Journal of Accounting and Investment Vol. 21 No.

2, May 2020

Article Type: Research Paper

The Effect of Firm Size, Profitability, and

Liquidity on The Firm Value Moderated by
Carbon Emission Disclosure
Dody Hapsoro*1 and Zaki Naufal Falih2

Abstract:
Research aims: The purpose of this study is to examine carbon emission
disclosure in moderating the effect of firm size, profitability, and liquidity on the
firm value.
AFFILIATION:
1 Design/Methodology/Approach: The sample used in this study was firms
STIE YKPN Yogyakarta, Daerah
Istimewa Yogyakarta, Indonesia engaged in the oil, gas, and coal fields and operating in non-Annex 1 member
countries registered in the Osiris database. The study period was following the
2
KAP Purwantono, Sungkoro & commencement of the Kyoto Protocol's second commitment from 2015 to 2018.
Surja – Ernst & Young, DKI Jakarta, Data analysis in this study used Partial Least Square (PLS) with Warp PLS 4.0
Indonesia application.
Research findings: The study results showed that firm size and liquidity had a
*CORRESPONDENCE: positive and significant effect on firm value. However, profitability had a positive
[email protected] and insignificant effect on firm value. Besides, carbon emission disclosure
moderated the effect of firm size and profitability on firm value. However, carbon
THIS ARTICLE IS AVAILABLE IN:
http://journal.umy.ac.id/index.php/ai
emission disclosure did not moderate the effect of liquidity on firm value.
Theoretical contribution/ Originality: This study provides insight that carbon
DOI: 10.18196/jai.2102147 emission disclosure can moderate the effect of firm size and profitability variables
on firm value.
CITATION: Practitioner/Policy implication: This study is expected to encourage firms to be
Hapsoro, D., & Falih, Z. N. (2020) more concerned about the environment. Furthermore, the political contribution
The Effect of Firm Size, that can be provided by the results of this study is expected to motivate the
Profitability, and Liquidity on The
government to apply more stringent regulations to firms that have the potential
Firm Value Moderated by Carbon
to generate carbon emissions.
Emission Disclosure. Journal of
Accounting and Investment, 21(2), Research limitation/Implication: Limitation in this study is the amount of data
240-257. from oil firms, gas, and coal contained in the Osiris database in 2015 until 2018
was very limited.
ARTICLE HISTORY Keywords: Firm Size; Profitability; Liquidity; Carbon Emission Disclosure; Firm
Received: Value
24 Jan 2020
Reviewed:
8 Apr 2020
Revised:
13 Apr 2020 Introduction
Accepted:
21 Apr 2020 Increased global warming and endless climate change make many
government and non-government institutions jointly create
interconnected rules to address the problems. Awareness-raising to
reduce global warming should be done by the wider community and
related parties (Rani, Hasan, & Ilham, 2013).
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Environmental preservation that is not appropriately conducted will cause disasters,

such as floods, landslides, heat waves, disease outbreaks, pollution of wells caused by
untreated waste, wildfires, and others (Anggraeni, 2015). Such disasters can cause
disruption of human activities and the firm's operational chains. When the firm's
operational chain is disrupted, the economy of the firm and even the economy of the
country can also be disrupted.

A system is needed to control the firm's negative impact on the environment. The
system contains measurements, assessments, disclosures, and controls related to waste,
pollution, or other factors that could harm the environment. The government is
expected to play a role in helping to overcome these problems by issuing appropriate
regulations related to social and environmental responsibility. Currently, the negative
impacts caused by the firm's operational activities are not only perceived by the
environment around the firm but also spread to other areas that are more widespread
and detrimental to many parties (Pratiwi, 2017).

Sodiq and Kartikasari (2009) stated that economic activity became one of the triggers of
global warming. Industry growth is positively correlated with the increase in emissions
from the firm's operations (Anggraeni, 2015). Therefore, stakeholders expect the
disclosure of information related to carbon emissions. It is also supported by the rules
contained in the Kyoto Protocol, which regulate carbon emission disclosure. The
beginning of the Kyoto Protocol came from the first world climate conference held on
12-23 February 1979 in Geneva (Switzerland). The conference was held to address issues
triggered by human activities that impacted climate change. The next important
milestone was the holding of the United Nations Framework Convention on Climate
Change (UNFCCC) in 1992. The member states of the convention were asked to reduce
emissions to be achieved in 2000 as well as participate in a global action plan to prevent
increases in greenhouse gas emissions. However, in 1995, it began to emerge
concerning that the agreement already reached may not work as expected. In response,
in 1997, in Kyoto, a conference was held to discuss the issue. The outcome of the
conference was later called the Kyoto Protocol.

