hypothesis Development
2.5.1. CSR Disclosure and Firm Value
Changes in the perspective and assessment of stakeholders during a company's business processes ultimately require the company to pay attention to all stakeholders, not only the owner. In line with stakeholder theory, companies in their business processes are encompassed by the strength of the position of stakeholders so that relationships must be well established between them, meeting the expectations of the social contract between the company and stakeholders.
CSR can be used as a way for companies to meet all stakeholders' expectations and maintain relationships with stakeholders appropriately. Teng and Yang's research (2021) found that the number of Corporate Social Irresponsibility (CSI) reports is negatively related to company performance and positively related to the risk of falling stock prices. Therefore, companies that carry out CSR are considered to have added value, indicating the existence of long-term corporate sustainability due to the basic concept that the economy, society, and environment must be balanced through good governance.
Kang et al. (2016) found that companies that carry out CSR benefit financially from their CSR investments. This is in line with several other studies which found that the higher the level of CSR disclosure, the higher the company's stock price, indicating that the company is valued well by the market (de Villiers and Marquez, 2016; Shirasu and Kawakita, 2021). Based on the description above, the hypothesis proposed in this study is:
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H1: CSR Disclosure is positively related to firm value.
2.5.2. Firm Maturity, CSR, and Firm Value
Companies often adjust their capabilities with their resources in carrying out their business activities. Through resource-based theory, a company with its assets and good management skills in managing them must be able to achieve a competitive advantage for the company. CSR is seen as a source of competitive advantage for companies, and therefore investment decisions related to CSR are as important as other types of company investment decisions (Mcwilliams and Siegel, 2006).
How a company chooses its business strategy and its investment in it can significantly influence the performance of environmental management and the environmental and operational performance of the company(Amanati and Arifa, 2022).
Furthermore, companies make more CSR investments due to the firm's maturity level, more predictable performance results, and better cash flow (Withisuphakorn and Jiraporn, 2016). Stages of firm maturity (corporate aging) can be an explanatory factor for executive success in managing existing resources efficiently and effectively, including CSR decisions taken by executives for long-term corporate sustainability.
Park (2021) found that CSR positively relates to financial performance in the growth and maturity stages and that the relationship is more prominent when the company is mature. Research by Diebecker et al. (2017) found that corporate social performance differed in each evolutionary line and found the highest level of social performance at the mature stage. This is in line with Withisuphakorn and Jiraporn (2016), who found that the older the company, they tend to invest in CSR. Based on the description above, the hypothesis proposed in this study is:
H2: CSR is positively related to firm value, and the relationship between the two is stronger in mature companies.
2.5.3. Financial Risk, CSR, and Firm Value
A positive sustainability factor is a sign that managers have carried out management, both related to finance and non-finance, with strict consideration so that the results are under the expectations of stakeholders, according to the signaling theory
403 that companies try to give positive and negative signals through the disclosure of company information to the public. The annual report is one of the important disclosure, both financial and non-financial information, which shows the company's performance results.
In particular, CSR as part of non-financial information is not without cost; a portion of the company's profit is set aside for the benefit of more parties. Therefore, CSR input is also a resource that the company must manage adequately. This becomes a positive signal if what is produced from CSR activities exceeds costs so that a value is formed.
This value will bring the company's sustainability due to trust and a good reputation.
This assumes that CSR has a positive effect. However, how outsiders perceive CSR as a sufficient effort to increase firm value may depend on the firm's specific context.
Research by Servaes and Tamayo (2013) states that companies can only enjoy CSR-added value under certain conditions. Financial risk is considered a company-level characteristic that can influence CSR's assessment of firm value (Lu et al., 2021).
Furthermore, they show that investors will view CSR as more valuable when the company has a high level of financial risk. This is because the CSR investment protection mechanism function's value is proportional to the risks involved. Thus, the adequacy of protection benefits through CSR is used as a signal to determine the ability of managers to manage the company's sustainability in the long term. One of the benefits of CSR is to generate moral capital that influences stakeholder perceptions and prevents bad judgments and sanctions that might occur. Thus, CSR can provide a signal to the owners as a protection mechanism from the activities carried out by the company.
Furthermore, these mechanisms can form economic value because they affect the perceptions of different stakeholders (Godfrey, 2005). Based on the description above, the hypothesis proposed in this study is:
H3: CSR is positively related to firm value, and the relationship between the two is stronger when the company has a high level of financial risk.
