GREEN ECONOMY PRACTICES, ENVIRONMENTAL PERFORMANCE, AND FIRM VALUE EVIDENCE FROM INDONESIAN LISTED MANUFACTURING COMPANIES

Abstract

This study examines the impact of green economy practices on environmental performance and firm value among manufacturing companies listed on the Indonesia Stock Exchange (IDX) over the period 2018 to 2023. Green economy practices are operationalised through a composite Green Economy Practice Index (GEPI) constructed from four sub-dimensions: energy efficiency, waste management quality, environmental certification status, and green supply chain integration. Environmental performance is measured using the government's PROPER rating combined with a firm-level emission intensity index. Firm value is measured by Tobin's Q. Using a panel structural equation modelling (panel SEM) approach with firm and year fixed effects, and addressing endogeneity through a control function approach with lagged instruments, the study tests both the direct effect of green practices on firm value and the mediated pathway through environmental performance. Results confirm that green practices significantly improve environmental performance (coefficient 0.47, p < 0.01), which in turn enhances Tobin's Q (coefficient 0.183, p < 0.01). The indirect effect of green practices on firm value through the environmental performance mediator is positive and significant (bootstrapped coefficient 0.086, 95% CI [0.041, 0.142]), accounting for approximately 52 percent of the total effect. The direct effect of green practices on firm value is also significant but smaller. These findings support the Porter hypothesis and stakeholder theory perspectives on corporate environmental strategy and provide original evidence from Indonesia on the financial value implications of green economy investment for manufacturing firms.