Page 1 of 21
Archives of Business Research – Vol. 9, No. 9
Publication Date: September 25, 2021
DOI:10.14738/abr.99.10902. Anto, L. O. (2021). Profitability, Firm Size, Corporate Social Responsibility Disclosure, and Firm Value. Archives of Business Research,
9(9). 76-96.
Services for Science and Education – United Kingdom
Profitability, Firm Size, Corporate Social Responsibility
Disclosure, and Firm Value
La Ode Anto
Halu Oleo University Kendari Indonesia
ABSTRACT
This study aims to determine the effect of profitability and firm size on firm value
through the disclosure of Corporate Social Responsibility (CSR Disclosure). The
sample in this study was 105 objects of observation obtained using purposive
sampling technique from manufacturing companies listed on the Indonesia Stock
Exchange. The analytical method used is descriptive analysis and path analysis. The
results show that profitability has a negative and significant effect on CSR disclosure
but is positive and significant on firm value, while firm size has a positive and
significant effect on CSR disclosure but is positive and not significant on firm value,
while CSR disclosure has a positive and significant effect on firm value and able to
mediate the effect of profitability and firm size on firm value.
Keywords: Profitability, firm size, CSR disclosure, firm value.
INTRODUCTION
The main purpose of establishing a company is to increase the value of the company through
increasing the prosperity of the owners or shareholders. When the stock price increases, it
means that the value of the company increases and the welfare of the owners increases. In
connection with this, Salvatore (2005) suggests that the main goal of companies that have gone
public is to increase the prosperity of the owners or shareholders in order to influence the value
of the company. Increasing the value of the company is very important for the company,
because the value of the company is a reflection of the good and bad performance of the
company which of course will affect investors' views on the company (Kusumayanti & Astika,
2016). The value of the company is the selling price of the company that is considered feasible
by potential investors so that he is willing to pay it if the company is to be sold. Potential
investors will be willing to sacrifice their funds to be able to buy and own a company that can
provide large profits in the future. For the creditor, the value of the company is related to the
company's liquidity, namely the company is said to be able or not to pay or return the loan
provided by the creditor. Companies that have good firm value are said to be able to return
funds lent by creditors. Signal theory states that there is an incentive for companies to provide
annual financial statement information to external parties which can be a signal for investors
and other potential parties in making economic decisions. A disclosure is said to contain
information if it can trigger a market reaction, which can be in the form of changes in stock
prices or abnormal returns. If the disclosure has a positive impact in the form of an increase in
stock prices, then the disclosure is a positive signal, and vice versa (Kardiyanti & Dwirandra,
2020).
Page 2 of 21
77
Anto, L. O. (2021). Profitability, Firm Size, Corporate Social Responsibility Disclosure, and Firm Value. Archives of Business Research, 9(9). 76-96.
URL: http://dx.doi.org/10.14738/abr.99.10902
There are many factors that affect the value of a company. In general, these factors can be
distinguished between financial factors and non-financial factors. Financial factors include an
increase or decrease in profit, earnings quality, company size and financial decision making by
the company's management. Financial factors are the most frequently used factors to explain
how they affect firm value. While non-financial factors that can affect the value of the company,
one of which is Corporate Social Responsibility (CSR) and the size of the board of
commissioners (Kusumayanti & Astika, 2016). Theoretically CSR is the core of business ethics,
where a company not only has economic and legal obligations to shareholders but the company
also has obligations to other interested parties (stakeholders) and cannot escape the fact that a
company cannot survive and gain profits without the help of various parties. Thus, CSR shows
the company's concern for the interests of other parties more broadly than just the interests of
the company itself.
Shareholders who are starting to realize the importance of information transparency to
improve the reputation, credibility, and sustainability of the company are the drivers of
increasing the company's role in society through social activities (Indraswari & Astika, 2015).
Companies having responsibilities to society are not new (Latapí et al., 2019). The demand for
companies to provide transparent, accountable information, as well as better corporate
governance practices make companies make voluntary disclosures, such as disclosure of social
and environmental activities. CSR has begun to receive attention and its disclosure has
increased quite drastically (Aguinis & Glavas, 2012) and CSR reporting methods have also
developed rapidly (Huang & Watson, 2015). CSR develops from the interaction of thoughts and
practices about social responsibility (Carroll, 2015). CSR, which is the benchmark for corporate
social activities, has begun to become one of the references for investors and potential investors
for decision making in addition to financial reports. CSR that has been implemented by the
company can reduce social problems faced by the government (Chatterjee & Mitra, 2017).