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3. Research Method
This study uses an explanatory approach built based on theory and previous research that supports research arguments. The sample of this study consists of all non- financial companies listed on the IDX and have ESG scores on the Thomson Reuters Eikon database from 2014 to 2019. This study excludes financial companies because they have industry-specific regulations that cause some parts of their social responsibility reports to differ, and there are apparent differences in the structure of financial statements with non-financial companies. The year 2019 as the closing year is used considering the year before a significant event occurred, namely the COVID-19 pandemic, which entered 2020. This research uses secondary data from company financial reports, the Thomson Reuters Eikon, and OSIRIS databases. The final sample comprises 28 companies during the 6-year observation period and produces 168 observations.
The dependent variable in this study is firm value. The indicator used to measure firm value is Tobin's Q. Tobin's Q provides market value information and reflects management performance (Buchanan et al., 2018). Tobin's Q formula (Benjamin and Biswas, 2022):
𝑄 =𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 + 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐵𝑜𝑜𝑘 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
The independent is CSR disclosure. CSR disclosure can be explained as a company's process of communicating the impacts of the company's economic activities, both social and environmental, and other important information to stakeholders (Kamaliah, 2020). Nguyen et al. (2021) stated that CSR information reporting is a criterion for evaluating CSR performance. Furthermore, Gillan et al. (2021) explained that company activities that have a detrimental or beneficial impact on social welfare are referred to as CSR or ESG. CSR and ESG are interchangeable (Gillan et al., 2021;
Yuan et al., 2022). Both terminologies incorporate elements of governance, either explicitly or not, so there is a reciprocal and complementary relationship between social
405 and environmental relations and management mechanisms carried out by company management. CSR data is retrieved through the Thomson Reuters database.
The moderating variable in this study is firm maturity and the company's financial risk. First, a company at a mature level is closely related to the age at which the company was founded. Withisuphakorn and Jiraporn (2016) use company age as a proxy for the firm maturity level. Older companies are assumed to have strong internal control procedures, more experience, and a better understanding of expectations from outsiders, which makes them also end up disclosing more information (Fahad and Nindheesh, 2021). Thus, the proxy for the maturity level of the company is the age of the company (Julio and Ikenberry, 2004; Withisuphakorn and Jiraporn, 2016; Chen et al., 2010), which refers to:
𝐹𝑖𝑟𝑚 𝑀𝑎𝑡𝑢𝑟𝑖𝑡𝑦
= The year of observation period
− The year which the firm was initially formed
The second moderating variable is financial risk. Debt as a financial risk factor can give two different signals depending on how the company sends signals to outsiders (Bae et al., 2017). The first is a driving signal: debt signals positive growth prospects.
The second is a distress signal, in which the use of debt has inherent costs and increases the risk borne by shareholders. Financial risk is directly related to financial leverage (Luoma and Spiller Jr., 2002). The financial risk measurement used in this study is the Debt to Asset Ratio (DAR). This proxy can show the company's financial leverage as an essential indicator that shows the company's financial risk. Debt to Asset Ratio formula (Malm and Krolikowski, 2017):
𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡 𝑡𝑜 𝑎𝑠𝑠𝑒𝑡𝑠 𝑟𝑎𝑡𝑖𝑜 (TDA) = 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡
The firm-level control variables used in this study are based on previous literature examining the relationship between CSR and firm value, firm maturity, and financial risk. This study considers firm size (DeAngelo et al., 2006), profitability (Hendratama and Huang, 2021), and sales growth (Benjamin and Biswas, 2022) as control variables.
The natural logarithm of total assets measures the firm size. Profitability is proxied by
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ROA. Sales growth is measured by the change in sales from the previous year (t-1) divided by the last year's sales (t-1).
This study uses three research analyses: descriptive analysis, classical assumption test, and hypothesis test. The descriptive analysis consists of mean and standard deviation. The classic assumption test consists of a normality test, heteroscedasticity test, autocorrelation test, and multicollinearity test. After conducting descriptive statistical tests and passing the classical assumption test, hypothesis testing is carried out using multiple linear regression tests for the first model and Moderated Regression Analysis (MRA) by interacting with the leading independent variables and moderating variables for the second and third models. The data analysis tool uses SPSS version 25.
