[Link] Vol. 5, No.

3, July 2024

DOI: [Link]
Received: 26 June 2024, Revised: 14 July 2024, Publish: 28 July 2024
[Link]

The Role of Financial Flexibility: ESG Performance, ROA and

Firm Value

Imam Akbar1*, Sinta Setiana2

1
Universitas Kristen Maranatha, Bandung, Indonesia
2
Universitas Kristen Maranatha, Bandung, Indonesia
*
Corresponding Author: imamakbar161@[Link]

Abstract: The purpose of this study was to determine and analyze the effect of ESG
performance (ESG), ROA, and whether financial flexibility as a moderating or mediating
variable on Firm Value. The population in this study are energy and mineral companies listed
on the IDX for the period 2018-2022. Purposive sampling method was used to determine the
number of samples that met the criteria and resulted in 12 companies as samples in the study.
The research data uses secondary data obtained from the company's annual financial report,
sustainability report and Thomson Reuter (Refinitiv) report. This study uses several tests,
namely classical assumption testing, panel data regression, sobel test and Moderated
Regression Analysis (MRA) using Eviews 13 statistical tools. ESG, ROA and Financial
Flexibility simultaneously affect firm value with Leverage as control variables. Financial
flexibility and ROA do not mediate ESG on Firm Value. Financial flexibility moderates ESG
on firm value, but ROA does not moderate on firm value. It is proven that financial flexibility
is a moderating variable for the influence of ESG on firm value where the role of the
moderating variable of financial flexibility strengthens the influence of ESG on firm value.
There are two main findings in the study, namely the role of financial flexibility can strengthen
the influence of ESG performance on firm value and the joint role of ESG, ROA and financial
flexibility with leverage as a control variable can increase firm value.

Keywords: ESG, ROA, Financial Flexibility and Firm Value

INTRODUCTION
ESG considerations provide a fresh perspective to business assessment and are
gradually being integrated into the process of research and investment decision-making.
Furthermore, a number of national securities exchanges and authorities have created policies
and guidelines dictating that listed businesses must either report ESG-related information on a
voluntary or mandatory basis. Establishing a robust ESG system would help firms become
more sustainable in the long run and create new growth prospects. It is evident that ESG is
critical to businesses' performance in today's globalized world (Deng et al., 2023; Ning &
Zhang, 2023). The bulk of countries adopt a low-carbon growth strategy as a policy-oriented
approach to economic recovery and development, emphasizing sustainable and eco-friendly

1524 | P a g e
[Link] Vol. 5, No. 3, July 2024

practices. On the green, low-carbon, and sustainable development contexts, the idea of
environmental, social responsibility, and governance (ESG) based on sustainability
development has drawn a lot of attention from a range of domains (Kluza et al., 2021).
Previous research on the relationship between firm worth and ESG performance has
been conducted, but the findings have been inconsistent. Most people believe that there is a
positive relationship between firm value and ESG performance (Gamba & Triantis, 2008; Li et
al., 2021). Companies that demonstrate more commitment to sustainable development are more
appealing to investors and have higher levels of competition. Furthermore, organizations with
good ESG performance typically show strong profitability as well as risk management abilities,
which boosts the value of the company. The majority of emerging market countries, according
to (Engelhardt et al., 2021), deal with serious problems like a lack of materials, environmental
contamination, poor governance, and insufficient regulation, all of which raise the risk
associated with ESG. Thus, especially in emerging markets, taking into account ESG factors
when making investment decisions can significantly improve investment performance.
On the other hand, most developed market economies have almost perfect
organizations, extensive ESG investment policies, and low ESG risks. As a result, when
making investment decisions within developed markets, both non-ESG and ESG investments
perform well, and ESG investments have no distinct advantages. Investing in environmental,
social, and governance (ESG) carries higher costs, and when resources are transferred from
investors to stakeholders, the traditional profit maximization theory is violated, potentially
lowering the profitability of a business and market value (Artiach et al., 2010; Friedman, 2007).
Management may participate in ESG initiatives to enhance their personal image at the expense
of shareholders; this will raise agency conflicts and reduce the firm's market value (Bae et al.,
2021; Krüger, 2015). George et al. and Waddock and Graves (Ionescu et al., 2019) claim that
an organization's reputation is directly impacted by its social rating and that there are benefits
and drawbacks to ESG implementation that are similar to those of advertising campaigns.
Therefore, increasing the firm's value and market valuation while strengthening ESG
investments can reduce financing costs (Guido Giese, Linda-Eling Lee, Dimitris Melas, Zoltan
Nagy, 2017).
The ability of a business to turn a profit while leveraging its capital, assets, and sales is
defined as profitability. This ability is used for influencing investors' opinions of the business
and its prospects for growth in the future. Because profitability gives an overview of the profits
that a company can generate by using its assets, capital, and sales activities, it is an indicator
that must be carefully considered and examined by the company in order to maintain business
continuity. The more profitable a company is, the more interested investors will be in making
investments, raising the company's worth. In this study, return on assets (ROA) is used as a
proxy for profitability. The ability of the business to use its assets to produce profits for the
business is referred to as ROA. In another means, return on assets (ROA) is a determine of how
well a company uses its resources to turn a profit is referred to as profitability. The degree to
which the management of the business is successful in realizing the maximum profits for the
business is a good indicator of good financial performance. The profit that can be produced
could be higher or as expected if the management is able to operate the business effectively
and lower expenses to be smaller or more efficient while maintaining operational activities.
The amount acquired, no matter how little, will impact the company's worth.
There is a marked increase in uncertainty in the business environment, and firms must
overcome formidable obstacles to ensure sustainable development. It is recommended that
companies improve their financial flexibility in order to manage progressively uncertain
environments, avert negative consequences, and achieve sustainable development. Therefore,
in order to minimize risks, businesses should be proactive and adaptable in their financial
decisions, recognize and seize short-lived opportunities for growth in unpredictable contexts,