The Kyoto Protocol, according to a press release from the UN Environment Program, is a
legal agreement that industrialized countries would reduce greenhouse gas emissions
collectively by 5.2% compared to 1990. The goal of reducing greenhouse gas emissions is
to reduce the average emissions of the six greenhouse gases, including carbon dioxide,
methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbon (HFC), and
perfluorocarbon (PFC), which were calculated as an average over five years between
2008-2012.

The field of accounting as one of the social sciences has naturally contributed to the
improvement of the negative things above. Therefore, it is necessary to report social
and environmental responsibility that is disclosed to stakeholders, especially the general
public, as a party that is much affected by the negative impact of the firm's operations.
Recording and reporting on social and environmental accountability reports in annual
financial reports published by the firm are expected to be useful for investors who are

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the buffer of life for the firm in the future. Thus, the importance of disclosure of carbon
emission in the firm's financial statements can be the basis or reason for investors to
invest their funds in the firm. Although in most countries of the world (including
Indonesia), disclosure of carbon emission is still voluntary, firms willing to disclose
carbon emission have added value in the eyes of both foreign and local investors
(Prafitri & Zulaikha, 2016). It also shows that firms that are willing to disclose carbon
emissions are considered serious in terms of environmental conservation and, at the
same time, think of the impacts caused by the firm's operational activities that are
mostly in contact with the environment.

Based on the above description, carbon emission disclosure becomes an interesting

issue to be investigated because the firm's operational activities cannot be separated
from environmental issues. It is primarily for firms that have a major impact on the
environment, such as the oil, gas, and coal industry (IPCC, 2014). Therefore, carbon
emission disclosure is expected to be a positive signal about the firm's commitment to
responding to environmental issues, and it is anticipated to get a positive investor
response. With the size of the firm, profitability and liquidity followed by the carbon
emission disclosure are expected to increase the positive effect on the firm value. It is
corresponding to the results of Saka and Oshika's research (2014), which stated that the
carbon emissions disclosure was positively related to the market value of equity and
that the positive relationship became stronger in line with the amount or volume of
carbon emissions that was getting bigger. Consequently, it is essential to consider the
inclusion of carbon emissions disclosure as a component in the disclosure of non-
financial aspects. It is also supported by the results of Hermawan, Aisyah, Gunardi, and
Putri's (2018) study, which stated that firm size and profitability affected the disclosure
of carbon emissions. However, research conducted by Matsumura, Prakash, and Vera-
Munoz (2014) found the opposite result, namely that on average, companies that
disclosed carbon emissions of one thousand metric tons experienced a decline in
corporate value of US $ 212,000. Hence, research to test the ability of carbon emission
disclosure in moderating the effect of firm size, profitability, and liquidity on the firm
value becomes very important and needs to be carried out. The contributions of the
current study, both theoretical and practical, are presented in the conclusion part.

Literature Review and Hypotheses Development

Signaling Theory

In the signaling theory proposed by Ross (1977), it is stated that a good financial
statement is a signal that the firm has been operating properly. Signaling theory explains
the causes of firms providing financial statement information to external parties.

Signal theory is the basis for companies to be willing to make voluntary disclosures, as
stated in the company's annual report. The signal is in the form of information about the
efforts made by management to realize investor desires. Signals can be in the form of
certain information, for example, carbon information disclosure. The disclosure is a

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positive signal given by the company to investors, as well as providing information that
the company has a concern for the environment. It is done by the company to attract
investors to invest, increase the positive reputation, and at the same time, increase the
value of the company.

Agency Theory

According to Jensen and Meckling (1976), agency theory explains the relationship of
cooperation between principal and agent. In agency theory, it mentioned the separation
of ownership and management of the firm. The separation will always be followed by
the emergence of costs as a result of the absence of violence between the interests of
the owner and the manager. The cost is called the agency cost. The assumption that the
agency theory has is that each individual is motivated by his or her interests, thus
creating a conflict of interest between the principal and the agent. Shaw (2003)
considers that firm management as an agent of the shareholders will act with full
awareness of his interests.