The regression equation model proposed in this study is:
Model I
𝐹𝑉𝑖,𝑡 = 𝛼0+ 𝛽1𝐶𝑆𝑅𝑖,𝑡+ 𝛽2𝑆𝐼𝑍𝐸𝑖,𝑡+ 𝛽4𝑅𝑂𝐴𝑖,𝑡+ 𝛽5𝑆𝐺𝑖,𝑡+ 𝜀𝑖,𝑡
Model II
𝐹𝑉𝑖,𝑡 = 𝛼0+ 𝛽1𝐶𝑆𝑅𝑖,𝑡+ 𝛽2𝐹𝑀𝑖,𝑡+ 𝛽3𝐶𝑆𝑅. 𝐹𝑀𝑖,𝑡+ 𝛽4𝑆𝐼𝑍𝐸𝑖,+ 𝛽6𝑅𝑂𝐴𝑖,𝑡+ 𝛽7𝑆𝐺𝑖,𝑡+ 𝜀𝑖𝑡
Model III
𝐹𝑉𝑖,𝑡 = 𝛼0+ 𝛽1𝐶𝑆𝑅𝑖,𝑡+ 𝛽2𝐹𝑅𝑖,𝑡+ 𝛽3𝐶𝑆𝑅. 𝐹𝑅𝑖,𝑡+ 𝛽4𝑆𝐼𝑍𝐸𝑖,𝑡+ 𝛽6𝑅𝑂𝐴𝑖,𝑡+ 𝛽7𝑆𝐺𝑖,𝑡+ 𝜀𝑖𝑡
FVi,t : Firm Value
: Constanta
1, 2, 3 : Coefficient CSRi,t : CSR Disclosure FMi,t : Firm Maturity FRi,t : Financial Risk SIZEi,t : Firm Size ROAi,t : Profitability SGi,t : Sales Growth
it : Error
407 4. Results and Discussion
4.1. Descriptive Statistic
The following are the results of the descriptive statistical test of the variables in this study:
Table 1
Descriptive Statistic
N Min Max Mean Std.
deviation
FV 167 .60 23.29 2.7918 3.64991
CSR 167 7.73 88.28 43.7647 20.78804
FM 167 4 85 33.80 16.659
FR 167 .13 .95 .4507 .18574
SIZE 167 21.95 26.57 24.2138 .91010
ROA 167 -5.72 45.79 10.0880 10.39940
SG 167 -.50 1.54 .1020 .22183
The table above shows the average firm value of 2.7918 and a standard deviation of 3.64991. A Tobin's Q value of more than one indicates that companies in Indonesia successfully manage their assets (Dzahabiyya, 2020). The CSR variable shows an average CSR value of 43.7647 and a standard deviation 20.78804. These results indicate that the average CSR value of the sample companies is relatively large by looking at the average value closer to the maximum data value. However, it is still relatively low compared to the maximum CSR score of 100.
Firm maturity with age as a proxy shows an average company age of 33.80 or around 34 years and a standard deviation of 16.659. These results indicate that the average age of companies from the year of establishment to the observation period has relatively long competed in the Indonesian market. The financial risk variable with DAR as its proxy shows that the average sample firm's financial risk is 0.4507, and its standard deviation is 0.18574. This indicates that almost half of the sample companies finance their assets through debt financing.
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Several variables in the descriptive test show a standard deviation value that is greater than the average value, namely the firm value (3.64991> 2.7918), ROA (10.39940> 10.0880) and sales growth (0.22183> 0.1020). Firm value as the primary dependent variable has a standard deviation difference with the largest average, where the average value becomes less able to be used to represent the data. Therefore, treatment is needed by trying to remove the outlier data, but the histogram shape still shows a left-swinging shape so that the data is transformed into a natural logarithm form based on a substantial positive skewness histogram and uses a semi-log regression model (Ghozali, 2018: 193) -206)
4.2. Classic Assumption Test
The normality test determines if the residual variables have normally distributed data distribution in the regression model. The normality test uses the Kolmogorov- Smirnov test. The result of the Asymptotic significance value is 0.2, which is greater than 0.05 (>0.05), meaning that the normality assumption is met. The heteroscedasticity test in this study used the Glejser test. The results of the Glejser test show that all variable significance values are above 0.05 (>0.05), indicating that the assumptions of the homoscedasticity regression model can be fulfilled. The multicollinearity test tests whether there is a perfect linear relationship between the predictor variables in the model. The test results show that all independent variables have a tolerance value greater than 0.1 (tolerance≥0.1) or have a VIF value less than 10 (VIF≤10), meaning that multicollinearity does not occur.