1525 | P a g e
[Link] Vol. 5, No. 3, July 2024

and modify their business plans. The ability to integrate financial resources, deal with system
uncertainties, actively adapt to changes in the environment, and make the best financial
behavior decisions is known as financial flexibility(Golden & Powell, 2000).
Environment, social responsibility, and the corporate governance are the main topics of
environmental, social, and governance (ESG) performance, an assessment tool and concept for
investments. It evaluates a company's environment, social responsibility, and the corporate
governance, performance in detail. By giving stakeholders more non-financial data, it helps
them evaluate the advantages and disadvantages of investments and make a clearer
determination of the firm's investment worth (Li et al., 2021). Global non-ESG equity funds
saw cumulative outflows of $700 billion through February 2021, compared to cumulative
inflows of $450 billion for ESG equity funds, according to MSCI's 2021 Global Institutional
Investor Survey. The primary forces behind global equity inflows are now ESG investment
themes and strategies, and companies that perform well in this area are the top destinations for
inflows. It demonstrates how crucial it is now to know a company's ESG performance in order
to draw in customers and potentially alter investors' investment plans. When a company's good
ESG performance data is gathered, understood, and assessed by the market, more creditors or
investors might become aware of it and decide to invest in it. As a result, positive ESG
performance data attracts capital to the company, boosting its internal cash reserves and
financing capacity and, ultimately, its financial flexibility. As a result, there is some relationship
between ESG performance and financial flexibility.
The ability to integrate financial resources, deal with system uncertainties, actively
adapt to changes in the environment, and make the best financial behavior decisions is known
as financial flexibility (Golden & Powell, 2000). Firms with adequate financial flexibility have
three advantages when faced with significant adverse shocks: (1) They can quickly raise funds
at a low cost to adjust to the capital structure and prevent financial distress (Ferrando et al.,
2017); (2) they can better adapt to the external dynamic environment, minimize the negative
effects of environmental uncertainty, increase the efficiency of innovation, and strengthen their
core competitive advantages (HAO et al., 2022); and (3) they can reserve enough resources
and capabilities, improve development potential, proactively create conditions, seize
development opportunities, and achieve innovative economic development. As a result,
businesses with financial flexibility are better equipped to manage risks in an unpredictable
environment and accomplish sustainable development. Stated differently, companies that
possess the ability to adjust to unfavorable circumstances and maintain stability in their
operations are in fact financially flexible, as evidenced by the slight variations in stock returns
observed in the capital market. Businesses must have sufficient financial resources in order to
manage environmental uncertainties. According to (Gamba & Triantis, 2008), it is possible to
preserve financial flexibility through raising internal cash reserves, strengthening debt
financing capacity, and strengthening equity financing capacity.
The relationship between ESG, ROA and firm value has been the subject of numerous
studies, but the results and perspectives presented in the literature are inconsistent. This paper
suggests two research questions in an effort to fill in these gaps: (1) How does ESG affect the
firm's value? (2) How does ROA affect the firm’s value? What impact does financial flexibility
have on the correlation between ESG, ROA and firm value?
This study makes the following contributions to the literature. First, it conducts an
empirical analysis by selecting the data of ESG performance and ROA of listed companies in
Indonesia’s energy and mineral industry to offer reference suggestions for the entities.
Furthermore, our analysis highlights the need for other factors to be taken into account in order
to fully utilize market assets, such as the organization's internal capacity (e.g., financial
flexibility). Secondly, as a mediating or moderating variable, financial flexibility is introduced
in this study. The study's goal is to clarify the underlying mechanisms of the financial flexibility

1526 | P a g e
[Link] Vol. 5, No. 3, July 2024

constraint's role in the relationship between ESG performance, ROA and firm value through a
mechanism of action analysis. This is an area that has received little attention from ESG and
ROA research, but the study's findings highlight the importance of financial flexibility as one
of the strategies' key organizational capabilities. Third, this paper aims to investigate the
relationship between organizational financial factors (ROA) and ESG, strengthens our
understanding of the integration of various business functions of organizations, and verifies
this integration further. Ultimately, this paper conducts a heterogeneity analysis to improve
comprehension of ESG investment and ROA profitability in Mineral and Energy companies.
This analysis provides insights into how ESG performance and ROA can be strengthened in
various settings by accounting for the various firm characteristics and contexts.
LITERATURE REVIEW
Environment, Social and Governance
An organization's approach to environmental, social, and governance (ESG) concerns
demonstrates its sustainable performance. In the relevant literature, "ESG" is frequently used
as an acronym. An organization's approach to environmental, social, and governance (ESG)
concerns demonstrates its sustainable performance. In the relevant literature, "ESG" is
frequently used as an acronym (Fatemi et al., 2018). The environmental component pertains to
the viewpoint of the company regarding resource management. This encompasses energy
efficiency, water disposal, circular economy, biodiversity maintenance, natural environment
preservation, climate change mitigation, and greenhouse gas emissions. In order to establish
and preserve social relationships, a company engages in a variety of activities aimed at its
customers, employees, and human rights-related issues. These activities are all included in the
social component of the business. Lastly, the corporate governance processes of a company
that support the proper application of laws addressing social and environmental issues are
referred to as the governance component.
We utilize Refinitiv's ESG score to measure sustainable performance. Different metrics
for a company's sustainable performance have been employed in the literature that is currently
in existence. The ESG ratings from Refinitiv (formerly Thomson Reuters) are being applied to
proxy firms' sustainable performance in an increasing number of recent studies.
.
Return on Assets
An overview of the amount of profit the business has made while operating by making
use of its financial resources is defined as profitability. Profit after taxes and interest are
subtracted will be given to shareholders (stockholders) as a portion of the profit. A company's
capacity to optimize the use of its assets is directly correlated with its profit margin. The other
could argue that a high profit margin indicates strong management, which in turn indicates
favorable future prospects for the business. Return on assets serves as a stand-in for the
profitability ratio in this study. As explained by Heri (2016: 106), return on assets is a ratio that
illustrates how assets contribute to net income. Return on assets, according to Harrison Jr., et
al. (2013: 30), measures how well a company uses its resources to produce profits for its two
primary sources of funding—its shareholders, who own shares in the company, and its
creditors, to whom it owes money. This ratio is meant to show how much net profit is made for
each rupiah that is included in total assets.
The greater the profits made from each embedded fund, the higher the rate of return on
assets. On the other hand, each embedded fund can yield a smaller profit the lower the rate of
return on assets. A high return on assets will impact a company's worth because investors'
capital is influenced by the profit margin the business provides. A high return on assets indicates
strong growth potential, which may encourage investors and potential investors to buy more
shares. An improvement in firm value can be attributed to an increase in stock demand.

