Pattern of Environmental Performance Relations, Environmental
Disclosure, Firm Size, and Financial Performance of Proper-Member
Companies Listed on Indonesia Stock Exchange
Indra Siswanto and Noorlailie Soewarno
Department of Accounting, Universitas Airlangga, Surabaya, Indonesia
Keywords: Environmental Disclosure, Environmental Performance, Financial Performance, Firm Size.
Abstract: This research aims to determine the influence of environmental performance on financial performance with
environmental disclosure as the intervening variable and firm size as the moderating variable. The sample
consisted of 110 firm-year samples of PROPER-member companies listed on the Indonesia Stock
Exchange. The data was analyzed using the structural equation modeling – partial least squared (SEM-PLS)
method using WarpPLS 5.0. The results show that environmental performance has a significant positive
effect on financial performance. In addition, environmental performance has a significant positive effect on
environmental disclosure; however, environmental disclosure is not proven to have any positive effect on
financial performance. Environmental disclosure is also not proven to act as a mediating variable on the
relationship between environmental performance and financial performance. Meanwhile, this research
shows that there is a statistically significant moderating effect of firm size on the relationship between
environmental performance and financial performance.
1 INTRODUCTION
According to data published by the Population
Reference Bureau (2011), Indonesia is the fourth
most populous country in the world, with a
population of around 238 million people (Haub et
al., 2011). With such a large population, Indonesia
certainly has a great need for natural resources.
Ironically, the nature of Indonesia, which should
meet these needs, instead demonstrates an
apprehensive condition. According to Bloomberg
(2015), Indonesia ranks eighth in the world in terms
of the most dangerous levels of air pollution. In
addition, Garg (2015) states that Indonesia has the
highest rates of deforestation in the world, with a
quantification of 6.02 million hectares from 2000 to
2012.
One of the causes of massive environmental
pollution are the business activities undertaken by
companies. Dragomir (2010) states that the resource
depletion process, extreme natural phenomena, and
various types of air pollution are, in part, the result
of economic activities that have an adverse impact
on society.
Elsayed and Paton (2005) state that, by
increasing their commitment to environmental
performance, companies are expected to increase
productivity and profitability, and, at the same time,
are able to maintain the availability of natural
resources. The application of environmental
accounting can be one of a company’s efforts to care
about and commit to environmental issues. The
United States Environmental Protection Agency (US
EPA) defines environmental accounting as the
function of environmental costs that corporate
stakeholders need to consider when identifying
strategies so that companies can reduce costs and
improve environmental quality. According to
Schaltegger dan Burritt (2000), the concept of
environmental accounting has two main elements,
which are the impact of the implementation of
environmental policies reflected in financial
performance, and the direct impact on the physical
environment that is reflected through environmental
performance. The main purpose of the application of
environmental accounting is to achieve companies’
sustainability.
In business practice, corporate sustainability is
closely related to the concept of the “triple bottom
66
Siswanto, I. and Soewarno, N.
Pattern of Environmental Performance Relations, Environmental Disclosure, Firm Size, and Financial Performance of Proper-Member Companies Listed on Indonesia Stock Exchange.
In Proceedings of the Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study (JCAE 2018) - Contemporary Accounting Studies in
Indonesia, pages 66-76
ISBN: 978-989-758-339-1
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

line” (TBL), which was proposed by Elkington
(1997) as a concept of harmony that includes
economic prosperity, environmental quality, and
social justice. The TBL concept, which later became
better known as 3P (people, planet, profit), has
become very important since it is considered the
foundation of company sustainability so that a
company can receive long-term benefits
(Dočekalová & Kocmanová, 2016).
Government, as one of the company
stakeholders, also plays a role in creating a
sustainable business ecosystem by issuing
regulations or policies to which companies must
adhere. In Indonesia, there are several supporting
regulations such as Law no.23 of 1997 on
Environmental Management, and Law no.40 of 2007
concerning incorporated companies, which demands
several industries such as mining, oil and gas, and
chemical to ensure transparency in terms of their
activities, policies, and environmental strategies.