The Durbin-Watson d method is used as a reference in determining the autocorrelation-free regression model. Thus, based on the Durbin-Watson d value, which is 1.961 with a total sample of 167 (n=167) and the number of independent variables, namely 6 (k=6), the dL table value is 1.6732, and the dU table value is 1.8218.
Based on the decision on whether there is autocorrelation or not, it is obtained at 1.8218<1.961<2.1782, or the regression model is said to be free of autocorrelation (du<d<4-du).
409 4.3. Hypothesis Testing
4.3.1. Result Table 2
Hypothesis testing results
Model I
𝐹𝑉𝑖,𝑡= 𝛼0+ 𝛽1𝐶𝑆𝑅𝑖,𝑡+ 𝛽2𝑆𝐼𝑍𝐸𝑖,𝑡+ 𝛽4𝑅𝑂𝐴𝑖,𝑡+ 𝛽5𝑆𝐺𝑖,𝑡+ 𝜀𝑖,𝑡
Model Unstd. Coefficients Std.
Coefficients
t Sig.
B Std. Error B
Constanta .516 1.017 .508 .612
CSR -.004 .002 -.101 -2.373 .019*
SIZE -.013 .041 -.016 -.315 .753
ROA .061 .004 .845 16.624 .000
SG -.071 .141 -.021 -.502 .616
R2
Adjusted R2 T-test
.711 .718 .000 Model II
𝐹𝑉𝑖,𝑡= 𝛼0+ 𝛽1𝐶𝑆𝑅𝑖,𝑡+ 𝛽2𝐹𝑀𝑖,𝑡+ 𝛽3𝐶𝑆𝑅. 𝐹𝑀𝑖,𝑡+ 𝛽4𝑆𝐼𝑍𝐸𝑖,𝑡+ 𝛽6𝑅𝑂𝐴𝑖,𝑡+ 𝛽7𝑆𝐺𝑖,𝑡 + 𝜀𝑖𝑡
Model Unstd. Coefficients Std.
Coefficients
t Sig.
B Std. Error B
Constanta 1.199 .971 1.235 .219
CSR -.015 .003 -.413 -4.547 .000
FM -.007 .005 -.165 -1.638 .103
CSR*FM .000 .000 .501 3.461 .001*
SIZE -.028 .040 -.034 -.685 .494
ROA .055 .004 .759 14.925 .000
SG -.037 .133 -.011 -.276 .783
R2
Adjusted R2 T-test
.756 .746 .000 Model III
𝐹𝑉𝑖,𝑡= 𝛼0+ 𝛽1𝐶𝑆𝑅𝑖,𝑡+ 𝛽2𝐹𝑅𝑖,𝑡+ 𝛽3𝐶𝑆𝑅. 𝐹𝑅𝑖,𝑡+ 𝛽4𝑆𝐼𝑍𝐸𝑖,𝑡+ 𝛽6𝑅𝑂𝐴𝑖,𝑡+ 𝛽7𝑆𝐺𝑖,𝑡 + 𝜀𝑖𝑡
Model Unstd. Coefficients Std.
Coefficients
t Sig.
B Std. Error B
Constanta 1.248 1.091 1.144 .254
CSR -.010 .004 -.271 -2.435 .016
FR -.413 .406 -.103 -1.017 .310
410
CSR*FR .014 .008 .239 1.700 .091**
SIZE -.035 .042 -.043 -.828 .409
ROA .059 .004 .822 15.735 .000
SG -.095 .141 -.028 -.675 .501
R2
Adjusted R2 T-test
.726 .715 .000 One-tailed probability is determined as the basis for decision-making on hypotheses that have direction by dividing the significance value of each variable by two (Field, 2009: 333). Furthermore, acceptance of the hypothesis is based on a significance level of 0.05. Thus, the hypothesis is supported if the significance value is less than/equal to 0.05 (≤0.05) (Privitera, 2015:236).
*0.05, One-tailed probability
**Two-tailed probability, the p-value is divided by two to get the one-tailed probability
Based on the table above, all models have significant F values, which indicates that all models can be used to predict firm value. The first model shows that CSR reduces firm value in the negative direction of the t-value (-2.373) and at a significant level (0.019<0.05). Thus, H1 of this study is not supported. CSR is one of the aspects of added value that is increasingly considered important by various stakeholder groups, but CSR is an activity that requires corporate resources.
