Rudy Ryanto Ryanto, Sailendra Sailendra, M. Ardiansyah Syam Syam

The Effect of Tax Avoidance, Environmental Performance, and Institutional Ownership on Firm Value with Profitability as a Moderator

Introduction

The effect of tax avoidance, environmental performance, and institutional ownership on firm value with profitability as a moderator. Investigates tax avoidance, environmental performance, and profitability on firm value in Indonesian extractive sector. Profitability moderates negative environmental impacts.

Abstract

This study analyses the factors affecting firm value in the extractive sector listed on the Indonesia Stock Exchange (IDX) during the 2020-2024 period, focusing on tax avoidance, environmental performance, and profitability as a moderating variable. Using purposive sampling, 37 companies were selected, resulting in 185 observations. Secondary data, including financial reports and PROPER ratings, were analysed using partial least squares-based structural equation modelling (PLS-SEM). The novelty of this research lies in integrating financial factors (tax avoidance and profitability) and environmental factors (environmental performance) into a single analytical model. The findings reveal that tax avoidance has no effect on firm value, suggesting investors do not prioritize tax strategies. In contrast, environmental performance has a significant negative effect, possibly due to concerns that environmental investments have not yet yielded sufficient financial returns. Profitability has a significant positive effect on firm value. Furthermore, profitability does not moderate the relationship between tax avoidance and firm value but significantly moderates the negative effect of environmental performance on firm value. This implies that highly profitable companies are better positioned to absorb environmental costs without significantly reducing their firm value, achieving a balance between environmental responsibility and value creation.   Abstrak - Penelitian ini menganalisis faktor-faktor yang memengaruhi nilai perusahaan di sektor ekstraktif pada Bursa Efek Indonesia (BEI) periode 2020-2024, dengan fokus pada tax avoidance, kinerja lingkungan, dan profitabilitas sebagai variabel moderasi. Sebanyak 37 perusahaan dipilih melalui metode purposive sampling, menghasilkan 185 observasi. Data sekunder, seperti laporan keuangan dan peringkat PROPER, dianalisis menggunakan structural equation modeling (SEM) berbasis partial least squares (PLS-SEM). Kebaruan penelitian ini terletak pada integrasi faktor finansial (tax avoidance dan profitabilitas) dan faktor lingkungan (kinerja lingkungan) dalam satu model analisis, yang memperdalam pemahaman tentang bagaimana perusahaan sektor ekstraktif mengelola strategi keuangan dan tanggung jawab lingkungan secara bersamaan. Hasil penelitian menunjukkan bahwa tax avoidance tidak berpengaruh terhadap nilai perusahaan, menunjukkan bahwa investor kurang memprioritaskan strategi pajak. Sebaliknya, kinerja lingkungan berpengaruh negatif signifikan terhadap nilai perusahaan karena kekhawatiran biaya lingkungan belum sebanding dengan manfaat finansial. Profitabilitas berpengaruh positif signifikan terhadap nilai perusahaan. Selain itu, profitabilitas tidak memoderasi hubungan antara tax avoidance dan nilai perusahaan, namun secara signifikan memoderasi pengaruh negatif kinerja lingkungan terhadap nilai perusahaan. Artinya, perusahaan dengan profitabilitas tinggi lebih mampu menyerap biaya lingkungan tanpa mengurangi nilai perusahaan secara drastis.

Review

This study investigates the complex interplay of tax avoidance, environmental performance, and institutional ownership on firm value within the Indonesian extractive sector, with profitability acting as a moderating variable. The research effectively leverages a relatively recent dataset (2020-2024) from the Indonesia Stock Exchange, utilizing a sample of 37 companies and employing PLS-SEM for analysis. A key strength highlighted is the integration of financial (tax avoidance, profitability) and environmental factors into a unified model, which promises a more holistic understanding of value creation in this often-controversial sector. The methodology appears sound for the stated objectives, and the focus on a specific, relevant industry adds to the potential for meaningful insights. The findings present intriguing, albeit sometimes counter-intuitive, results. The revelation that tax avoidance has no effect on firm value, suggesting investor indifference to such strategies, challenges some existing literature. More strikingly, environmental performance is found to have a significant negative effect on firm value, which the authors attribute to unquantified financial returns on environmental investments. This particular finding warrants further critical discussion, as it could also reflect market concerns over compliance costs, greenwashing perceptions, or simply the nascent stage of ESG integration in the Indonesian context. Profitability's positive direct effect on firm value is expected, and its moderating role—absorbing the negative impact of environmental costs on firm value—is a nuanced and valuable contribution, underscoring the importance of financial health in achieving sustainable development goals. However, a significant concern arises from the discrepancy between the title and abstract: "Institutional Ownership" is listed as a key variable in the title, yet it is entirely absent from the abstract's description of variables analyzed, methodology, or findings. This fundamental inconsistency needs to be rectified, as it casts doubt on the completeness of the abstract or the scope of the study as presented. Overall, the research makes a commendable effort to bridge the gap between financial and non-financial factors influencing firm value in a crucial sector. While the integration of these factors is a notable strength, the unexplained omission of institutional ownership from the abstract is a significant weakness that detracts from the clarity and completeness of the proposed study. Future iterations of this work should explicitly address this discrepancy. Additionally, the interpretation of the negative effect of environmental performance could benefit from exploring alternative market perceptions beyond just "insufficient financial returns," perhaps considering the specific types of environmental investments or regulatory pressures faced by Indonesian extractive companies. Nevertheless, the study offers valuable empirical evidence and opens avenues for further investigation into the intricate dynamics between corporate strategy, environmental responsibility, and market valuation in emerging economies.

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