In addition to the strict regulations, in 2002,
through the Ministry of Environment, the Indonesian
government implemented the Corporate
Performance Rating Program in Environmental
Management, better known as PROPER. The
program assesses a company's environmental
performance using certain indicators. The goal of the
program is to increase companies’ efforts to preserve
the environment. The incentive–disincentive
mechanism, applied by disseminating the good–bad
image according to ratings, which are distinguished
in gold, blue, green, red, and black, shows the
results.
However, the government's efforts to improve
the company's role in managing the environment has
not succeeded fully as there are still many
companies receiving red and black ratings each year.
According to Schaltegger and Burritt (2000),
companies often hesitate to commit further on
environmental issues because the cost and benefit
calculations are unclear and they do not necessarily
believe the initiative is profitable.
The previous study shows that the relationship
between environmental performance and financial
performance is a topic that is researched often.
Several studies show a positive relationship between
environmental performance and financial
performance (Al-Tuwaijri et al., 2004; Angelia &
Suryaningsih, 2015; Endrikat et al., 2014). In
contrast, several other studies have concluded that
environmental performance has no significant effect
on financial performance (Elsayed & Paton, 2005;
King & Lenox, 2001; Sarumpaet, 2006; Rakhiemah
& Agustia, 2009).
This study makes a contribution by offering a
comprehensive overview of the relationship between
environmental performance and financial
performance, using environmental disclosure as a
mediating variable and firm size as a moderating
variable.
2 LITERATURE REVIEW
2.1 Theory of Voluntary Disclosure
The Financial Accounting Standard Board (2001)
defines voluntary disclosure as the condition
whereby a company’s management gives more
information beyond the criteria required by
applicable accounting standards, which is relevant to
users of annual reports in the decision-making
process. Meek et al. (1995) classify voluntary
disclosure into three categories: financial disclosure,
non-financial disclosure, and strategic disclosure. In
the theory of voluntary disclosure, there is an
assumption that a company’s management tends to
have more information or knowledge about the
company's performance in the future. In general,
voluntary disclosure is carried out through annual
reports as well as company websites.
From the point of view of the theory of voluntary
disclosure, a company discloses information as a
precaution against the possibility of adverse
selection arising from the information asymmetry
between corporate managers and investors (Lang &
Lundholm, 1993). Voluntary disclosure theory also
emphasizes that corporate disclosures are essentially
endogenous, which is to say that they are influenced
more by incentives from corporate managers, with
little attention paid to what may occur in the future
(Verrecchia, 2001).
2.2 Resource-based View Theory
Resource-based view (RBV) theory states that a
company's success is influenced more by the internal
factors of resource ownership and capability in
achieving comparative advantage compared to the
external factors influencing the company (Barney,
1991). Companies are considered to be obliged to
transform short-term competitive advantages in
more sustainable ways, to provide added value to
consumers, surpass competitors' performance, and
achieve long-term profit superiority.
In accordance with RBV theory, good
environmental performance is able to support the
development and sustainability of a company's
Pattern of Environmental Performance Relations, Environmental Disclosure, Firm Size, and Financial Performance of Proper-Member
Companies Listed on Indonesia Stock Exchange
67

strategic resources (Hart & Dowell, 2010).
Additionally, according to this theory, an
improvement in environmental performance can
create a competitive advantage through the
achievement of three strategic capabilities: pollution
prevention, product stewardship, and sustainable
development. This can ensure that environmental
performance has a positive impact on resource
ownership and strategic capability, which is useful
for the company's financial performance
improvement (Endrikat et al., 2014; Surroca et al.,
2010).
2.3 Environmental Accounting
According to Agustia (2010), environmental
accounting is a term related to the recognition of
environmental costs in the practice of corporate
financial accounting with the aim to improve the
efficiency of environmental management through
environmental performance evaluation based on a
cost-benefit perspective. Cohen and Robbins (2011:
190) describe activities covered by environmental
accounting as follows:
“Environmental accounting collects, analyzes,
assesses, and prepares reports of both
environmental and financial data with a view toward
reducing environmental effect and cost. This form of
accounting is central to many aspect of
governmental policy as well. Consequently,
environmental accounting has become key aspect of
green business and responsible economic
development.”