Principals and agents have interrelated positions. Capital owners or shareholders or

principals have the right to get information from an internal company or agent. Agents
have more complete and accurate information about the company's operational
activities compared to the principal because the agent has a direct duty to carry out the
company's operational activities. Therefore, information about carbon emissions
revealed by management as an agent should also be known by the capital owner as of
the principal, so it is hoped that the principal can make the right and accurate decisions
according to his interests.

Carbon Emission Disclosure

Global warming is one of the major environmental issues faced by the world today.
Global warming can cause changes in ecosystems in the earth, including melting ice that
can cause sea-level rise and climate change in the extreme. Changes in these
ecosystems can adversely affect the survival of humans and living things on earth.

With the increasing operation of firms that produce carbon gas, then it can be one cause
of the increase in world carbon emissions. The firm is expected to make transparency to
the public, especially investors, that the firm has shown concern for the environment.
Firms can realize such transparency by disclosing carbon emissions information. Through
the disclosure, it is expected that the public, especially investors, will increasingly
believe that not only financial reports that need to be considered but also other
important information such as carbon emission disclosure.

Firm Size

Resources owned by the firm can be reflected in its size. The larger the size of the firm,
the higher its resources (Choi, Lee, & Psaros, 2013). The size of the firm is measured by
the size of the firm's assets. The size of the firm is one factor that investors consider for

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investing. Large firms tend to provide detailed information to meet the information
needs of their users, such as investors, management, government, and other
information users.

Profitability

Profitability is the main attraction for the shareholder because it is the result obtained
through the management effort on the funds invested by the shareholders, and it
reflects the profits that are the rights of shareholders (Jusriani & Rahardjo, 2013).
Profitability is considered vital because it is an indicator to measure the financial
performance of a firm, so it can be employed as a reference to assess the firm (Al-
Matari, Al-Swidi, & Hanim, 2014).

Liquidity

According to Kasmir (2010), liquidity is a ratio that describes a firm's ability to meet
short-term (debt) obligations. Meanwhile, according to Thaib and Dewantoro (2017),
liquidity is defined as the ability of the firm to meet obligations or debts that must be
paid with the current leverage. The liquidity ratio is used to measure the firm's ability to
meet its short-term liabilities (Horne & Wachowicz, 2001). This ratio can be calculated
through sources of information about working capital, i.e., current asset items, or liquid
assets (Brigham & Houston, 2010).

Firm Value

The primary purpose of a firm that has gone public is to increase the prosperity of the
owner or shareholders by increasing the firm value (Salvatore, 2005). Firm value is very
important because of the high value of the firm will be followed by high shareholder
wealth (Brigham & Houston, 2010). The firm value is crucial to know because it reflects
the firm's performance and can affect the perception of investors on the firm.

This study was conducted to answer the research gap due to differences in the results of
previous studies that have not found consistent results in seeing the presence of carbon
emission disclosure. In this study, the carbon emission disclosure variable was placed as
a variable that was thought to be able to moderate the effect of firm size, profitability,
and liquidity on the firm value. The existence of carbon emission disclosure is an
interesting issue to study because the company's operational activities cannot be
separated from environmental issues. The results of Saka and Oshika's research (2014)
stated that the carbon emissions disclosure was positively related to the market value of
equity and that the positive relationship became stronger in line with the amount or
volume of carbon emissions that was getting bigger. Therefore, it is crucial to consider
the inclusion of carbon emissions disclosure as a component in the disclosure of non-
financial aspects. It is supported by the results of Hermawan et al. (2018) research,
which stated that company size and profitability affected the disclosure of carbon
emissions. However, in the research of Matsumura et al. (2014), the opposite results
were found, namely that on average, companies that disclosed carbon emissions of one

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thousand metric tons experienced a decrease in corporate value of US $ 212,000.

Therefore, the purpose of this study is to test the ability of carbon emission disclosure in
moderating the effect of firm size, profitability, and liquidity on the value of firms
located in the ASEAN region included in the Non-Annex I member of the Kyoto Protocol.