1527 | P a g e
[Link] Vol. 5, No. 3, July 2024

strengthened by earlier studies by (Nurhayati, 2013) and (Frederik et al., 2015), firm value is
positively impacted by profitability (ROA).

Financial Flexibility

Financial flexibility can be described as "the ability of a firm to access and restructure
its financing at a low cost" " (Gamba & Triantis, 2008). It is "the ability of a firm to react
effectively to unexpected modifications to its cash flows or its investment opportunities"
(Bancel & Mittoo, 2011). More specifically, financial flexibility is the ability of an organization
to maximize the value of the business, take advantage of investment opportunities, quickly
obtain or modify resources, and provide resilience when faced with of unforeseen future events
(Bates et al., 2009; Beguin et al., 1999; Cherkasova & Kuzmin, 2018; DeAngelo et al., 2011;
Denis & McKeon, 2012; Graham & Harvey, 2001; He et al., 2020; Ma & Jin, 2016; Zhang et
al., 2020). After reviewing the literature, (Gryko, 2018) concluded that financial flexibility is
important for businesses, but that how effective it is depends on the goals and capacity of the
business to achieve and sustain financial flexibility. Financial flexibility is important for
businesses in two main ways: first, it helps them avoid the costs of financial distress during a
crisis, and second, it helps them minimize the problems brought on by underinvestment (Rashid
& Abbas, 2011). Businesses these days must take more risks due to the complexity of the
business markets they operate in. Enterprises with financial flexibility have various options to
handle erratic future financing and investment demands.
According to (Gamba & Triantis, 2008), a company's financial flexibility is its capacity
to seize unanticipated opportunities and handle unforeseen circumstances affordably. Firms
with strong financial flexibility can withstand adverse shocks and quickly raise capital when
lucrative prospects present themselves. As a result, we think that financially flexible firms
ought to perform better and more steadily than other firms.

Firm Value
According to (Meehan et al., 2015), firm value is a multifaceted and expansive concept
that is difficult to measure due to the lack of widely recognized and uniform methodologies.
Various approaches employ disparate techniques to understand how businesses manage to
generate value for both their stakeholders and shareholders. The concept of firm value is
difficult to analyze because researchers have offered a number of theoretical explanations for
it, but each has been shown to have flaws (Meehan et al., 2015). As a result, the concepts
offered are only approximations of firm value and do not reveal a workable, universal method
for calculating it. Despite this, various theories have been developed in an attempt to explain
firm value from various perspectives. Firm value is traditionally believed to be solely correlated
with the value of its shareholders, and increasing shareholder value is necessary to increase
firm value. However, researchers have recently been criticizing this conventional idea of
maximizing shareholders' value, arguing that a company's value should consider all
stakeholders, not just shareholders (Lonkani, 2018).
The market value of outstanding shares is the firm's value. Firm value is the opinion
that investors have of a company and is always correlated with stock prices; a high stock price
indicates that investors believe the company is performing well, which can be a signal for
investors (Ogolmagai, 2018). The amount that potential purchasers will pay to purchase the
business is known as the firm value (Susilo, 2022). Thus, investors have higher expectations
of a company based on its stock price and the amount of money they have invested.
Tobin's Q is what we use to stand in for Firm Value. Tobin’s Q measures the ratio of a
company's value to its total assets, with market capitalization and total liabilities making up the
company's value.(Cherkasova & Kuzmin, 2018) Tobin's Q also gets frequently utilized,

1528 | P a g e
[Link] Vol. 5, No. 3, July 2024

particularly in studies concerning to firm value. Three factors are displayed by Tobin's Q score:
the state of the company's shares (undervalued, average, or overvalued), the management
team's asset management skills, and the potential for investment growth. Table 2 provides an
interpretation of Tobin's Q score.(Hadiati & Muhammad Brilian Wahyudyatmika, 2023)

Table 2. Tobin’s Q Score Interpretation

Tobin’s Q Score Interpretation
Undervalued stock conditions, management failed to manage assets, and low
Tobin’s Q < 1
investment growth potential.
Average stock conditions, stagnant management in managing assets, and
Tobin’s Q = 1
investment growth potential is not growing.
The stock is overvalued, the management is successful in managing assets, and
Tobin’s Q > 1
the investment growth potential is high.
Source: ...............................

Firm Size
According to (Kim & Meivitawanli, 2022), firm value and financial performance can
be influenced by firm size. The firm's size is determined by its nominal dimensions, which
include the amount of its assets or sales value.