2.4 Environmental Performance and
PROPER
According to ISO 14001 (2004), environmental
performance is the final result of the environmental
conditions achieved by the company, when the
environmental aspects of the activities, processes,
products, services, systems, and organizations have
been well managed and controlled. Briefly, Suratno
et al. (2006) define environmental performance as a
company's performance in building a green
environment.
In Indonesia, a company's environmental
performance is usually measured by PROPER
(Agustia, 2010; Sarumpaet, 2006; Dessy, 2015).
According to the Regulation of the Minister of the
Environment Number 18 of 2012, PROPER is an
assessment program on the efforts of the party
responsible for the business and/or activities in
controlling pollution and/or environmental damage
and the management of hazardous and toxic
materials waste. PROPER shows a company's
environmental performance through ratings using
color representation in descending order from gold,
green, and blue, to red, and black.
2.5 Financial Performance
Financial performance is the only bottom line of
traditional accounting thinking, which means that it
is very important. The concept states that companies
must maximize profits to give back to the
community as much as possible (Agustia, 2010).
According to Reinhardt (2000), understanding
financial performance is necessary for
environmental accounting research since it provides
a realistic assessment of the impact of environmental
activity on the company as a whole.
Moreover, Brown and Fraser (2006) express a
tendency through a critical approach towards the
inability of business people to completely abandon
their economic orientation despite a commitment to
being “green”. Al-Tuwaijri et al. (2004) state that
the measurement of financial performance consists
of two main approaches: profitability based and
market value based.
2.6 Environmental Disclosure
Environmental disclosure is part of a company's
efforts to communicate its environmental
management strategy to its stakeholders, and this is
usually delivered through the medium of annual
reports and the company’s website. According to
Brammer and Pavelin (2008), the majority of
voluntary information submitted by large
corporations today pays more attention to the impact
of environmental activities that companies have
implemented and how these are managed.
Dissemination of environmental information is a
communication process aimed to sharpen the views
and expectations of stakeholders in terms of a
company's environmental obligations (Gray et al.,
2009). Disclosures by companies are expected to
reduce information asymmetries between companies
and stakeholders, so that companies have a chance to
influence external stakeholder perceptions
(Brammer & Pavelin, 2008).
2.7 Firm Size
Firm size is a variable used to classify companies
into several groups, i.e. large companies, medium-
sized companies, or small firms. Specifically,
JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study
68

Simerly and Li (2000) mention that calculating the
number of employees, sales volume, or total value of
assets owned by a company are some of the ways in
which firm size can be measured.
In research related to environmental performance
and financial performance, the role of firm size
needs to be considered to find any possible
moderation effects (Dixon-Fowler, 2013). Large
companies tend to gain greater attention from
external stakeholders, thus requiring them to manage
their operations better, including demands for
environmental conservation (Waddock & Graves,
1997).
2.8 Relation between Financial
Performance and Environmental
Performance
Based on the view of traditional economic theory, a
company's environmental performance will lead to a
trade-off between benefits for the community and
additional costs to the company (Konar & Cohen,
2001). Based on the logic of shareholder value
maximization, the company's commitment to
environmental performance is viewed only as a
counter-productive philanthropic activity towards
profit maximization (King and Lenox, 2001).
Operational efficiency can be achieved through
cost savings of raw materials input, waste disposal,
regulatory oversight from regulators, public pressure
reduction, rising product value, and the
competitiveness of enterprises (Konar & Cohen
2001). On the other hand, a company's reputation
provides advantages in terms of attracting superior
human resources, creating loyalty and customer
willingness to pay more for the company's products,
and establishing long-term relationships with
suppliers, governments, or other stakeholders
(Orlitzky et al., 2003; Surroca et al., 2010). Based on
the above explanation:
H1: Environmental performance positively
affects financial performance.
