The Moderating Role of Sustainable Investment in the Relationship Between Profitability, Eco-Efficiency, and Firm Value
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Abstract
Research Aims: This study examines the impact of profitability and eco-efficiency on firm value, with sustainable investment as a moderating variable. It explores how financial performance and environmental efficiency contribute to corporate valuation and whether sustainability initiatives strengthen these relationships.
Design/methodology/approach: This research employs a quantitative approach, utilizing secondary data from 13 basic materials sub-sector companies listed on the Indonesia Stock Exchange (IDX) from 2020 to 2023. The analysis is conducted using Structural Equation Modeling-Partial Least Squares (SEM-PLS) to assess direct and moderating effects among variables.
Research Findings: The findings reveal that profitability significantly enhances firm value, emphasizing the role of strong financial performance in market valuation. However, eco-efficiency does not significantly influence firm value, suggesting that environmental efficiency alone is insufficient to impact investor perception. Additionally, sustainable investment strengthens the relationship between profitability and firm value, demonstrating that firms with strong financial performance can enhance their valuation through sustainability commitments. Conversely, sustainable investment does not moderate the relationship between eco-efficiency and firm value, indicating that environmental strategies require additional reinforcement to yield financial benefits.
Theoretical Contribution/Originality: This study contributes to corporate finance and sustainability literature by demonstrating that profitability is a more crucial determinant
of firm value than eco-efficiency. It underscores the significance of sustainable investment as a strategic enhancer of firm value, particularly when aligned with strong financial performance.
Research limitation and implication: This study is limited to basic materials companies in Indonesia, which may limit generalizability to other sectors. Future research should explore broader industrial contexts and longer observation periods to assess the sustained impact of sustainable investment and eco-efficiency. Firms are encouraged to integrate sustainability with financial strategies and enhance transparency to attract ESG-conscious investors.
Keywords: Profitability, Eco-efficiency, Sustainable Investment, Firm Value
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