Leverage
Leverage is a useful tool for determining a company's level of debt financing. When a
company uses debt, it runs the risk of accruing interest costs, which will become a cost that the
company must pay. A company's value declines in proportion to its leverage value because
higher leverage means higher debt interest payments for the company to make (Etty et al.,
2020).

Hypothesis Development

Source: Research Results

Figure 2. Research Framework and Hypothesis Development

1529 | P a g e
[Link] Vol. 5, No. 3, July 2024

Figure 2 illustrates the relationship between ESG performance ROA and firm value in
the research framework and hypothesis development. It also shows how the presence of
financial flexibility mediates or moderates this relationship. Firm Size and Leverage as control
variables are also used in the framework. The analysis presented above leads this paper to
suggest the following hypothesis.

Hypothesis 1 (H1) ESG effect Firm Value.

Hypothesis 2 (H2) ROA effect Firm Value.
Hypothesis 3 (H3) ESG effect Financial Flexibility.
Hypothesis 4 (H4) ROA effect Financial Flexibility.
Hypothesis 5 (H5) ESG, ROA, Financial Flexibility simultaneously affect Firm Value.
Hypothesis 6 (H6a) Financial Flexibility mediating ESG and Firm Value.
Hypothesis 6 (H6b) Financial Flexibility mediating ROA and Firm Value.
Hypothesis 7 (H7a) Financial Flexibility moderating ESG to Firm Value.
Hypothesis 7 (H7b) Financial Flexibility moderating ROA to Firm Value.

RESEARCH METHOD
Sample and Data Collection
The exchange-listed energy and mineral companies on the Indonesia Stock Exchange
(IDX) are the subject of this study. Information will be gathered from Thomson Reuters, IDX,
and the websites of the individual companies. Panel data from the five-year research period of
2018 to 2022 is used in the study. This study's sample was chosen using a purposive sampling
technique, with specific criteria being taken into account. The following criteria must be met:
companies that are publicly traded on the Indonesian stock exchange; companies that have
consecutive annual reports; companies that have ESG Score data for five years running from
2018 to 2022; and companies that have all the data they require. The statistical program
EViews 13 will be used to process the data and display regression analysis, classical assumption
tests, and descriptive statistics.

Variable Measurement
Table 3. Measurement of Variable
Variable Proxy Scale of Measurement Formula
Firm Value Total Asset+Total Liabilities
TQ Ratio Tobin’s Q =
(Y) Market Value

ESG Score
ESG Score -
(X1)
Net Income
ROA(X2) ROA Ratio ROA = Total Assets

Financial
Flexibility FF Percentage FF = Cash Flexibility + Debt Flexibility
(M/Mod)
Firm Size FS Ratio FS = Ln (Total Asset)
Total Liabilities
Leverage Lev Ratio Lev = Total Assets

Source: ...........................

Population and Sample

Research population: Companies in the energy and mineral sectors listed between 2018 and
2022 on the Indonesia Stock Exchange. To choose the sample for this study, purposeful
sampling was used, which involves selecting samples based on a set of systematic and
specific criteria. The requirements are:

1530 | P a g e
[Link] Vol. 5, No. 3, July 2024

Table 4. Sample Selection Criteria

No. Criteria Total
All Energy and Mineral companies listed on the IDX until 2023 74
1 Energy and Mineral Companies that still listed on the IDX in the period 2018 - 2022 74
Energy and Mineral Companies that published their financial statements during the 12
2
2018 – 2022 period with complete data of ESG Score
Selected Samples 12
Source: .....................

Based on the criteria, 12 companies were selected. The 12 Energy and Mineral
Companies are:
Table 5. Samples of Energy and Mineral Companies
No. Stock Name Company Name
1 ADRO Adaro Energy Tbk.
2 AKRA AKR Corporindo Tbk.
3 BUMI Bumi Resource Tbk.
4 ITMG Indo Tambangraya Megah Tbk.
5 PGAS Perusahaan Gas Negara (Persero) Tbk.
6 PTBA Bukit Asam Tbk.
7 ANTM Aneka Tambang (Persero) Tbk.
8 INCO Vale Indonesia Tbk.
9 INKP PT Indah Kiat Pulp & Paper Tbk.
10 INTP Indocement Tunggal Prakarsa Tbk
11 SMGR Semen Indonesia (Persero) Tbk.
12 TKIM Pabrik Kertas Tjiwi Kimia Tbk.
Source: .............................

Data Analysis Method

In order to determine the direct and indirect effects of a set of independent, moderated,
or mediation and control variables on the dependent variable, the path analysis method is
applied using EViews 13 to examine the pattern of relationship between variables. The
following structural equation describes the path analysis model that was applied:
Model 1:
𝐹𝐹𝑖,𝑡 = α + 𝛽1 𝐸𝑆𝐺𝑖,𝑡 + 𝛽2 𝑅𝑂𝐴𝑖,𝑡 + 𝜀𝑖,𝑡

Model 3
𝑇𝑄𝑖,𝑡 = α + 𝛽1 𝐸𝑆𝐺𝑖,𝑡 + 𝛽2 𝑅𝑂𝐴 + 𝛽3 𝐹𝐹𝑖,𝑡 + 𝛽4 𝐹𝑆𝑖,𝑡 + 𝛽5 𝐿𝑒𝑣𝑖,𝑡 + 𝜀𝑖,𝑡

Model 2:
𝑇𝑄𝑖,𝑡 = α + 𝛽1 𝐸𝑆𝐺𝑖,𝑡 + 𝛽2 𝑅𝑂𝐴𝑖,𝑡 + 𝛽3 𝐹𝐹𝑖,𝑡 + 𝛽4 (𝐸𝑆𝐺𝑖,𝑡 × 𝐹𝐹𝑖,𝑡 ) + 𝛽5 (𝑅𝑂𝐴𝑖,𝑡 × 𝐹𝐹𝑖,𝑡 )
+ 𝛽6 𝐹𝑆𝑖,𝑡 + 𝛽7 𝐿𝑒𝑣𝑖,𝑡 + 𝜀𝑖,𝑡