2.9 Relation between Environmental
Performance and Environmental
Disclosure
Voluntary disclosure theory is one of the theories
commonly used to explain the relationship between
environmental performance and the extent of
corporate environmental disclosure. This theory
predicts the existence of a positive influence of the
company's environmental performance on
environmental disclosure.
Previous studies conducted by Rakhiemah and
Agustia (2009), Angela and Yudianti (2015) with
open manufacturing companies in Indonesia
provided consistent results, showing positive
correlations of environmental performance to the
extent of environmental disclosure. The results
support the theory of voluntary disclosure, which
states that firms have an incentive to reveal "good
news" with the aim to differentiating their company
from other companies that have "bad news", to avoid
any adverse selection issues (Verrecchia, 1983).
Based on the above explanation:
H2: Environmental performance positively
affects the extent of environmental disclosure.
2.10 Relation between Environmental
Disclosure and Financial
Performance
Previous studies state that environmental disclosure
has a significantly positive effect on financial
performance (Orlitzky & Benjamin, 2003).
Companies with good environmental disclosures
tend to be favored by investors (Qiu et al., 2014).
Supported by RBV theory and the theory of
voluntary disclosure, it can be argued that firms with
extensive environmental disclosure will gain the
economic benefit of rising stock prices (Hart, 1995,
Verrecchia, 2001).
Rakhiemah and Agustia (2009) state that it is
important to consider environmental disclosure
within CSR as a companion to accounting
information, which is only profit oriented. Then, by
conveying broad environmental disclosure, the
company is considered capable of reducing its
market risk in investing, because any uncertainty
concerning its ability to achieve good financial
performance will decrease (Eccles, 2011).
Companies that release environmental disclosures
are also expected to gain a reputation enhancement
that will impact their financial performance (Cabral,
2012). Based on the above explanation:
H3: Environmental disclosure positively affects
financial performance.
2.11 Relation between environmental
performance and financial
performance with environmental
disclosure as a mediator
Environmental disclosure is a medium through
which companies can communicate their
environmental performance to stakeholders. Without
Pattern of Environmental Performance Relations, Environmental Disclosure, Firm Size, and Financial Performance of Proper-Member
Companies Listed on Indonesia Stock Exchange
69

corporate environmental disclosure, it is feared that
there will be asymmetrical information in the form
of adverse selection, which causes information about
environmental performance to become irrelevant to
investors for making decisions (Solomon & Lewis,
2002; Brammer & Paveliin, 2008). Rakhiemah and
Agustia's (2009) research states that information
about environmental performance and
environmental disclosure covered in CSR
simultaneously affects the financial performance of
the company, so it can be said that environmental
disclosure is the mediation variable of the
environmental performance and the financial
performance of the company. Based on the above
explanation:
H4: Environmental disclosure is a mediator of
the relation between environmental performance
and financial performance.
2.12 Relation between Environmental
Performance and Financial
Performance with Firm Size as a
Moderator
Dixon-Fowler (2013) states that previous studies
demonstrated uniformity in their results in relation to
the effect of environmental performance on financial
performance, without considering the possibility of a
moderation effect based on the size of the firm. In
examining the effect of environmental performance
on financial performance, firm size has two aspects
that are allegedly capable of providing moderation
effects, which are related to the concerns of the
external stakeholders and resource ownership.
Internally, large companies are believed to have
better levels of efficiency because they have
qualified resources to invest in R&D and are also
able to adopt the latest technology, especially in
their efforts to become “green companies” (Eden.
1997). Externally, large companies will receive
more economic benefits if they perform well in
terms of environmental performance since the
market will respond quickly and perceive the
information as “good news” (Qiu et al., 2014).
H5: Environmental performance positively
affects financial performance, and it is moderated by
the size of the firm.
