Financial performance as an intermediate variable in determining corporate sustainability performance: A company governance implication

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Abstract

In the pursuit of sustainability, companies strive for a delicate balance between delivering quality products and services and maintaining enduring harmony in the social and environmental realms. Companies have responsibility for the positive and negative impacts on economic, social, and environmental aspects (Elkington, 1997). Acknowledging their dual role in shaping economic, social, and environmental impacts, companies grapple with complexities. This study aims to scrutinize the influence of innovation, environmental uncertainty on financial performance, the impact of financial performance on corporate sustainability, and the influence of innovation, environmental uncertainty on corporate sustainability. Utilizing a quantitative approach and focusing on companies listed on the Indonesia Stock Exchange (IDX) with the SRI-KEHATI index from 2009 to 2022, the research, with a sample size of 29 companies, employs partial least squares structural equation modeling (PLS-SEM). The findings reveal the positive effects of innovation on financial performance, environmental uncertainty on financial performance, and financial performance on corporate sustainability. Additionally, the study unveils the direct influence of innovation and environmental uncertainty on corporate sustainability, with financial performance acting as a mediating variable. These results hold practical implications for corporations, academics, and policymakers, given the heightened emphasis on sustainability in today’s landscape.

Keywords: Corporate Innovation, Environmental Uncertainty, Financial Performance, Corporate Sustainability Performance

Authors’ individual contribution: Conceptualization — M.D.F.S.P. and S.M.; Methodology — M.D.F.S.P. and H.G.; Resources — M.D.F.S.P. and S.M.; Writing — M.D.F.S.P. and M.M.; Funding Acquisition — M.D.F.S.P.

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

JEL Classification: G00, M41, O320

Received: 07.07.2023
Accepted: 05.09.2024
Published online: 09.09.2024

How to cite this paper: Porajow, M. D.F. S., Mangantar, M., Murni, S., & Gamaliel, H. (2024). Financial performance as an intermediate variable in determining corporate sustainability performance: A company governance implication. Journal of Governance & Regulation, 13(4), 15–26. https://doi.org/10.22495/jgrv13i4art2