Companies can disclose aspects of social responsibility in their financial statements, although
in a relatively simple form. The company has the right to choose the form of disclosure that
suits the needs and complexity of its organization.
Many studies have discussed CSR disclosure and corporate value, but the results are still
inconsistent and contradictory. Financial performance such as profitability is one of the factors
that can affect the level of CSR disclosure and of course can affect the high and low value of a
company. In line with these results, the results of research by Indraswari & Astika (2015)
conclude that profitability has a positive effect on CSR disclosure. Similarly, Razak (2015) and
Urmila & Mertha (2017) who find that profitability has an influence on CSR disclosure. This is
different from the results of research conducted by Wutticindanon (2017) which found that
CSR disclosures made by companies are based on the influence of stakeholders, not based on
the level of profitability. Firm size can also affect the level of CSR disclosure. The effect of
company size on the disclosure of social responsibility is reflected in agency theory which
explains that large companies have large agency costs, this causes large companies to disclose
more information than small companies. The results of research by Razak (2015) and
Indraswari & Astika (2015) reveal that the firm size variable has a positive effect on CSR
disclosure. This means that the larger the company, the greater the disclosure of social
responsibility. The results of the same study by Dewi & Wirawati (2017) who found that firm
size had a positive and significant effect on the level of CSR disclosure. The results of this study
Page 3 of 21
78
Archives of Business Research (ABR) Vol. 9, Issue 9, September-2021
Services for Science and Education – United Kingdom
are different from the research conducted by Urmila & Mertha (2017) and Mandaika & Salim
(2015) which found that firm size had no effect on CSR disclosure.
Research on the effect of profitability on firm value conducted by Rachmawati & Pinem (2015),
Riaz & Qasim (2016) and Purwohandoko (2017) found that profitability had a positive and
significant effect on firm value. High profitability can increase the firm value. In contrast to the
results of research conducted by Sabrin et al. (2016) which proves that profitability has a
negative and significant effect on firm value. Furthermore, the results of previous studies
regarding the effect of firm size on firm value were conducted by Rizqia et al. (2013) and Novari
& Lestari (2016) who concluded that firm size had a positive and significant effect on firm value.
Meanwhile, the results of research conducted by Farooq & Masood (2016) and Ramadhitya &
Dillak (2018) concluded that firm size had no effect on firm value.
Previous research on the effect of CSR disclosure conducted by Dewi & Narayana (2020) found
that CSR disclosure had a positive effect on firm value. Either directly or indirectly or as an
intervening, CSR disclosure can increase the value of a company. CSR disclosure can mediate
the relationship between profitability and firm value as stated by the results of research
conducted by Ayu & Suarjaya (2017). Likewise, Robert (2019) found that CSR disclosure can
mediate the effect of profitability and firm size on firm value. This shows that the size of the
company and profitability can affect the value of the company with the existence of CSR
disclosure. Different results are shown in research conducted by Fryza (2013) which shows
that CSR disclosure is not able to mediate the relationship between profitability and firm value.
Kusumayanti & Astika (2016) also found that CSR disclosure was not able to mediate the effect
of firm size and profitability on firm value.
Based on the previous research gap, this study tries to fill the gap. This study also develops
research that has been done previously that examines the factors that influence CSR disclosure
and firm value and examines the mediating role of CSR disclosure on the effect of profitability
and firm size on firm value.
LITERATURE REVIEW
Profitability
Profitability is one of the indicators of financial performance that shows the company's ability
to generate profits through all capabilities and resources owned (Khairudin & Wandita, 2017).
Investors will always pay attention to the profitability ratio as a material consideration in
making decisions to invest their funds, because in the longterm shareholders will see how the
income that will be received in the future is in the form of dividends by utilizing the assets they
have. Companies with a high level of profitability will attract investors to invest so that their
share prices will increase which in turn will increase the firm value (Riaz & Qasim, 2016).
Companies that experience an increase in profits reflect that the company has a good
performance so that it creates positive sentiment from investors. Furthermore, profitability
gives a positive signal to investors about the entity's future growth prospects and profitability
describes the company in a favorable condition so that the firm value will be high (Rachmawati
& Pinem, 2015). Companies that have a high level of profitability, apart from disclosing their
financial performance, will also tend to disclose more about their social and environmental
Page 4 of 21
79
Anto, L. O. (2021). Profitability, Firm Size, Corporate Social Responsibility Disclosure, and Firm Value. Archives of Business Research, 9(9). 76-96.
