Syifa Auliana Wulandari, Mardiyani Mardiyani

Green Investment, Green Innovation, and Firm Value: Moderating Role of Profitability

Introduction

Green investment, green innovation, and firm value: moderating role of profitability. Analyze the relationship between green investment, green innovation, and firm value, moderated by profitability. Discover how profitability positively impacts green investment's effect on firm value.

Abstract

Firm value is an indicator of a company's performance. Sustainability issues and environmental demands pose challenges for companies, therefore, strategies are needed that can strengthen the company’s competitiveness and increas the firm value in the long term. This study aims to analyze the role of profitability as a moderating variable in the relationship between green investment, green innovation, and firm value. The methode used in this research is a quantitative approach. The sampling technique was carried out using purposive sampling, resulting in 15 companies as the research sample. Data analysis was performed using Moderated Regression Analysis (MRA) in STATA version 17. The results of the study based on the Random Effect Model show that green investment has a negative effect on firm value, that green innovation has no effect on firm value, and that profitability does not moderate the relationship between green innovation and firm value. However, green investment moderated by profitability has a significant positive effect on firm value. Green activities will run more optimally if supported by optimal financial performance. Allocating resources effectively to support green initiatives can enhance a company's reputation, increase investor interest, and create sustainable value.

Review

This study addresses a highly relevant topic concerning the integration of sustainability initiatives into corporate strategy, specifically examining the impact of green investment and green innovation on firm value. Against the backdrop of increasing environmental demands and the pursuit of long-term competitiveness, the paper aims to clarify the crucial moderating role of profitability in these relationships. This objective is well-aligned with current academic and practical interests in understanding the financial implications and strategic value creation potential of environmental stewardship. Utilizing a quantitative approach, the research employs purposive sampling to gather data from a relatively focused sample of 15 companies. The analysis was conducted using Moderated Regression Analysis (MRA) in STATA, applying a Random Effect Model. The findings present a nuanced picture: green investment, in isolation, surprisingly shows a negative effect on firm value, while green innovation appears to have no significant direct effect. Furthermore, profitability was not found to moderate the relationship between green innovation and firm value. The most critical insight derived from the study is that green investment, when moderated by profitability, demonstrates a significant positive effect on firm value. This suggests that the effectiveness and financial return of green activities are heavily contingent upon a company's financial performance and its ability to optimally allocate resources. The authors conclude that robust financial health is a prerequisite for green initiatives to enhance a company's reputation, attract investor interest, and ultimately create sustainable value. While providing valuable insights into this conditional relationship, the relatively small sample size may invite further exploration with a broader dataset to ensure the generalizability of these interesting findings.

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