Determinants and consequences of environmental investment: an empirical study of Indonesian firms

Abstract

Purpose This study aims to examine the effect of institutional ownership, audit committee and types of industry on environmental investment. Furthermore, this research investigates the consequences of environmental investments on firm financial performance. Design/methodology/approach The sample consisted of 145 companies listed on the Indonesia Stock Exchanges and receiving PROPER awards issued by the Ministry of Environment, Republic of Indonesia in the year 2009-2015. The data were then analyzed using ordinal logistic regression and multiple regression. Findings The findings showed that environmental investment was significantly affected by types of industry. However, institutional ownership and audit committee did not influence environmental investment. Finally, the finding indicated that environmental investments positively affected firm financial performance. Research limitations/implications This research only covered companies listed on the Indonesia Stock Exchanges and receiving PROPER awards. Thus, the findings cannot be generalized for all companies in Indonesia and other markets. Originality/value This study is the first effort intended to investigate the determinants and consequences of environmental investment which have been ignored by previous studies, especially in the Asian emerging markets. This study at least provides us with two main contributions. First, the findings on determinants of environmental investment can be used by governments in Asian countries, especially Indonesia as a reference in making policies concerning the obligations of companies to the environmental problems. Second, the finding on the relationship of environmental investment and financial performance can be used by companies as strategies to generate profits without destroying the environment.

The role of green investment and corporate social responsibility investment on sustainable performance

“…The results of this study are in line with the results of research by Chariri et al (2019), Cohen and Robbins (2011), Mangla et al (2014), Manrique and Ballester (2017), and Murovec et al (2012), and Turcsanyi and Sisaye (2013), that green investment has a positive effect on financial performance. Saxena and Khandelwal (2012) have proven that green investment has a positive effect on sustainable performance.…”

“…This study is also expected to reveal the reasons why manufacturing companies are committed to producing quality sustainability reports. Studies that consider green investment have been conducted by Chariri et al (2019Chariri et al ( ), (2018, and Cheema et al (2017); Zhu et al, (2016); Eyraud et al (2013), Murovec et al (2012), Saxena andKhandelwal (2012), andEl Ghoul et al (2011). Meanwhile, studies on CSR aspects have only been conducted by Asogwa et al (2020), Eyasu et al (2020), and Nguyen et al (2020); Cupertino et al (2019); Ok and Kim (2019), Viviani et al (2019), Jain and Winner (2016), and Wahba and Elsayed (2015), and Khojastehpour and Johns (2014); Lanis and Richardson (2012); Uadiale and Fagbemi (2012).…”

“…Unfortunately, these research findings are contradictory, and most of the existing research ignores how green investment and CSR investment can improve financial performance on a sustainable performance of a company. Some researchers have found a positive relationship between environmental investments (Chariri et al, 2019) and green investment (Chariri et al, 2018) that could increase the company's financial performance. Cheema et al (2017) believe that green environment provides social, ecological, and economic benefits.…”

“…In other words, investment is responsible and consistent with environmental ethics (such as reducing carbon emissions, green energy, and green technology). Eyraud et al (2013), Mangla et al (2014), and Murovec et al (2012); and Zhu et al (2016) have shown that green investment can improve financial performance (Chariri et al, 2018(Chariri et al, , 2019 and create sustainable performance (Saxena & Khandelwal, 2012). This is due to the fact that the cost of green investment disclosure is lower than the cost for companies that do not disclose their environmental performance (Patrick R. Martin & Moser, 2012).…”

Do Good, Have Good: A Mechanism of Fostering Customer Pro-Environmental Behaviors

“…There is a growing consciousness about environmental welfare among individuals, be it at the consumer level or organizational level [40,41]. Considering this, the notion of PEB has emerged.…”