URL: http://dx.doi.org/10.14738/abr.99.10902
performance as a means of communication with stakeholders, and as a form of awareness that
in operating they do not only focus on profit (Oktavianawati & Sri, 2018).
Firm Size
The firm size can be reflected in various things, one of which is the total assets owned by a
company. A large company size reflects that companies with large growth will find it easier to
enter the capital market because it will increase investor interest to invest their capital. In
addition, companies with large size scales will have an impact on increasing stock prices and
the value of the company will be high so that they are able to pay off their total debts with large
amounts of assets (Eka Putra & Dwiana Putra, 2020). High investor interest in large companies
will spur an increase in stock prices and will ultimately increase the firm value (Novari &
Lestari, 2016; Tui et al., 2017). Large companies usually also have more information to meet
the needs of stakeholders and in general have a high chance of realizing CSR activities because
they already have goals, measurements, and procedures to monitor their business activities.
Large companies will provide benefits to stakeholders by making wider and comprehensive
CSR disclosures to gain legitimacy in the eyes of the community. If the company is always active
in sustainable development, in the long term it will avoid large costs due to community
demands (Cahyaningtyas, 2018; Oktavianawati & Sri, 2018).
Corporate Social Responsibility (CSR) Disclosure
CSR disclosure is a process of communicating the social and environmental impacts of an
organization's economic activities to special interest groups and to society as a whole. This
expands the responsibility of organizations (especially companies) beyond their traditional
role to provide financial reports to capital owners, especially shareholders. This expansion is
made with the assumption that the company has a broader responsibility than just seeking
profit for shareholders. CSR is a form of corporate responsibility in overcoming social and
environmental problems resulting from the company's operational activities (Rosiana et al.,
2013). The company realizes that its success in achieving its goals is also influenced by the
community or society around the company because this CSR program must be carried out in
line with the emergence of various demands from the surroundings. A good company should
be able to control financial and non-financial potential. One way that can be done to optimize
non-financial performance is to carry out activities that involve sustainability issues, namely in
the form of disclosure of corporate social responsibility or CSR activities (Sabatini & Sudana,
2019). Aligning business activities through CSR can powerfully create and increase firm value
(Jitmaneeroj, 2018; Su et al., 2016). Stakeholder theory explains that by disclosing CSR and
producing good financial performance the company can provide benefits to its stakeholders, so
that it has a positive image that can increase the firm value. With wider CSR disclosures,
companies can convey adequate disclosure to get stakeholder responses and the company's
positive image will grow so that it can increase firm value (Wedayanti & Wirajaya, 2018; Isnalita
& Narsa, 2017).
Firm Value
Firm value is an investor's perception of the company's success in its operating activities which
can be reflected in the stock price. (Purwohandoko, 2017). Firm value is used to determine the
fair market value of a business that helps investors in making decisions (Hafez, 2016).
Damayanthi (2019) and Hirdinis (2019) stated that high stock prices increase investor
Page 5 of 21
80
Archives of Business Research (ABR) Vol. 9, Issue 9, September-2021
Services for Science and Education – United Kingdom
confidence because the company is considered to have a good future. The high share price can
also indicate that shareholders have high prosperity (Darmastika & Ratnadi, 2019). This
prosperity can be observed from the high returns obtained by shareholders. Firm value is very
important because maximizing firm value also means maximizing prosperity for shareholders
which is the main goal of all companies (Damayanthi, 2019). With a high firm value, it will
increasingly attract investors to invest in the company (Sabatini & Sudana, 2019).
Based on the theoretical description above, the conceptual framework of this research can be
described as follows:
Figure 1. Conceptual Framework
Description:
= Direct effect
= Indirect effect (mediation)
Hypothesis
Companies that have a high level of profitability tend to disclose more information on corporate
social responsibility, because companies that have the ability to generate high profits usually
also have a lot of funds, including to disclose social responsibility, in order to reduce social
pressures and negative views of the market. Profitability is a factor that gives management
freedom and flexibility to disclose social responsibility to shareholders. Companies with high
profitability will be more detailed in disclosing CSR, because company management will have
more opportunities to implement and disclose CSR due to the allocation of more funds for CSR
activities. Through more detailed CSR disclosures, it is hoped that it can meet the expectations
of the community and other stakeholders that with high profitability, companies are able to
allocate greater costs to implement and disclose CSR. Mudjiyanti & Maulani (2017) state that
the higher the level of profitability, the higher the level of CSR disclosure because companies
with high profitability can overcome the costs of disclosing social responsibility. This is in line
with research conducted by Ebiringa et al., (2013), Indraswari & Astika (2015), Gunawan et al.
