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Capital Structure Drives Indonesian Firm Value More Than Green Accounting, Study Finds
A 2026 study by Wilda Sahrani Pasaribu, Wiralestari, and Eko Prasetyo from Universitas Jambi found that capital structure has a significant influence on company value in Indonesia’s basic materials sector, while green accounting and profitability alone do not directly affect investor valuation. Published in 2026 in Jurnal Multidisiplin Madani (MUDIMA), the study also discovered that company size changes how profitability affects firm value. The findings provide new insight into how Indonesian investors evaluate sustainability, debt management, and financial performance in a volatile industrial market.
The research focused on companies in Indonesia’s basic materials sector listed on the Indonesia Stock Exchange between 2022 and 2024. This sector includes businesses involved in metals, minerals, chemicals, and industrial raw materials that support broader manufacturing and infrastructure activity across the country.
Indonesia’s Basic Materials Sector Faces Investor Pressure
The study highlights how investor perceptions in Indonesia’s raw materials industry have shifted significantly in recent years.
Researchers noted that the sector’s Price-to-Book Value (PBV) ratio fluctuated sharply:
- 1.65 in 2021
- 1.08 in 2022
- 0.98 in 2023
- 2.57 in 2024
These changes reflected growing uncertainty about company performance, debt management, profitability, and sustainability strategies.
The researchers explained that investors increasingly pay attention to environmental practices and long-term corporate resilience, especially after global pressure for sustainable business operations intensified.
Green accounting has emerged as one corporate response to these pressures. The practice integrates environmental costs and sustainability reporting into financial accounting systems. Companies adopting green accounting are generally expected to improve transparency, strengthen reputation, and attract environmentally conscious investors.
However, the study found that sustainability disclosure alone may not be enough to influence market value directly.
Researchers Analyzed 35 Indonesian Companies
The study examined 35 companies from the basic materials sector over a three-year period, generating 105 observations in total.
The researchers used secondary data collected from:
- annual reports
- financial statements
- sustainability reports
- environmental performance disclosures
The study evaluated four major variables:
- Green accounting
- Capital structure
- Profitability
- Firm size
Firm value was measured using the Price-to-Book Value (PBV) ratio, a widely used market indicator that compares stock market value with company book value.
Green accounting performance was assessed through Indonesia’s PROPER environmental rating system, administered by the Ministry of Environment and Forestry. Companies received ratings ranging from Black and Red for poor environmental performance to Green and Gold for strong sustainability practices.
Capital structure was measured through the Long-Term Debt-to-Equity Ratio (LTDER), while profitability was measured using Return on Assets (ROA).
Capital Structure Emerged as the Strongest Factor
One of the study’s most important findings was that capital structure significantly affected firm value, while green accounting and profitability did not show statistically significant direct effects.
According to the analysis:
- Green accounting showed no significant direct effect on firm value
- Profitability also showed no significant direct effect
- Capital structure had a significant positive relationship with firm value
The researchers concluded that investors in Indonesia’s basic materials industry remain highly sensitive to debt management and financial risk.
Companies with more effective financing structures were viewed more favorably by investors because debt policies directly affect bankruptcy risk, capital costs, and long-term financial stability.
The study found that investors reacted more strongly to financing decisions than to sustainability disclosures or short-term earnings performance.
Green Accounting Still Has Limited Market Influence
Although sustainability reporting has become more common in Indonesia, the study suggests that many investors still treat environmental accounting as secondary information.
The researchers explained that green accounting may improve legitimacy and public image without immediately affecting stock market valuation.
The paper states that environmental disclosures are often viewed as long-term strategic initiatives rather than short-term drivers of profit or shareholder returns.
According to Wilda Sahrani Pasaribu and colleagues at Universitas Jambi, the market “has not yet fully incorporated environmental information into its valuation of companies.”
The researchers also suggested that green accounting may influence firm value indirectly through factors such as:
- corporate reputation
- investor trust
- stakeholder legitimacy
- public perception
This finding reflects broader challenges facing sustainable finance in emerging markets, where investors may prioritize immediate financial returns over environmental indicators.
Profitability Alone Did Not Convince Investors
The study also found that profitability did not directly increase firm value during the observation period.
Researchers believe this result reflects the instability of commodity-driven industries. In sectors dependent on fluctuating global prices, high profits may not necessarily signal long-term stability.
The study notes that investors increasingly focus on the consistency and quality of earnings rather than short-term profit spikes.
Large profits generated during favorable commodity cycles may not guarantee future performance, especially in industries exposed to global economic shocks.
As a result, profitability alone did not significantly influence investor valuation in the sampled companies.
Firm Size Changed the Impact of Profitability
While firm size did not strengthen the effects of green accounting or capital structure, it did moderate the relationship between profitability and firm value.
The study found that larger companies weakened the effect of profitability on market value.
Researchers explained that large firms already possess:
- established reputations
- stronger investor trust
- broader access to financing
- larger operational resources
Because of this, fluctuations in profitability have less influence on how investors evaluate large corporations.
Smaller companies, however, depend more heavily on profitability signals to attract investor confidence. Investors tend to interpret profits in smaller firms as a stronger indicator of growth potential and operational success.
The study argues that firm size changes how financial performance is interpreted in capital markets.
Implications for Business and Policymakers
The findings carry important implications for Indonesian businesses, regulators, and investors.
For companies, the research suggests that financial structure remains a key determinant of investor confidence, especially in capital-intensive sectors such as mining, chemicals, and industrial manufacturing.
For policymakers, the study raises questions about how environmental reporting standards can become more influential in investment decisions.
The researchers suggest that stronger integration between sustainability disclosures and financial performance metrics may be necessary to increase investor attention toward green accounting.
The study also indicates that investors in emerging markets may still prioritize measurable financial risk over environmental accountability.
Author Profiles
Wilda Sahrani Pasaribu
Wilda Sahrani Pasaribu is a researcher affiliated with Universitas Jambi. Her academic interests include green accounting, corporate finance, sustainability reporting, and firm valuation.
Wiralestari
Wiralestari is an accounting scholar at Universitas Jambi whose research focuses on corporate governance, financial reporting, and business sustainability.
Eko Prasetyo
Eko Prasetyo is a finance researcher at Universitas Jambi with expertise in capital structure, investment analysis, and corporate performance.
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