REVERSING THE IMPACT: HOW ENVIRONMENTAL TRANSFORMS EARNINGS MANAGEMENT, FINANCIAL DISTRESS, AND CARBON EMISSIONS INTO VALUE DRIVERS

Abstract

This study examines the effect of earnings management, financial distress, and carbon emissions on firm value, as well as the moderating role of environmental disclosure. The population consists of energy and basic materials sector companies listed on the Indonesia Stock Exchange. Using purposive sampling, resulting in 232 firm-year observations. The sampling criteria include companies with complete annual and sustainability reports prepared under the Global Reporting Initiative (GRI) standards and those disclosing carbon emission data. Data were collected from company websites and the IDX website. The analysis employed a Random Effect Model (REM) after confirming the absence of multicollinearity. The results show that earnings management and carbon emissions have no effect on firm value, while financial distress negatively affects firm value. Furthermore, environmental disclosure weakens the negative effect of earnings management and financial distress on firm value, but it cannot moderate the relationship between carbon emissions and firm value. Overall, the findings indicate that environmental disclosure plays a moderating role, suggesting that transparent environmental practices can enhance corporate credibility and help reduce the adverse impacts of financial or managerial factors on firm value.