3 RESEARCH METHODS
3.1 Population and Samples
The population in this study consists of open
companies that participated in the PROPER
assessment conducted by the Ministry of the
Environment during the 2011–2015 period. The
purposive sampling technique was used, based on
the following criteria:
1. Companies that participated consistently in
PROPER assessment during the 2011–2015
period.
2. Companies listed on the Indonesia Stock
Exchange (IDX) since or before January 1,
2011, and consistently registered until
December 31, 2015.
3. Companies that published their annual financial
statements and annual reports on a regular basis
during the 2011–2015 period.
Based on these criteria, 22 companies were chosen,
resulting in a total sample for this study of 110 firm-
year samples.
3.2 Variable Operational Definition
1. Environmental Performance
In 2002, the Government of Indonesia, through
the Ministry of Environment, conducted a
measurement of companies’ environmental
performance by organizing a program called
Rating Program Working Company (Program
Penilaian Peringkat Kerja), often referred to as
PROPER. PROPER measures a company's
environmental performance based on a series of
methods to generate ratings represented in color
categories. Based on the color categories,
PROPER divides the companies into two
groups: compliance (including black[1], red[2],
and blue[3] categories), and beyond compliance
(including green[4] and gold[5] categories).
2. Financial Performance
In this study, measurement of financial
performance based on accounting value (ROA)
is used side by side with measurement based on
market value (Tobin's Q).
a. Return on Assets
ROA is one of the profitability ratios used to
measure the income or success of a company's
operations over a given period (Weygandt,
2007: 793). According to Ross (2007: 64), ROA
has advantages compared to other similar ratios
since it is more relatable to the assessment of
efficiency, as well as being measured by
JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study
70

assessing the number of earnings in each
currency value of the asset.
𝑅𝑂𝐴 =
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
b. Tobin’s Q
According to Ross (2007: 64), Tobin's Q has
advantages over other market value measures,
such as market-to-book value, as it can illustrate
the attractiveness of investment opportunities
and/or the significance of a company's
competitive advantage.
𝑇𝑜𝑏𝑖𝑛
′
𝑠 𝑄 =
𝑀𝑉𝐸 + 𝐷𝑒𝑏𝑡
𝑇𝐴
Explanation:
• MVE: The closing price of the end-of-year
shares x the number of shares circulate
• Debt: (Current liabilities – current assets) +
book value of inventories + long-term
liabilities
• TA: The book value of total assets
3. Environmental Disclosure
The environmental disclosure variable is
obtained through an analysis of the items
disclosed in the annual report based on the
Global Reporting Initiative on Environmental
Performance. The approach to measuring
environmental disclosure is to give a score of 1
for the item disclosed, and a score of 0 for an
undisclosed item. Then, the value of the items is
added as a whole and divided by the maximum
possible value. In accordance with content
analysis techniques conducted by Clarkson
(2008), environmental disclosure indicators in
this study consist of seven components: (1)
environmental pollution and control policy
(EPC); (2) energy policy (ENP); (3) impact on
biodiversity (BIO); (4) waste management cost
(WSM); (5) award received for installing
environmental management system (AWR); (6)
environmental research and development
(ERD); (7) cost of compliance with
environmental laws (CEL). The formula to
calculate the extent of environmental disclosure
is as follows:
𝐸𝑁𝑃 =
𝑛𝑢𝑚𝑏𝑒𝑟𝑠 𝑜𝑓 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑜𝑟𝑠 𝑑𝑖𝑠𝑐𝑙𝑜𝑠𝑒𝑑
8
𝐵𝐼𝑂 =
𝑛𝑢𝑚𝑏𝑒𝑟𝑠 𝑜𝑓 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑜𝑟𝑠 𝑑𝑖𝑠𝑐𝑙𝑜𝑠𝑒𝑑
5
𝐸𝑃𝐶 =
𝑛𝑢𝑚𝑏𝑒𝑟𝑠 𝑜𝑓 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑜𝑟𝑠 𝑑𝑖𝑠𝑐𝑙𝑜𝑠𝑒𝑑
10
4. Firm Size
Simerly and Li (2000) state that there are
several ways to measure the firm size, by
calculating the number of employees, the sales
volume, or the total value of assets owned by
the company.
a. Number of employees, i.e. the amount of
labor required by the company in one
operation period. Measured by: Ln (Number
of Employees)
b. Sales, which is the value of income earned by
the company in one period. Measured by: Ln
(Sales)
c. Total Assets, i.e. the total value of assets
owned by the company in one period.