Information:
α = Constant
TQ = Tobin’s Q
ESG = Environmental Social Governance
ROA = Return on Asset
FF = Financial Flexibility
FS = Firm Size

1531 | P a g e
[Link] Vol. 5, No. 3, July 2024

Lev = Leverage
𝜀 = Error Term

Hypothesis Test
Determination Coefficient Analysis (R2)
In the purpose of this research, the determination test is conducted using adjusted R 2.
The findings are explained as follows:
1. When the Adjusted R2 value nears 1, it indicates that the influence of the independent
variables provides nearly all of the data required to calculate the variation of the
dependent variable.
2. A decreasing contribution from the independent factors to the dependent variable is
shown by an Adjusted R2 value that comes toward zero.

F Test (simultaneous)
If every independent variable in the model affects the dependent variable at the same
time, it can be determined using the F test. A significance level of 0.05 (α = 5%) has been set.
With these requirements, the hypothesis can be accepted or rejected:
1. If the regression coefficient is not significant (F > 0.05) or the significance value F <
F table indicates that H0 is accepted, then Ha is rejected. This indicates that no
independent variable has a statistically significant impact on the dependent variable at
the same time.
2. If the regression coefficient is significant (F ≤ 0.05) or the F value > F table indicates
that H0 is rejected, then Ha is accepted. This indicates that every independent variable
has a substantial impact on the dependent variable at the same time.

T Test (partial)
The T test indicates the extent to which a single independent variable can account for
a variation in the dependent variable. A significance level of 0.05 (α = 5%) has been set. With
these conditions, the hypothesis will be accepted or rejected:
1. If the t > 0.05 indicates that H0 is accepted, then Ha is rejected (meaning the
regression coefficient is not significant). This indicates that there is a partial lack of
meaningful relationship between the independent and dependent variables.
2. If the regression coefficient is significant (t < 0.05), then Ha is accepted and H0 is
rejected. This indicates that the independent variable significantly influences the
dependent variable to some extent.

Sobel Test
Financial flexibility becomes the mediating/intervening variable selected for this
research. The Sobel Test measures the degree of the indirect effects X on Y through
mediation M in order to evaluate the mediation hypothesis. The path is multiplied to
complete the equation:
1. X → M(a)
M → Y(b)
Standard error a = Sa; Standard error b = Sb.
Standard error indirect effect ab = Sat. The formula is:
Sab = √b2Sa2 + a2Sb2 + Sa2Sb2
t value for the coefficients ab the formula is:

𝒂𝒃
t = 𝑺𝒂𝒃

1532 | P a g e
[Link] Vol. 5, No. 3, July 2024

In summary, a mediating impact can be identified when the t value be higher than the t
table.

Moderated Regression Analysis

The Moderated Regression Analysis test has been applied to examine the effect of
variable independent of the dependent variable on the moderation variable, financial flexibility.
The dependent and independent variables get multiplied through this test, and the interaction
value can be determined. In the research table, an interaction value is symbolized by Mod. This
value will be useful in determining how far which independent variable, in the presence of
moderating variable, influence dependent variable. The next step is estimated using a fixed
effect data panel regression model, and the projected value of Mod is used to determine the
moderation variable's significance.

RESEARCH RESULT AND DISCUSSION

Path Analysis
Calculation of Path Coefficient
Equation 1: FF = 47.48177 + 0.139363 ESG + 0.371153 ROA
Equation 2: TQ = -151.0629 - 0.001930 ESG - 0.008688 ROA + 1.584209 FF -0.186628 FS
+157.7758 LEV
Equation 3: TQ = 9.237706 + 0.023962 ESG + 0.035685 ROA + -0.397898 LOG(FF) -
0.000485 ESG*FF-0.000480 ROA*FF -0.119760 FS -5.780564 LEV

Calculation Results for Equation 1

Variable Coefficient Std. Error t-Statistic Prob.

C 47.48177 8.970640 5.293020 0.0000

ESG 0.139363 0.142292 0.979420 0.3315
ROA 0.371153 0.269822 1.375548 0.1743

R-squared 0.055465 Mean dependent var 59.51878

Adjusted R-squared 0.022323 S.D. dependent var 20.05896
S.E. of regression 19.83381 Akaike info criterion 8.861360
Sum squared resid 22422.66 Schwarz criterion 8.966077
Log likelihood -262.8408 Hannan-Quinn criter. 8.902321
F-statistic 1.673566 Durbin-Watson stat 0.281451
Prob(F-statistic) 0.196661

Calculation Results for Equation 2

Variable Coefficient Std. Error t-Statistic Prob.

C -151.0629 74.49043 -2.027950 0.0475

ESG -0.001930 0.002974 -0.648916 0.5191
ROA -0.008688 0.006618 -1.312725 0.1948
FF 1.584209 0.747560 2.119173 0.0387
FS -0.186628 0.090033 -2.072887 0.0430
LEV 157.7758 74.91244 2.106136 0.0399

R-squared 0.351487 Mean dependent var 1.255252

Adjusted R-squared 0.291439 S.D. dependent var 0.460597
S.E. of regression 0.387712 Akaike info criterion 1.037532
Sum squared resid 8.117313 Schwarz criterion 1.246966
Log likelihood -25.12595 Hannan-Quinn criter. 1.119453

1533 | P a g e
[Link] Vol. 5, No. 3, July 2024

F-statistic 5.853471 Durbin-Watson stat 0.656471

Prob(F-statistic) 0.000217

Calculation Results for Equation 3

Variable Coefficient Std. Error t-Statistic Prob.