(2018) and Tista & Putri (2020) which state that profitability has a positive effect on CSR
disclosure. Similarly, research conducted by Razak (2015), Urmila & Mertha (2017) and
Oktavianawati & Sri (2018) which states that profitability has a positive and significant effect
on CSR disclosure. This is different from the results of research conducted by Antari & Wirawati
Firm Value
(Y2)
H6
Profitability
(X1) H3
H1
CSR Disclosure
(Y1)
H5
H2
H7
Firm Size
(X2)
H4
Page 6 of 21
81
Anto, L. O. (2021). Profitability, Firm Size, Corporate Social Responsibility Disclosure, and Firm Value. Archives of Business Research, 9(9). 76-96.
URL: http://dx.doi.org/10.14738/abr.99.10902
(2020) which found that profitability had no effect on CSR disclosure. Based on the description
above, the following hypothesis can be formulated:
H1: Profitability has a positive and significant effect on CSR disclosure.
Large companies usually have many stakeholders so that it is more highlighted than small
companies so that companies will disclose more social and environmental activities which in
turn will affect the company's sustainability. Large companies will not be separated from
shareholder pressure to disclose social responsibility because large companies with operating
activities and greater influence on society will always be noticed by their stakeholders and CSR
disclosure will support companies in the aspect of avoiding disputes with the community.
Legitimacy theory states that large companies whose activities will be more visible than small
companies so that various demands and pressures from society will be greater. The explanation
of this theory is in accordance with research findings by Razak (2015) and Indraswari & Astika
(2015) which state that firm size has an effect on CSR disclosure. In line with the results of this
study, the findings of Cahyaningtyas et al. (2018) and Oktavianawati & Sri (2018) show that
firm size has a positive and significant effect on CSR disclosure. This is different from the
research results of Urmila & Mertha (2017) which found that firm size had no effect on CSR
disclosure. Based on the description above, the following hypothesis can be formulated:
H2: Firm size has a positive and significant effect on CSR disclosure.
Companies with a high level of profitability have a great ability to distribute dividends to
shareholders. The stock price will increase because the company gives a positive signal in the
form of dividend distribution. Profitability has a positive and significant effect on firm value
because companies that experience increased profits reflect that the company has good
performance, thus generating positive sentiment from investors. The higher the level of
profitability achieved by a company it will be a consideration for investors to invest in the
company. The results of research conducted by Riaz & Qasim (2016), Purwohandoko (2017)
and Rachmawati & Pinem (2015) found that profitability had a positive and significant effect
on firm value. This is different from the research conducted by Sabrin et al. (2016) who found
that profitability has a negative and significant effect on firm value. Based on the description
above, the following hypothesis can be formulated:
H3: Profitability has a positive and significant effect on firm value.
A large company size reflects that companies with large growth will find it easier to enter the
capital market because it will increase investor interest to invest their capital. In addition,
companies with large size scales will have an impact on increasing stock prices and the value of
the company will be high so that they are able to pay off their total debts with large amounts of
assets. Signal theory has a relationship with company size, namely where management must
provide the same information about company size through total assets or total sales owned by
the company to shareholders so that investors can find out how the prospects of the company
in which they invest their capital (Putra & Putra, 2020). The results of previous research on
firm size conducted by Rizqia et al. (2013) and Novari & Lestari (2016) found that firm size has
a positive and significant effect on firm value. This is different from the results of research
conducted by Farooq & Masood (2016) and Ramadhitya & Dillak (2018) which found that firm
size had no effect on firm value. Based on the description above, the following hypothesis can
be formulated:
Page 7 of 21
82
Archives of Business Research (ABR) Vol. 9, Issue 9, September-2021
Services for Science and Education – United Kingdom
H4: Firm size has a positive and significant effect on firm value.
One form of voluntary disclosure by the company is CSR disclosure. The presentation of
information about CSR is expected to reduce information asymmetry because companies
provide information on economic, social and environmental aspects (Ronald et al., 2019).