Measured by: Ln (TA).
3.3 Hypothesis Testing Technique
Hypothesis testing of the research was carried out
using the Partial Least Square (PLS) Structural
Equation Model (SEM) approach, assisted by
WarpPLS 5.0 software. Partial Least Square is a
very powerful method of analysis because it can be
applied to any data scale; it does not require many
assumptions and does not require large-sized
samples. PLS can also be used to build relationships
that have no theoretical basis or to test prepositions
(Ghozali, 2006). This hypothetical test design is
presented based on the purpose of the research,
which is to measure the influence of independent
variables separately. The significance level used is
95% so that the level of precision or limit of
inaccuracies (α) is 5% = 0.05. Therefore, if the p
value is greater than 0.05, then H0 is accepted and
Ha is rejected. If the p value is smaller or equal to
0.05, then H0 is rejected and Ha is accepted.
4 ANALYSIS AND DISCUSSION
4.1 Descriptive Statistics
Based on the results of this study, PROPER
(environmental performance) has an average score
of 3.4454 with a standard deviation of 0.77325. For
environmental disclosure, the average value is
relatively low. Furthermore, the results of financial
performance show that the average ROA score of
the entire sample is 0.09701 with a standard
deviation of 0.103298, while the average score of
Tobin's Q for the entire sample is 2.529946 with a
standard deviation of 3.218987. Finally, firm size,
with a proxy of ln total sales, has an average value
of 29.5273 with a standard deviation of 1.147478.
Pattern of Environmental Performance Relations, Environmental Disclosure, Firm Size, and Financial Performance of Proper-Member
Companies Listed on Indonesia Stock Exchange
71

4.2 Validity and Reliability Test
For the validity test, this study examined
several tests. The results show that the factor
loadings of each item are higher than 0.600, which
indicates that the data meets convergent validity.
Some of the items were deleted because they did not
fulfil the criteria. In terms of discriminant validity,
the values of AVE square root of each variable are
higher than the coefficient of inter-correlation
among variables, which means that they meet
discriminant validity. Meanwhile, for the reliability
test, all composite reliability values of variables met
the criteria, which are higher than 0.600 (1,000 for
environmental performance, 0.934 for financial
performance, 0.893 for environmental disclosure,
and 0.955 for firm size).
4.3 Hypotheses Testing Results
The results of the hypotheses testing are shown in
Table 1 to Table 3.
Table 1: Summary of hypothesis 1–3 testing Results.
The Effect of Environmental Performance on
Financial Performance. Table 1 shows that
environmental performance has a P-value of <0.01,
which means that it meets the criteria α ≤ 0.05, so
has a significant effect on financial performance.
Hypothesis 1 testing yields a positive β-value of
0.42, which suggests that environmental
performance has a significant positive effect on
financial performance.
The results are in line with the prediction of
resource-based view theory, which states that
companies with good environmental performance
have a competitive advantage that may allow them
to achieve better financial performance than other
companies. Through environmental performance, a
company's competitive advantage is obtained based
on the existence of pollution prevention, product
stewardship, and sustainable development, which
ensures the maintenance of strategic resources that
are valuable, rare, difficult to imitate, and
nonsubstitutable, in the process (Endrikat et al.,
2014).
The Effect of Environmental Performance on
Environmental Disclosure. Table 1 shows that
environmental performance has a P-value of <0.01,
which means that it meets the criteria α ≤ 0.05, so
has a significant effect on environmental disclosure.
Hypothesis 2 testing yields a positive β-value of
0.56, which suggests that environmental
performance has a significant positive effect on
corporate environmental disclosure.