C 9.237706 2.873616 3.214663 0.0022

ESG 0.023962 0.011194 2.140587 0.0370
ROA 0.035685 0.033571 1.062957 0.2927
LOG(FF) -0.397898 0.289040 -1.376619 0.1745
ESG_FF -0.000485 0.000192 -2.522048 0.0148
ROA_FF -0.000480 0.000482 -0.997315 0.3232
FS -0.119760 0.087058 -1.375638 0.1748
LEV -5.780564 1.482870 -3.898228 0.0003

R-squared 0.424844 Mean dependent var 1.255252

Adjusted R-squared 0.347419 S.D. dependent var 0.460597
S.E. of regression 0.372081 Akaike info criterion 0.984157
Sum squared resid 7.199111 Schwarz criterion 1.263403
Log likelihood -21.52470 Hannan-Quinn criter. 1.093385
F-statistic 5.487182 Durbin-Watson stat 1.035661
Prob(F-statistic) 0.000092

Hypothesis Test
T Test (Partial)
According to Calculation Results of t Test for Equation 1 and 2
Significance Level = 0.05
H t value Significance Conclution
1 - 0.648916 0.5191 H1 Rejected (ESG has no significant effect on Firm Value)
2 -1.312725 0.1948 H2 Rejected (ROA has no significant effect on Firm Value)
3 0.979420 0.3315 H3 Rejected (ESG has no significant effect on Financial Flexibility)
4 1.375548 0.1743 H4 Rejected (ROA has no significant effect on Financial Flexibility)

F Test (Simultaneous)
According to Calculation Result for Equation 2
Significance Level = 0.05
H t value Significance Conclution
5 5.853471 0.000217 H5 accepted (ESG, ROA, Financial Flexibility simultaneously have a
significant effect on Firm Value

Sobel Test
According to Calculation result for equation 1 and 2 to test hypothesis H6a and H6b
H t value t table Conclution
6a 0,891 1,96 H6a Rejected (Financial Flexibility does not mediate the effect of
ESG on Firm Value)
6b 0,841 1,96 H6b Rejected (Financial Flexibility does not mediate the effect of
ROA on Firm Value)

Moderated Reggresion Analysis Test

According to calculation result for equation 3 to test Hypothesis H7a and H7b
H t value t table Conclution
7a 2.522048 0.0148 H7a Accepted (Financial Flexibility has moderation effect on ESG to
Firm Value)

1534 | P a g e
[Link] Vol. 5, No. 3, July 2024

7b 0.997315 0.3232 H7b Rejected (Financial Flexibility has no moderation effect on ROA
to Firm Value)

Determination Coefficient Analysis

Model R2 Conclution
Equation 0.055465 The Financial Flexibility variable can be explained by the variable of ESG and ROA
1 by 5,5% and the remaining 94,5% is explain by other factors outside the model.
Equation 0.351487 The Firm Value Variable can be explained by the variable ESG, ROA, Financial
2 Flexibility and controlled with Firm Size and Leverage by 35,1% and the remaining
64,9% is explain by other factors outside the model.
Equation 0.424844 The Firm Value variable can be explained by the variable ESG, ROA, Financial
3 Flexibility, mediated and moderated Financial Flexibility, controlled by Firm Size
and Leverage by 42,5% and the remaining 57,5% is explain by other factors outside
the model.

Discussion
The effect of ESG on Firm Value.
According to the t test the firm value (TQ) is not significantly influenced by the ESG
Performance (ESG), the in line with this result of not significance effect are follow the
researcher before (Fatemi et al., 2018).

The effect of ROA on Firm Value.

According to t Value and Significance there is not significant influenced by ROA to Firm
Value. This result not consistent with the reseach with the results showed that company growth
and profitability had a positive effect on the firm value (Sudiyatno et al., 2021).

ESG affect Financial Flexibility.

The result indicates no significant effect of ESG and Financial flexibility. The result are in line
with the output research from (Giese et al., 2019).

ROA affects Financial Flexibility.

The result does not support the result of Companies with relatively large financial flexibility
having relatively greater profitability (Cai & Wu, 2019).

ESG, ROA, Financial Flexibility affect Firm Value.

The results are supports as combines research (Quirós & Hernández, 2019), (Aggarwal &
Padhan, 2017) and (Wang et al., 2015).

Financial Flexibility mediating ESG and Firm Value.

Research implying that corporate reputation can mediate the relationship between the influence
of ESG on firm value does not support the study's findings (Qonita et al., 2022).

Financial Flexibility mediating ROA and Firm Value.

The result are in line or support that CSR cannot mediate the connection between liquidity to
company cost and profitability to company cost (Hidayah & Khasanah, 2022).

Financial Flexibility moderating ESG and Firm Value.

The result is supported that financial flexibility significantly reduce the negative correlation
between ESG and Tobin’s Q (Guo et al., 2020).

Financial Flexibility moderating ROA and Firm Value.

1535 | P a g e
[Link] Vol. 5, No. 3, July 2024

The result is not supported that financial flexibility significantly moderates the correlation of
ROA to firm value (Guo et al., 2020).

CONCLUSION
Conclusions
Based on analysis of the results, this research has the following conclusions are obtained:
1. ESG has no significant effect on Firm Value.
2. ROA no significant effect on Firm Value.
3. ESG has no significant effect on Financial Flexibility.
4. ROA has no significant effect on Financial Flexibility Profitability.
5. ESG, ROA and FF simultaneously effect on Firm Value.
6. Financial Flexibility has no mediating effect on ESG to Firm Value.
7. Financial Flexibility has no mediating on ROA to Firm Value.
8. Financial Flexibility moderate on ESG to Firm Value.
9. Financial Flexibility has no moderate on ESG to Firm Value.