The Effect of Firm Size on Firm Value

Firm size describes the number of assets owned by the firm. These assets may be
financial assets and non-financial assets (Irwantoko & Basuki, 2016). Information on firm
size is crucial to investors (Lischewski & Voronkova, 2010). Large firms have several
strategies to deal with risk. Therefore, large firms can process resources better than
small firms (Chen & Chen, 2011).

Research on the effect of firm size on firm value has been done by several researchers.
Prasetia, Tommy, and Taerang (2014) stated that firm size affected firm value. Similar
results were also revealed by Putra and Lestari (2016). However, the results of
Hermawan and Mafulah’s (2014) study showed that firm size did not influence firm
value. Based on the above description, the researchers proposed the following
hypothesis:

H1 : Firm size has a significant role in increasing firm value

The Effect of Profitability on Firm Value

Profitability is the firm's ability to generate profits over some time. Every firm wants a
high level of profitability. The firm must have the advantage of being able to live its life.
If the firm is in an unfavorable condition, it will be difficult for the firm to obtain loans
from external creditors or investments. The higher the profitability ratio reflects a higher
level of profit earned by the firm (Fahmi, 2011). Firms with high profitability are
considered to have good performance.

Research on the effect of profitability on firm value has been conducted by several
researchers. Chen and Chen (2011) and Anjarwati, Chabachib, Demi (2016) revealed that
profitability had a positive and significant impact on firm value. However, the results of
Thaib and Dewantoro (2017) studies showed that profitability did not affect firm value.
Based on the above description, the researchers proposed the following hypothesis:

H2: Profitability has a significant role in increasing firm value

The Effect of Liquidity on Firm Value

The high level of liquidity of a firm describes the availability of firm funds to perform the
firm's operational activities. Investors assume that firms with high liquidity levels have
good prospects. The more liquid the firm indicates that the firm has a chance to

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continue growing. According to Thaib and Dewantoro (2017), the more liquid the firm,
the higher the trust rate of creditors to lend the funds to increase the firm value in the
eyes of creditors and potential investors.

Several researchers have carried out a study on the effect of liquidity on firm value. The
result of Rompas's (2013) study showed that liquidity had a positive effect on firm value.
Similar results were also revealed by Putra and Lestari (2016). However, in Hermawan
and Mafulah (2014) research, liquidity did not affect firm value. Based on the above
description, the researchers proposed the following hypothesis:

H3: Liquidity has a significant role in increasing firm value

The Effect of Firm Size on Firm Value with Carbon Emission Disclosure as Moderation
Variable

Investors need other considerations when they are going to invest. Big or small firms are
not the sole determining factor when investors invest. Other information that investors
need to consider when investing in the firm includes information on carbon emission
disclosure. The larger the firm, the more pressure the environment provides to express
matters relating to environmental issues and social responsibility (Choi et al., 2013).
With the disclosure of information about carbon emissions, investors increasingly
believe that the firm is the right place to invest. Brammer and Pavelin (2006) show that
many large corporations are making voluntary disclosures to gain legitimacy.

Disclosure of carbon emissions information can be a positive signal for investors, and
with this, the firm hopes that investors are willing to invest. The willingness of investors
to invest their capital in the firm can increase the firm value. Based on the above
description, the researchers proposed the following hypothesis:

H4: Carbon emission disclosure moderates the effect of firm size on firm value

The Effect of Profitability on Firm Value with Carbon Emission Disclosure as

Moderation Variable

Before investing, investors must observe financial statements. In the financial

statements, the profitability of the firm is an interesting thing to observe. According to
Jannah and Muid (2014), the higher profitability of the firm indicates that the financial
performance of a firm is getting better. The better financial performance of a firm
suggests that firms are financially capable of incorporating carbon emission reduction
strategies into their business strategy. According to Freedman and Jaggi (2005), firms
with good operating performance will make more detailed disclosure of the
environment because they can produce more environmental impact reduction than
other firms.