CSR disclosure can increase the value of a company's stock price, especially in countries with developed markets (de Villiers and Marques, 2016; Shirasu and Kawakita, 2021). However, CSR can also take away company resources that companies can use to increase their main activities' innovation, efficiency, and effectiveness. This results in CSR reducing firm value, especially companies in developing market countries (Lima Crisostomo et al., 2011). Some of the company's obstacles in implementing CSR include a lack of resources, both financial and expert human capital, a lack of top management commitment, a weak benefit-cost measurement system, and an evaluation of CSR activities (Yuen and Lim, 2016). This is also supported by a survey that found that CSR companies in Indonesia still have several obstacles related to CSR implementation, including cost issues, competent human resources, forms of activities, and evaluation in the field (Azzahra, 2016). This is also supported by the
411 findings of Retnaningsih (2015), which states that companies must improve the evaluation of their CSR programs.
How consumers evaluate a company's CSR can significantly influence investors' evaluation of a company, especially in Indonesia. This is because the number of Indonesian retail investors dominates compared to institutional investors, and even though the value of institutional investor ownership dominates, the trading activities of retail investors' shares cannot be ignored and are significant (Koesrindartoto et al., 2020). Furthermore, they found that retail investors in Indonesia often use contrarian trading strategies with frequent trading activities and short holding periods. The growth in the value of retail investor ownership in Indonesia has almost doubled, from 6.15%
in 2015 to 12.35% in 2019. This shows that the Indonesian capital market is increasingly influenced by the trade of retail investors who invest short-term and easily react quickly to positive and negative company information. So, the results of research showing that the CSR of companies in Indonesia reduces the company's value, indicating that the company still needs to make efforts to convince its customers regarding the value of the CSR they offer. CSR output not aligned with the company's resources, capabilities, mission, and business strategy will only make CSR an additional cost that sacrifices investor value.
The result is supported by Bing and Li (2019) and Fahad and Busru (2020), who states that CSR significantly reduces firm value to companies in developing markets.
Furthermore, Sun et al. (2019) stated that from a shareholder value point of view, an increase in CSR will have a positive effect and turn negative until it reaches a certain point when companies carry out excessive CSR without considering the benefits and costs.
The second model uses a Moderated Regression Analysis (MRA) interaction model. The second model shows that firm maturity can strengthen and change the direction of the relationship between CSR and firm value, which was originally negative to be positive (3.461) at a significant level (0.01 <0.05), by looking at the increasing coefficient of determination (R2) by 4.5%. So, H2 of this research is supported. This
412
shows that important contingency factors affect the strength of the relationship between CSR and firm value, especially for companies listed on the Indonesia Stock Exchange.
The effect of firm maturity can significantly change the direction of CSR on firm value. It can be assumed that more mature companies tend to have a lower level of moral hazard and maintain sustainable excellence (Dickinson, 2011). This is by the resource-based theory relating to corporate growth, which is assumed to be better related to internal resources and emphasizes sustainable performance and competitive advantage. CSR can be used as a source of competitive edge if companies consider CSR as crucial as other company activities to clarify the cost-benefit analysis and harm one stakeholder group.
Mature companies are assumed to have superior management capabilities with previous company experience to have superior social and economic responsibility decisions and strategies and meet the expectations of all stakeholder groups. Thus, the maturity stage of the company is an essential factor that strengthens the relationship between CSR and firm value and can change the direction of the relationship between CSR and firm value from negative to positive. The relationship between CSR and firm value is not always positive or negative towards firm value. Important supporting factors influence the direction and strength of the relationship between the two, and one of them is the company's maturity level.
The result supports previous literature, which found that CSR positively relates to financial performance at the mature stage (Park, 2021). Mature companies tend to invest more in CSR (Withisuphakorn and Jiraporn, 2016), which influences CSR disclosure as a criterion for assessing CSR performance.
The third model also uses MRA and shows that financial risk can be a variable that can strengthen and change the direction of the relationship between CSR and firm value to be positive and significant and increase the value of the coefficient of determination (R2) by 1.5%. So, the H3 of this research is supported. This indicates that investors consider the company's specific context, namely financial risk, to assess whether CSR disclosure is capable of increasing firm value.