A company's good PROPER rating indicates its
effort in implementing environmental management
documentation, water pollution control, air pollution
control, B3 waste management, seawater
contamination, environmental damage criteria,
environmental management systems, energy
efficiency, emission reduction, utilization and
reduction of B3 waste, application of non-B3 solid
waste 3R, water conservation and water pollution
load reduction, biodiversity protection, and
community empowerment implementation, as
regulated in the legislation of the Ministry of
Environment.
The Effect of Environmental Disclosure on
Financial Performance. Table 1 shows that
environmental performance has a P-value of 0.05,
which means that it meets the criteria α ≤ 0.05, so
has a significant effect on financial performance.
Hypothesis 3 testing produces a negative β-value of
-0.13, so it can be concluded that the disclosure has
a significant negative effect on the company’s
financial performance.
This study failed to obtain evidence to suggest
that environmental disclosure positively affects
financial performance. Differences in Indonesian
investors’ profiles, in this developing country, with
the profiles of investors in developed countries are
one of the factors that may have affected the
negative results. Through a resource-restrictive
perspective, investors will question a company's
Hyp
Independent
Variables
Dependent
Variables
β-value
P-value
Conclusion
H1
Environmental
Performance
Financial
Performance
0.42
<0.01
Accepted
H2
Environmental
Performance
Environmental
Disclosure
0.56
<0.01
Accepted
H3
Environmental
Disclosure
Financial
Performance
-0.15
0.05
Rejected
JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study
72

decisions if it discloses too much environmental
information and is committed to too many
environmental activities (Li et al., 2017). Investors
may think that a lot of resource allocation will be
required, which will reduce the company's
profitability in the future. Therefore, the area of
environmental disclosure can be seen as a negative
signal for stock market participants. The results of
this research are consistent with the results of the
research conducted by Li et al. (2017) and
Richardson and Welker (2001), who state that
environmental disclosure has a significant negative
effect on financial performance.
The Effect of Environmental Performance on
Financial Performance through Environmental
Disclosure. Table 2 shows that the requirement for
testing mediation relations with the VAF method has
been met since all paths in the model have a p-value
≤ 0.05. Based on the calculation using the VAF
method, it can be seen that there is no mediation
effect by environmental disclosure on the relation
between environmental performance and financial
performance because the VAF value is less than
20%, i.e. -25%.
Table 2 shows that environmental performance
through environmental disclosure has a P-value of
0.101, which means that it does not meet the criteria
α ≤ 0.05, so it does not have a significant effect.
Therefore, based on the results of the PLS testing
using the two methods described above, it can be
concluded that environmental disclosure does not
mediate the effect of environmental performance on
financial performance. In this research, it is proven
that, in general, a company's environmental
performance only reaches the fulfillment of
legislation and applicable law. Most companies are
not aware of environmental performance as an
obligation that must be met since they actually need
community's legitimacy to conduct their business
activities, as well as to receive support from
stakeholders in order to be able to positively affect
their financial performance. Therefore, efforts to
fulfill PROPER criteria cannot maximize corporate
disclosure, so that, ultimately, environmental
disclosure is unable to provide a positive signal for
stakeholders to voluntarily provide support to the
company.
Table 2: Summary of hypothesis 4 testing results.
Hyp
Independent
Variables
Mediation
Variables
Dependent
Variables
P-value
VAF
Conclusion
(Indirect
Effect)
H4
Environmental
Performance
Environmental
Disclosure
Financial
Performance
0.101
-25%
Rejected
Table 3: Summary of hypothesis 4 testing results.
Hyp
Independent
Variables
Moderation
Variables
Dependent
Variables
β-value
P-value
Conclusion
H5
Environmental
Performance
Firm Size
Financial
Performance
-0.18
0.03
Accepted
This disability is also supported by the investors’
resource-restrictive perspective, which tends to
perceive environmental disclosure as a negative
signal.