Suggestions
In based on the findings, the following recommendations are made:
1. For Businesses:
a. Businesses should combine financial flexibility, return on assets (ROA), and
environmental sustainability to maximize the value of the company.
b. Financial flexibility must be implemented by businesses in order to moderate
and increase the firm's value while implementing ESG practices.
2. Related recommendations for investors based on this research:
When analyzing the performance of a company, investors find that the firm value has
become crucial. The company's high performance is consistent with the high firm value.
When the market value of the stock exceeds the book value, a good Tobin's Q, which
serves as a stand-in for the firm value, is typically > 1. According to this research, in
Energy and Mineral company's financial flexibility, ROA, and ESG all have a major
impact on its value. In order to make wise investment decisions and generate profits
down the road, investors interested in investing in energy with mineral companies
should carefully consider these three factors.
3. Suggestions related to this research for future Researchers.
a. Financial flexibility is selected as a moderating and intervening factor in this
study, while ESG and ROA are selected as the independent variables. The
inclusion of the independent variable is a recommendation for additional study
to advance this field or to alter the moderating, intervening variable that may
have a major impact on the firm value.
b. Extend the study period to include more than five years or include more
businesses from different industries, like real estate, mining, and property, as
case studies.

REFERENCES
Aggarwal, D., & Padhan, P. C. (2017). Impact of Capital Structure on Firm Value: Evidence
from Indian Hospitality Industry. Theoretical Economics Letters, 07(04), 982–1000.
[Link]
Artiach, T., Lee, D., Nelson, D., & Walker, J. (2010). The determinants of corporate
sustainability performance. Accounting and Finance, 50(1), 31–51.

1536 | P a g e
[Link] Vol. 5, No. 3, July 2024

[Link]
Bae, K. H., El Ghoul, S., Gong, Z. (Jason), & Guedhami, O. (2021). Does CSR matter in times
of crisis? Evidence from the COVID-19 pandemic. Journal of Corporate Finance,
67(December 2020), 101876. [Link]
Bancel, F., & Mittoo, U. R. (2011). Financial flexibility and the impact of the global financial
crisis: Evidence from France. International Journal of Managerial Finance, 7(2), 179–
216. [Link]
Bates, T. W., Kahle, K. M., & Stulz, R. M. (2009). Why do U.S. firms hold so much more cash
than they used to? Journal of Finance, 64(5), 1985–2021. [Link]
6261.2009.01492.x
Beguin, C., Kulmburg, A., Guignard, J. P., & Rufer, J. M. (1999). [Link] determinants and
implications of corporate cash holdings. Journal of Financial Economics, 40(5), 223–228.
Cai, Y., & Wu, Y. (2019). The Impact of Financial Flexibility on Enterprise Risk-Taking.
476(Aadnic 2019), 20–25. [Link]
Cherkasova, V., & Kuzmin, E. (2018). Financial flexibility as an investment efficiency factor
in Asian companies. Gadjah Mada International Journal of Business, 20(2), 137–164.
[Link]
DeAngelo, H., DeAngelo, L., & Whited, T. M. (2011). Capital structure dynamics and
transitory debt. Journal of Financial Economics, 99(2), 235–261.
[Link]
Deng, X., Li, W., & Ren, X. (2023). More sustainable, more productive: Evidence from ESG
ratings and total factor productivity among listed Chinese firms. Finance Research
Letters, 51, 103439. [Link]
Denis, D. J., & McKeon, S. B. (2012). Debt financing and financial flexibility evidence from
proactive leverage increases. Review of Financial Studies, 25(6), 1897–1929.
[Link]
Engelhardt, N., Ekkenga, J., & Posch, P. (2021). Esg ratings and stock performance during the
covid-19 crisis. Sustainability (Switzerland), 13(13), 1–15.
[Link]
Etty, P. L., Astuti, D., & Abdul Basir, M. (2020). The role of internal factors in determining
the firm value in Indonesia. Accounting, 6(5), 665–670.
[Link]
Fatemi, A., Glaum, M., & Kaiser, S. (2018). ESG performance and firm value: The moderating
role of disclosure. Global Finance Journal, 38, 45–64.
[Link]
Ferrando, A., Marchica, M. T., & Mura, R. (2017). Financial Flexibility and Investment Ability
Across the Euro Area and the UK. European Financial Management, 23(1), 87–126.
[Link]
Frederik, P. G., Nangoy, S. C., & Untu, V. N. (2015). Analisis Profitabilitas , Kebijakan Hutang
Dan Price Earning Ratio Terhadap Nilai Perusahaan Pada Perusahaan Retail Trade Yang
terdaftar di bursa efek indonesia. Jurnal EMBA, 3(1), 1242–1253.
Friedman, M. (2007). Friedman M. The Social Responsibility of Business Is to Increase Its
Profits. In: Zimmerli W.C., Holzinger M., Richter K. (eds) Corporate Ethics and
Corporate Governance. Springer, Berlin, Heidelberg. The New York Times Magazine,
173–178.
Gamba, A., & Triantis, A. (2008). The value of financial flexibility. Journal of Finance, 63(5),
2263–2296. [Link]
Giese, G., Lee, L. E., Melas, D., Nagy, Z., & Nishikawa, L. (2019). Consistent ESG integration
through ESG benchmarks. Journal of Index Investing, 10(2), 24–42.
[Link]