413 Companies with relatively high financial risk usually face relatively larger financing, making it less attractive to certain stakeholders due to the high probability of corporate default. However, when they implement CSR well through clear cost-benefit considerations, CSR disclosure can provide a risk reduction mechanism. This is in the form of protection benefits from CSR disclosure, which can be used as a signal that managers can run company activities sustainably through appropriate strategies according to the company's specific context and ultimately increase the company's value. This also indicates that when companies have financial risks and can manage them properly, it is assumed that they can utilize their financial capabilities to carry out activities that increase overall corporate value, one of which is activities that build added value and remain aligned with the company's main activities, that is CSR.
The risk reduction mechanism offered by CSR is a potential benefit of moral capital, which influences the stakeholders' perception in assessing the company when bad things happen. The risk reduction mechanism through CSR disclosure is considered a positive signal because CSR output can help companies maintain sound and stable relationships that include all social and economic stakeholders. Thus, in addition to the goal of altruism that initiates the implementation of CSR by management, CSR can be used as a strategic choice to help companies send positive signals about the company's primary performance through optimal and sustainable resource management. By signaling theory, CSR output in the form of disclosing non-financial information can be used to reduce information asymmetry detrimental to the company and stakeholders.
This study supports the result of Lu et al. (2021), who found that CSR can only have value if the implementation of CSR can form market value, one of which is through a risk reduction mechanism. Koh et al. (2013) and Shiu and Yang (2017) also found that when a negative event occurs, CSR can provide an insurance mechanism that protects stock and bond prices and increases firm value.
414
5. Conclusions, Implications, and Limitations 5.1. Conclusions
This study aims to examine the effect of CSR disclosure on firm value in companies in Indonesia and how firm maturity and financial risk can moderate the relationship between CSRD and firm value. Based on the hypothesis testing, it can be concluded that CSR disclosure statistically reduces firm value in Indonesian companies during the 2014-2019 observation period. Furthermore, with the interaction of CSR with the firm maturity level, moderation of the firm maturity level can moderate the effect of CSR on firm value and change the direction of influence from negatively significant to positively significant. Finally, financial risk can also moderate the relationship between CSR and firm value in a positive direction and at a significant level in Indonesian companies.
CSR disclosure is an added value whose existence is becoming increasingly significant. However, when CSR implementation does not pay attention to company resources and is not carried out with expertise in the field, CSR output is only an additional expenditure that sacrifices company resources and ultimately reduces firm value. The company's maturity level is one of the essential aspects that can statistically change the direction of the relationship between CSR and firm value in a positive direction. This shows that CSR disclosure as the output of CSR implementation requires the ability of the company's financial and human resources. As companies get older, it is assumed that they have superior capabilities in managing their activities effectively and efficiently, one of which is managing their CSR, which ultimately increases the company's value. In addition to firm maturity, financial risk is a company-specific aspect important in moderating the positive relationship between CSR and firm value.
This shows that at the level of a company having financial risk, stakeholders can assess CSR as valuable through its potential benefits as a risk reduction and can ultimately increase stakeholders’ assessment of the company.
5.2. Implications and Limitations
The results of this study show that the company’s management needs to continue to consider CSR activities well within the limits of the company's capabilities and with the expert judgment of the Corporate Social Responsibility Committee. Management is
415 expected to continue to improve and evaluate their CSR programs, from planning to execution and results. For example, companies can innovate their products through eco- labeling but with consideration of resource efficiency so that they can still produce environmentally friendly products at affordable prices for the Indonesian consumer market.
The government can promote a sustainable business climate through the Indonesian capital market by increasing support for green bonds or green investment issuance and monitoring their activities through sustainability reports. Through this effort, businesspeople, both companies and investors, will help each other in their efforts to save the earth for the next generation.
This research has several limitations. First, the score of CSR disclosure used in this study was obtained from the Thomson Reuters database. While the database is one of the legitimate providers of CSR (ESG) scores and is used extensively in the social disclosure literature, the comprehensiveness of their CSR scores appears to be limited to large companies with greater visibility. It is likely that small companies listed on the Indonesian Stock Exchange received less attention and were not included in their assessment. Further research is suggested to be able to use other alternative CSR proxies or use a database that has more complete company data to corroborate the findings of this study and by adding a longer observation period. Furthermore, future research can add other moderating factors to broaden the CSR literature by exploring contingency factors that can underlie the relationship between CSR and firm value.
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