Companies that implement CSR in a sustainable manner will assist in community development
and build the company's image and reputation (Pascua, 2020). Companies that have a good
reputation will increase consumer preferences for the products or services offered so that it
can increase investor interest in the company (Mursitama et al., 2019). A company's
commitment to CSR practices can help convince stakeholders of the company's sincere
intentions for the common good as well as to gain legitimacy (Singh et al., 2017). In accordance
with the basic assumption of stakeholder theory that companies cannot escape from their social
environment (Prihatiningtias & Dayanti, 2014). Social activities carried out by companies are
very important to be well communicated to shareholders, because they will increase the value
of the company (Siahaan et al., 2020). This statement is supported by previous research on the
effect of CSR disclosure on firm value, namely Wijaya & Wirawati (2019) and Damayanthi
(2019) which found that CSR disclosure had a positive effect on firm value. In line with these
findings, Hafez (2016) found that CSR disclosure has a positive and significant effect on firm
value, because the better the implementation of CSR, the higher the firm value. This is different
from the results of research conducted by Robert (2019) which found that CSR disclosure had
a negative and significant effect on firm value. Based on the description above, the following
hypothesis can be formulated:
H5: CSR disclosure has a positive and significant effect on firm value.
Companies with high profitability have a high incentive to disclose CSR so that the company
will get legal recognition from the community that its business has been operating based on
applicable norms. Stakeholder theory explains that by producing good financial performance
and disclosing CSR, companies can provide benefits to their stakeholders. Companies that are
responsible and provide benefits to stakeholders have a positive image that can increase
company value. Profitability is an indicator of financial performance that shows the level of
success or failure of a company in a period. The better the financial performance it will attract
investors, thereby increasing the firm value (Wijaya & Wirawati, 2019). High profitability
shows good financial performance, so it can encourage companies to disclose disclose CSR more
broadly and in detail to stakeholders (Wiyarna & Sudana, 2019). Aligning business activities
through CSR activities and disclosures can create and increase firm value (Jitmaneeroj, 2018;
Su et al., 2016). CSR disclosure can mediate the relationship between profitability and firm
value as stated by the results of research conducted by Ayu & Suarjaya (2017). Different results
are shown in research conducted by Fryza (2013) which shows that CSR disclosure is not able
to mediate the relationship between profitability and firm value. Based on the description
above, the following hypothesis can be formulated:
H6: CSR disclosure mediates the effect of profitability on firm value.
Large companies will carry out wider and detailed CSR disclosures to gain legitimacy in the eyes
of the public. Large companies will provide benefits to stakeholders by conducting wider and
comprehensive CSR disclosures to ensure that the company is responsible for its business
activities. The size of the company is indicated by the total assets that describe the size of the
Page 8 of 21
83
Anto, L. O. (2021). Profitability, Firm Size, Corporate Social Responsibility Disclosure, and Firm Value. Archives of Business Research, 9(9). 76-96.
URL: http://dx.doi.org/10.14738/abr.99.10902
company and the size of the business. CSR activities require complex and large-scale processes
to be effective, so firm size is an important factor (Youn et al., 2015). Large companies in general
have a high opportunity to realize CSR activities because they already have goals,
measurements, and procedures to monitor their business activities. A large firm size affects the
CSR disclosure of a company which with wider CSR disclosures, the company's positive image
will grow so that it can increase firm value (Wedayanti & Wirajaya, 2018). Through CSR
disclosure, the company conveys adequate disclosure to get stakeholder responses that can
increase the firm value (Isnalita & Narsa, 2017). This is in line with the results of research by
Robert (2019) which found that CSR disclosure was able to mediate the effect of firm size on
firm value. Different results are shown in research conducted by Angesti (2015) which finds
that CSR disclosure is not able to mediate the effect of firm size on firm value. Based on the
description above, the following hypothesis can be formulated:
H7: CSR disclosure mediates the effect of firm size on firm value.
RESEARCH METHOD
The population of this study are manufacturing companies listed on the Indonesia Stock
Exchange. By using a purposive sampling technique, a sample of 105 objects of observation
were obtained from manufacturing companies that present financial statements and CSR
disclosures during the period 2018-2020. The type of data used in this study is secondary data,
namely data sourced from reports published by manufacturing companies on the Indonesia
Stock Exchange. The analytical method used is descriptive analysis and path analysis using
Smart PLS 3.3.