1537 | P a g e
[Link] Vol. 5, No. 3, July 2024

Golden, W., & Powell, P. (2000). Towards a definition of flexibility: In search of the holy
grail? Omega, 28(4), 373–384. [Link]
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence
from the field. Journal of Financial Economics, 60(2–3), 187–243.
[Link]
Gryko, J. (2018). Managing of Financial Flexibility. Springer Proceedings in Business and
Economics, 43–55. [Link]
Guido Giese, Linda-Eling Lee, Dimitris Melas, Zoltan Nagy, L. N. (2017). Foundations ESG
Investing, Part 1: How ESG Affects Equity Valuation, Risk and Performance.
1(NOVEMBER), 1–41.
Guo, Z., Hou, S., & Li, Q. (2020). Corporate social responsibility and firm value: The
moderating effects of financial flexibility and r&d investment. Sustainability
(Switzerland), 12(20), 1–17. [Link]
Hadiati, M. C., & Muhammad Brilian Wahyudyatmika. (2023). Examining The Effect of
Sustainability Report Disclosure to Firm Value: A Study Based on Listed Public
Companies in Indonesia Stock Exchange. Dinasti International Journal of Economics,
Finance & Accounting, 4(1), 121–137. [Link]
HAO, Z., ZHANG, X., & WEI, J. (2022). Research on the effect of enterprise financial
flexibility on sustainable innovation. Journal of Innovation and Knowledge, 7(2), 100184.
[Link]
He, P., Sun, Y., Zhang, Y., & Li, T. (2020). COVID–19’s Impact on Stock Prices Across
Different Sectors—An Event Study Based on the Chinese Stock Market. Emerging
Markets Finance and Trade, 56(10), 2198–2212.
[Link]
Hidayah, N. F., & Khasanah, U. (2022). the Influence of Liquidity and Profitability on Firm
Value With Corporate Social Responsibility (Csr) As a Mediation Variable. JEM17:
Jurnal Ekonomi Manajemen, 7(1), 63–80. [Link]
Ionescu, G. H., Firoiu, D., Pirvu, R., & Vilag, R. D. (2019). The impact of ESG factors on
market value of companies from travel and tourism industry. Technological and Economic
Development of Economy, 25(5), 820–849. [Link]
Kim, M., & Meivitawanli, B. (2022). Do ESG Ratings Affect Firm Performance of Multi
Business [Link]. Research Article, 1–18.
Kluza, K., Ziolo, M., & Spoz, A. (2021). Innovation and environmental, social, and governance
factors influencing sustainable business models - Meta-analysis. Journal of Cleaner
Production, 303, 127015. [Link]
Krüger, P. (2015). Corporate goodness and shareholder wealth. Journal of Financial
Economics, 115(2), 304–329. [Link]
Li, T. T., Wang, K., Sueyoshi, T., & Wang, D. D. (2021). Esg: Research progress and future
prospects. Sustainability (Switzerland), 13(21). [Link]
Lonkani, R. (2018). Firm Value. Firm Value - Theory and Empirical Evidence, 3–20.
[Link]
Ma, C. A., & Jin, Y. (2016). What Drives the Relationship Between Financial Flexibility and
Firm Performance: Investment Scale or Investment Efficiency? Evidence from China.
Emerging Markets Finance and Trade, 52(9), 2043–2055.
[Link]
Meehan, J. M., Simonetto, M. G., Montan, L., & Goodin, C. A. (2015). Pricing and Profitability
Management: A Practical Guide for Business Leaders. Pricing and Profitability
Management: A Practical Guide for Business Leaders, 1–310.
[Link]
Ning, Y., & Zhang, Y. (2023). Does Digital Finance Improve Corporate ESG Performance?

1538 | P a g e
[Link] Vol. 5, No. 3, July 2024

An Intermediary Role Based on Financing Constraints. Sustainability (Switzerland),

15(13). [Link]
Nurhayati, M. (2013). Profitabilitas Likuiditas Dan Ukuran Perusahaan. Jurnal Keuangan Dan
Bisnis, 5(2), 144–153.
Ogolmagai, N. (2018). Leverage Pengaruhnya Terhadap Nilai Perusahaan Pada Industri
Manufaktur Yang Go Public di Indonesia. Jurnal EMBA, 1(3), 81–89.
Qonita, F., Moeljadi, M., & Ratnawati, K. (2022). The Influence Of Corporate Social
Responsibility On Firm Value Through Corporate Reputation And Financial
Performance. International Journal of Environmental, Sustainability, and Social Science,
3(3), 691–701. [Link]
Quirós, M., & Hernández, J. R. (2019). ESG performance and shareholder value creation in
the banking industry: International differences. Sustainability (Switzerland), 11(5).
[Link]
Rashid, A., & Abbas, Q. (2011). Predicting Bankruptcy in Pakistan. Theoretical and Applied
Economics, 18(9), 103–128.
Sudiyatno, B., Puspitasari, E., Nurhayati, I., & Rijanti, T. (2021). The Relationship Between
Profitability and Firm Value: Evidence From Manufacturing Industry in Indonesia.
International Journal of Financial Research, 12(3), 466.
[Link]
Susilo, T. P. (2022). The Effect of Liquidity on Firm Value with Profitability as Moderating
Variable. Journal of Economics, Finance and Management Studies, 05(12), 3763–3768.
[Link]
Wang, Q., Dou, J., & Jia, S. (2015). A Meta-Analytic Review of Corporate Social
Responsibility and Corporate Financial Performance: The Moderating Effect of
Contextual Factors. In Business and Society (Vol. 55, Issue 8).
[Link]
Zhang, H., Zhang, Z., & Steklova, E. (2020). Do companies need financial flexibility for
sustainable development? Sustainability (Switzerland), 12(5), 1–14.
[Link]

1539 | P a g e
Copyright of Dinasti International Journal of Economics, Finance & Accounting (DIJEFA) is
the property of Dinasti Publisher and its content may not be copied or emailed to multiple
sites or posted to a listserv without the copyright holder's express written permission.
However, users may print, download, or email articles for individual use.