Dynamic Environmental Accounting: Linking Carbon Disclosure Quality, Cost of Capital, And Firm Value in Indonesia

Abstract

This study develops a comprehensive dynamic environmental accounting framework to investigate the intricate relationships among carbon disclosure quality, cost of capital, and firm value within the context of companies listed on the Indonesia Stock Exchange (IDX). Employing a longitudinal research design spanning the period from 2020 to 2023, the research synthesizes Environmental Management Accounting (EMA) principles with contemporary capital market theory to construct an integrated analytical model. Carbon disclosure quality is operationalized through a multidimensional index encompassing the transparency, completeness, and comprehensiveness of corporate carbon footprint reporting practices. The cost of capital is measured using the Weighted Average Cost of Capital (WACC) methodology, while firm value is assessed through market-based valuation indicators including Tobin's Q. Purposive sampling techniques yielded a final sample of 156 firm-year observations from companies demonstrating consistent carbon-related information disclosure throughout the study period. Utilizing Partial Least Squares Structural Equation Modeling (PLS-SEM) through SmartPLS 4.0 software, the empirical findings reveal that superior carbon disclosure quality exerts a statistically significant negative influence on the cost of capital and a positive effect on firm value. Furthermore, the analysis demonstrates that cost of capital serves as a significant mediating mechanism in the relationship between carbon disclosure quality and firm value. These findings illuminate the strategic importance of transparent environmental reporting in enhancing corporate market performance and provide valuable insights for policymakers, corporate managers, and investors regarding the financial implications of environmental disclosure practices.