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According to Choi et al. (2013), firms with good financial conditions can afford to pay the
human or financial supplemental resources required for voluntary reporting and carbon
emission disclosure. Carbon emission disclosure is expected to encourage investors to
be more confident to the firm by investing in the firm so that the firm value will
increase. Based on the above description, the researchers proposed the following
hypothesis:

H5: Carbon emission disclosure moderates the effect of profitability on firm value

The Effect of Liquidity on Firm Value with Carbon Emission Disclosure as Moderation
Variable

The liquidity ratio is utilized to measure the firm's ability to meet its short-term liabilities
(Horne & Wachowicz, 2001). Liquidity management should be able to contribute to the
realization of firm value creation (Michalski, 2010). Firms that have high liquidity levels
are considered to have good prospects by investors (Putra & Lestari, 2016). However, it
should be supported by non-financial information for investors to have more confidence
that the firm is the right firm to invest. Other non-financial information may be carbon
emission disclosure. In general, the firm will disclose the information if the information
will be able to increase the firm value. Conversely, if such information could harm the
firm's position or reputation, then the firm will withhold such information (Jannah &
Muid, 2014).

Firm performance can affect the speed of the firm's response to pressure generated
from the community. The response can be demonstrated through the disclosure of the
environment, so that the higher the firm's performance, the faster the firm can cope
with the pressures that arise by disclosing the environment faster (Jannah & Muid,
2014). The firm cares and discloses information related to the environment because it
wants to improve the firm's image as an investment destination (Irwantoko & Basuki,
2016). Based on the above description, the researchers proposed the following
hypothesis:

H6: Carbon emission disclosure moderates the effect of liquidity on firm value

The study of carbon emission disclosure conducted so far has generally placed it as an
independent or dependent variable. The placement of carbon emission disclosure as an
independent variable is intended to test the ability of that variable as the cause
(antecedents), while the placement of carbon emission disclosure as the dependent
variable is intended to test the ability of that variable as a result (consequences). Some
examples of studies that place it on both variables include the Saka and Oshika’s (2014)
study entitled "Disclosure Effects, Carbon Emissions, and Corporate Value"; Matsumura
et al. (2014) study entitled "Firm-Value Effects of Carbon Emissions and Carbon
Disclosures"; Hermawan et al. (2018) study entitled "Going Green: Determinants of
Carbon Emission Disclosure in Manufacturing Companies in Indonesia”; the study of

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Hapsoro and Ambarwati (2018) entitled "Antecedents and Consequences of Carbon

Emissions' Disclosure: Case Studies of Oil, Gas and Coal Companies in Non-Annex 1
Member Countries". Whereas in this current study, researchers placed carbon emission
disclosure as a moderating variable. The purpose of the placement is to increase the role
of the carbon emission disclosure variable in which its existence and role are
fundamental in moderating the effect of firm size, profitability, and liquidity on the firm
value.

The research model of the current study is shown in Figure 1.

Firm Size

Profitability Firm Value

Liquidity

Carbon Emission
Disclosure

Figure 1 Research Model

Research Method
Population and Sample

The population observed in this research was oil, gas, and coal firms in the ASEAN region
contained in the Osiris database 2015-2018. The year was chosen because it was the
year of implementation of the Kyoto Protocol's second commitment. Oil, gas, and coal
firms were selected because they are the industries that contribute to the most carbon
emissions in the world. The sampling technique used was purposive sampling with
criteria of firms that have completed the annual report in the year of 2015-2018 in
English or Indonesia. The number of firms that met the criteria was 65 firms.

Operational Measurement of Variables

Carbon Emission Disclosure

This variable was measured by giving a score of 1 on firms that disclosed carbon
emissions and a score of 0 for those who did not do so. The items to measure carbon
emission disclosure were adopted from the research of Choi et al. (2013).

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Firm Size

According to Choi et al. (2013, the size of the firm is a reflection of the size of the firm
that appears in the total firm value's assets on the balance sheet. Therefore, in this
study, the size of the asset was calculated as the logarithm of the total assets, as follows:

Size = Ln Total Assets

Profitability

According to Sartono (1998), profitability is a firm's ability to earn profits concerning

sales, total assets, and own capital. ROA was calculated by the following formula:

Liquidity

In this research, liquidity was proxied with the current ratio (CR). The current ratio (CR)
is the ratio used to measure a firm's ability to repay short-term debt employing current
assets (Thaib & Dewantoro, 2017). CR was measured by the following formula:

Firm Value

In this research, the firm value was proxied using Tobin's Q or Q ratio. Tobin's Q formula
proposed by Chung and Pruitt (1994) is as follows:

Description:
MVCS = Market value of common stock
PS = Preferred stock
BVD = Book value of debt

Data Analysis Method

The method of analysis used in this research was the structural equation modeling
(SEM) method, and the analysis tool employed was partial least square software (PLS).
SEM is one type of multivariate analysis in social science. The software utilized as an
analytics tool was WarpPLS version 4.0.

