Does innovation strengthen the impact of sustainability on firm value?

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Abstract

This study explores the effect of sustainability on firm value, with innovation as a moderating variable. Despite various sustainability initiatives, the inconsistent impact of sustainability practices on firm value raises questions about what factors truly enhance the effectiveness of these practices in delivering business value. Prior studies suggest a mixed relationship between sustainability and firm value (Agustia et al., 2019; Ammer et al., 2020). Using data from companies listed on the Indonesia Stock Exchange (IDX) from 2018 to 2022, sustainability is measured by the Global Reporting Initiative (GRI) index, firm value by return on assets (ROA), and innovation by research and development (R&D) expenditures. Panel data regression analysis was conducted using the STATA application. The results show that sustainability alone does not significantly influence firm value. When interacting with innovation, the relationship becomes significantly positive, indicating that innovation strengthens the impact of sustainability on firm value. These findings emphasize the importance of embedding innovation within sustainability strategies. Practically, it highlights the need for companies and policymakers to invest in R&D as part of broader sustainability initiatives. The originality of this research lies in its focus on a developing country context, offering practical and academic insights into the integration of innovation and sustainability.

Keywords: Corporate Innovation, R&D, Sustainability, GRI Index, Firm Value, Indonesia Stock Exchange

Authors’ individual contribution: Conceptualization — R.K.; Methodology — R.K. and T.J.; Formal Analysis — T.J. and M.; Investigation — R.K. and G.; Resources — R.K., T.J., and G.; Writing — Original Draft — R.K.; Writing — Review & Editing — R.K., T.J., G., and M.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G300, M140, O310, O320, Q560

Received: 25.05.2025
Revised: 15.07.2025; 20.08.2025; 02.12.2025
Accepted: 17.12.2025
Published online: 19.12.2025

How to cite this paper: Karina, R., Jurnali, T., Gandi, & Mardianto. (2026). Does innovation strengthen the impact of sustainability on firm value? Corporate Governance and Sustainability Review, 10(1), 8–17. https://doi.org/10.22495/cgsrv10i1p1