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 complex interaction between carbon disclosure quality, cost of capital, and firm value within the context of companies listed on the Indonesia Stock Exchange (IDX). This research uses a long-term study approach from 2020 to 2023 to combine Environmental Management Accounting (EMA) ideas with modern capital market theory to create a complete analytical model. Carbon disclosure quality is operationalized through a multidimensional index encompassing the transparency, completeness, and comprehensiveness of corporate carbon footprint reporting practices. The Weighted Average Cost of Capital (WACC) method is used to figure out the cost of capital, and market-based valuation indicators, like Tobin's Q, are used to figure out the value of a firm. The final sample of 156 firm-year observations came from companies that consistently disclosed carbon-related information during the study period. Using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS 4.0 software, the results show that better carbon disclosure quality significantly lowers the cost of capital and increases 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 offer helpful suggestions to policymakers, corporate managers, and investors regarding the financial implications of environmental disclosure practices.