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Result and Discussion

Description of Research Objects

This research used the samples of oil, gas, and coal firms in non-Annex 1 member
countries contained in the Osiris database. Based on the data obtained, it was known
that all data of oil, gas, and coal firms in non-Annex 1 member countries in the Osiris
database in 2015 - 2018 were 88 firm data. Of these, only 65 firm data met the sample
criteria.

Partial Least Square Analysis

Partial least square (PLS) analysis was used to measure the goodness of fit model,
calculated by looking at the average R-squared (ARS) to show the suitability of the
model, the average path coefficient (APC) to reveal the interrelations between variables,
and the average variance inflation factor (AVIF) to indicate the multicollinearity among
independent variables.

Table 1 The Goodness of Fit Model

Result P-Value Criteria Description
APC = 0,219 P = 0,004 Good if P < 0,05 Supported
ARS = 0,468 P < 0,001 Good if P < 0,05 Supported
AVIF = 1,292 P<5 Supported

Figure 2 Hypothesis Testing Results Before Using Moderation Variables

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Figure 3 Hypothesis Testing Results After Using Moderation Variables

Table 2 Descriptive Statistics

N Minimum Maximum Mean Std. Deviation
UKP 65 16,40 29,11 22,0936 3,31728
ROA 65 -1,61 1,75 0,0262 0,31970
CRI 65 0,01 6,90 1,9152 1,41962
CED 65 1 17,00 8,2154 4,56376
NIL 65 0,02 3,76 0,7880 0,70364

Hypothesis Testing Results

Firm size has a significant role in increasing firm value

Based on the results of the first hypothesis testing in this study, it could be seen that p-
value (< 0.01) was smaller than the specified significance level (≤ 0.05), and the value of
the path coefficient was positive (0.33). It showed that firm size proved to have a
positive and significant impact on firm value, so the test result supported the first
hypothesis. The larger the firm's size, the higher the firm's value. It is because the larger
the size of the firm, the higher the assets, market share, and resources owned by the
firm, so the size of the firm is one thing to consider by investors before investing capital.
The results of the first hypothesis testing support the research of Putra and Lestari
(2016), which stated that the size of the firm positively affected the firm value.

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Profitability has a significant role in increasing firm value

Based on the results of the second hypothesis testing in this study, it could be seen that
p-value (0.14) was higher than the specified significance level (≤ 0.05), and the value of
the path coefficient was positive (0.10). It indicated that profitability had no effect on
firm value, so the test result did not support the second hypothesis. Profitability did not
affect firm value because, in the year 2015-2018, oil, gas, and coal industries were
experiencing a sales decline, which resulted in decreased profits and declining
investment decisions of investors in this industry. It is consistent with the statement
made by Camoin Associates on December 9, 2019, and published in a report entitled
"Economic Trends in the Oil, Gas and Coal Industries" (Meys & Damicis, 2019). The
report stated that between 2008 and 2018, there was a decline in sales in the oil, gas,
and coal industry, which subsequently resulted in a decrease in the number of workers
ranging from 6.7 percent to 37.0 percent, or overall, a decline in the number of workers
by 20 percent of all industry.

Liquidity has a significant role in increasing firm value

Based on the result of the third hypothesis testing in this study, it could be seen that p-
value (0,01) was smaller than the specified significance level (≤ 0,05), and the value of
the path coefficient was positive (0,20). It signified that liquidity proved to have a
positive effect on firm value, so the test results supported the third hypothesis. High
liquidity indicates that firm funds are available to finance the firm's operations and
investments so that the investors' perceptions of firm performance is getting better
(Putra & Lestari, 2016). The higher the liquidity, the higher the firm value. The third
hypothesis test results support Firnanda and Oetomo's research (2016), which stated
that liquidity had a positive effect on firm value.