These results are consistent with the research
conducted by Angela and Yudianti (2015), who state
that there is no effect from the mediation of
environmental disclosure on the relationship
between environmental performance and financial
performance. In contrast, the results of this research
are not consistent with the results of the research
conducted by Rakhiemah and Agustia (2009), who
state that there is an effect from the mediation of
environmental disclosure on the relationship
between environmental performance and financial
performance.
The Effect of Environmental Performance on
Financial Performance with Firm Size as a
Moderating Variable. Table 3 shows that the
moderation effect of firm size has a P-value of 0.03,
which means that it meets the criteria α ≤ 0.05 and
has a significant effect on the relationship between
environmental performance and financial
performance. The testing of hypothesis 5 yields a
negative β-value of -0.18, which suggests that there
is a moderation effect of negative interaction
between environmental performance and firm size in
affecting financial performance.
These results are consistent with the results of
the research conducted by Dixon-Fowler (2013),
who states that firm size had a moderating effect that
weakens the influence of environmental
performance on the financial performance of the
company. This research proves the existence of a
moderation effect; a larger firm size can further
weaken the relationship between environmental
performance and financial performance. In other
words, small firms are able to gain greater economic
benefits if they demonstrate better environmental
performance compared to large firms. Companies
Pattern of Environmental Performance Relations, Environmental Disclosure, Firm Size, and Financial Performance of Proper-Member
Companies Listed on Indonesia Stock Exchange
73

with a fewer employees, sales, and total assets are
expected to have the advantage of being flexible in
order to respond to environmental challenges or
organizational changes. Small companies, which
have a relatively shorter chain of command, are able
to implement environmental policies more quickly.
In addition, smaller companies find it easier to
evaluate their overall environmental performance.
Thus, the environmental performance of small firms
is more effective and efficient than that of large
companies.
5 CONCLUSION
Based on the results and discussion in this research,
as described above, it can be concluded that: first,
the results from the testing and analysis suggest that
environmental performance has a significantly
positive effect on financial performance. This means
that, the more a company cares about environmental
performance, the better its operational efficiency.
Such companies also benefit from positive
appreciation from stock market participants.
Second, the results of the testing and analysis
suggest that environmental performance has a
significantly positive effect on environmental
disclosure. These results are in accordance with the
main idea of voluntary disclosure theory, which
states that companies will be active in making
environmental disclosures while performing well in
terms of environmental performance, but will tend to
be silent when performing badly.
Third, the results of the testing and analysis
suggest that environmental disclosure significantly
negatively affects financial performance. This means
that the widespread disclosure of a company's
environmental performance does not have a positive
effect on its financial performance. In contrast, this
will have a negative effect because of investor
concerns about the high environmental costs for the
company in the future.
Fourth, the results of the testing and analysis
suggest that environmental disclosure does not
mediate the effect of environmental performance on
financial performance. This means that the
environmental performance that is reflected through
PROPER ratings can directly affect operational
efficiency and changes in the company's stock price
without the need to pay attention to the effects of the
extent of environmental disclosure in the annual
report.
Lastly, the results of the testing and analysis
suggest that firm size is able to significantly weaken
the influence of environmental performance on
financial performance. This means that, the larger
the firm size, the weaker the influence of
environmental performance on financial
performance. In other words, small companies
receive more benefits when performing well in terms
of environmental performance.
The Limitations and Future research directions
are explained as follows.
1. This research used only PROPER ratings and
ISO certification to measure the environmental
performance variables, and both measurements
used ordinal data. Thus, future studies can add
data measurement of a ratio to improve the
accuracy of research results.
2. This study used annual report content analysis
to measure environmental disclosure. Thus,
future studies could use content analysis of
websites to find whether or not the results
obtained are consistent.
3. This study used firm size as a moderating
variable for environmental performance
relations and financial performance. Thus,
future studies could use industry risk as a
moderating variable to explore the relationship
between environmental performance and
financial performance.
4. Future studies could test bidirectional
relationships that may occur between
environmental performance and financial
performance.
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