UNAIR economist: Regulations on environmental risk required by companies to attract investors

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Illustration by Feri Fenoria

UNAIR NEWS – “Companies that disclose environmental risks will have higher stock liquidity. Although disclosure of environmental risk does not result in changes in the value of the company, the disclosure can increase trading volume, “said Prof. Dr. I Made Narsa, SE., M.Sc., Ak., CA. when describing the result of his research.

UNAIR economic expert said that environmental risk management will provide many benefits, especially investors. Thus, investors can evaluate their cash flow risk against other available investment opportunities.

“Environmentally friendly companies have a higher market value and stock return because they are considered to have lower risk,” he said.

The samples used in this study are companies that are included in the high profile industry. Furthermore, the samples were also listed on the Indonesia Stock Exchange (IDX) in 2013-2015 and was assessed in the Trucost database.

“Well, this Trucost has become part of the Dow Jones S & P Index, so it can be said the data source is reliable,” he explained.

Based on the results of research conducted by Prof. Narsa and the team, it was found that disclosure of environmental performance is usually used by investors to determine the value of the company. When the samples were categorized into two groups they will give more detailed explanation.

In the high risk group, where companies face more potential for environmental damage, disclosure of performance and risk will be responded more by investors. While in the low risk category, this information is not used by investors in decision making.

“The practical implications of this study provide advice for policy and regulatory bodies of companies with high risk of environmental damage, they need more detailed regulations regarding environmental activities, because investors need that information,” he concluded. (*)

Author: Sandi Prabowo

Editor: Nuri Hermawan 

Reference:

https://doi.org/10.24914/jeb.v22i2.2356

Eriandani, R., Narsa, I.M. & Irwanto, A. (2019) Pengaruh Pengungkapan Risiko Lingkungan Terhadap Likuiditas dan Biaya Modal Saham. Jurnal Ekonomi dan Bisnis, Vol 22 No. 2

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