Carbon Emission Disclosure Moderates the Effect of Firm Size on Firm Value

Based on the results of the fourth hypothesis testing in this study, it could be seen that
p-value (< 0.01) was smaller than the specified significance level (≤ 0.05), and the value
of the path coefficient was negative (-0.43). It implied that carbon emission disclosure
weakened the effect of firm size on firm value. Not all companies disclose carbon
emissions, and large companies do not always pay attention to the importance of
disclosing carbon emissions information so that the information required by investors is
not met.

Carbon Emission Disclosure Moderates the Effect of Profitability on Firm Value

Based on the result of the fifth hypothesis testing in this study, it could be seen that p-
value (0,05) was equal to the specified significance level (≤ 0,05), and the value of the
path coefficient was positive (0,15). It means that carbon emission disclosure could
strengthen the effect of profitability on the firm value. Increasing profitability and the
increasing amount of information revealed in the carbon emission disclosure can
increase firm value. It shows that investors not only pay attention to the profit but also

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pay attention to the firm's responsibility to the environment as a form of mutual relation
of the firm to the environment. Reciprocal relationship in the form of environment
provides production resources for firms, and the firms maintain and take care of the
environment for the firm's operational activities to continue.

Carbon Emission Disclosure Moderates the Effect of Liquidity on Firm Value

Based on the results of the sixth hypothesis testing in this study, it could be seen that p-
value (0.10) was higher than the specified significance level (≤ 0.05), and the value of
the path coefficient was positive (0.11). It indicated that carbon emission disclosure did
not moderate the effect of liquidity on firm value. These results suggest that investors
will see more the firm's ability to finance the firm's operations and investments than
social and environmental disclosures in the form of carbon emission disclosure. It is
because investors only see in terms of financial performance that can contribute to the
firm value, so the disclosure of social information in the annual report does not affect
investors in investing.

Conclusion
Based on the results of the previous discussion, several conclusions could be
determined, as follows: firm size had a significant role in increasing firm value,
profitability did not have a significant role in increasing firm value, liquidity had a
significant role in increasing firm value, carbon emission disclosure could moderate the
effect of firm size on the firm value, and carbon emission disclosure could moderate the
effect of profitability on the firm value.

This study successfully demonstrated and proved the importance of carbon emission
disclosure as a moderating variable because the variable could moderate the effect of
firm size on the firm value and had the ability to moderate the effect of profitability on
the firm value. Research conducted so far has generally placed carbon emission
disclosure as an independent variable or dependent variable. However, in this study, the
carbon emission disclosure variable was placed as a moderating variable, and the results
of the study succeeded in proving that the carbon emission disclosure variable was able
to be a variable that could moderate other variables. Therefore, this study provides a
new perspective on the importance of the carbon emission disclosure variable in
subsequent studies.

The results of this study provide several contributions. The theoretical contribution that
can be given by the results of this study is that carbon emission disclosure can moderate
the effect of firm size and profitability variables on firm value. While the practical
contribution that can be offered by the results of this study is expected to encourage
companies to be more concerned about the environment, especially the environment
affected by carbon emissions so that companies receive a positive response from
investors. It is because investors are more interested in companies that disclose carbon
emissions compared to companies that do not disclose carbon emissions. Furthermore,

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the political contribution that can be provided by the results of this study is that it is
expected to motivate the government to apply more stringent regulations to firms that
have the potential to generate carbon emissions. The regulation, for example, involves
the implementation of mandatory disclosure against firms that have the potential to
generate carbon emissions. If the regulation is implemented, firms are more concerned
about the environment and global warming and are expected to reduce the volume of
carbon emissions in the earth's atmosphere. It is supported by the results of research
showing that carbon emission disclosure strengthens the effect of profitability on firm
value, and similarly, carbon emission disclosure also strengthens the effect of firm size
on firm value.

The limitation of this study is that the amount of data from oil firms, gas, and coal
contained in the Osiris database in 2015 until 2018 was very limited. It is due to the
language differences, incomplete annual reports, and the lack of information disclosed
in the annual report. Based on the existing limitations, further research is suggested to
add the number of samples by using other databases that provide firm annual reports
across the country. Further research can also add other independent variables, such as
earnings per share and corporate governance.

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