Profitability is measured using Return on Assets (ROA) which shows the company's ability to
earn a return on its total assets with the following formula: (Putri et al., 2017).
ROA = Net Profit After Tax
Total Assets
Firm size is measured by the natural logarithm of total assets to reduce the extreme scale of the
company's asset value with the following formula: (Dang et al., 2018)
Firm size = Ln (Total assets)
CSR Disclosure or Corporate Social Responsibility Disclosure Index (CSRDI) is measured based
on the Global Reporting Initiative (GRI) indicator version 4.0, which is a proxy used to measure
CSR disclosure with the following formula: (Urmila & Mertha (2017)
CSRDIj = å Xij
nj
Description:
CSRDIj = Corporate Social Responsibility Disclosure Index of companies j
nj = number of items for company j; nj = 91
Xij = 1= if the item is disclosed; 0 = if the item is not disclosed.
Firm value is measured by Tobin's Q, which is an indicator to measure company performance,
especially regarding firm value which shows a management performance in managing company
assets with the following formula: (Sudiyatno & Puspitasari, 2010)
Page 11 of 21
86
Archives of Business Research (ABR) Vol. 9, Issue 9, September-2021
Services for Science and Education – United Kingdom
Testing Structural Models and Hypothesis
Based on the output of the PLS model, testing the structural model and hypothesis is done by
looking at the path coefficient value and the probability value which is significant at α = 0.05.
Based on the conceptual framework of this study, hypothesis testing was carried out in two
stages, namely testing the direct influence path coefficient and testing the mediating influence
path coefficient. Testing the path coefficient of direct influence between profitability, firm size
variables on CSR disclosure and firm value. The results of the analysis/output of the Partial
Least Squares model look like the following picture.
Figure 2. Analysis Results/Output Model of Partial Least Squares
Furthermore, the results of the path coefficient analysis and testing the direct influence
hypothesis in full are presented in the following table.
Table 4. Results of Path Coefficient Analysis and Direct Effect Hypothesis Testing
Effect Between Variables Path
Coefficient
T- Statistics P-Values Description
CSR Y1 -> Firm Value Y2 0.146 2.278 0.023 Significant
Firm Size (X2) -> CSR Y1 0.180 2.107 0.035 Significant
Firm Size (X2) -> Firm Value Y2 0.026 0.588 0.556 Not
significant
Profitability X1 -> CSR Y1 -0.185 2.900 0.004 Significant
Profitability X1 -> Firm Value Y2 0.899 11.045 0.000 Significant
Source: Data processed, 2021
Based on the results of the analysis that has been presented in the table above, the results of
testing the structural model and hypotheses of this study can be presented in the following
figure.
Page 13 of 21
88
Archives of Business Research (ABR) Vol. 9, Issue 9, September-2021
Services for Science and Education – United Kingdom
Table 5. Results of Path Coefficient Analysis and Indirect Effect Hypothesis Testing
Independent
Variable
Dependent
Variable
Intervening
Variable
Path
Coefficient P-Value Description
Profitability
(X1)
Firm Value
(Y2)
CSR
Disclosure
(Y1)
-2.0155 0.044 Significant
Firm Size
(X2)
Firm Value
(Y2)
CSR
Disclosure
(Y1)
2.0553 0.040 Significant
Source: Data processed, 2021
The sixth hypothesis (H6) states that CSR disclosure mediates the effect of profitability on firm
value. Based on the test results, the path coefficient value is -2.0155 with a P-value of 0.044 ˂ α
= 0.05, which means that CSR disclosure can mediate the effect of profitability on firm value.
Thus, the sixth hypothesis (H6) is accepted. The seventh hypothesis (H7) states that CSR
disclosure mediates the effect of firm size on firm value. Based on the test results, the path
coefficient value is 2.0553 with a P-value of 0.040 ˂ α = 0.05, which means that CSR disclosure
can mediate the effect of firm size on firm value. Thus, the seventh hypothesis (H7) is accepted.
DISCUSSION
The Effect of Profitability on CSR Disclosure
The results of this study indicate that profitability has a negative and significant effect on CSR
disclosure. This means that the higher the profitability, the lower the CSR disclosure. This
finding is not in line with stakeholder theory where companies with a high level of profitability
will be motivated to disclose their social and environmental information as a form of fulfilling
interests to stakeholders. High profitability shows good financial performance, so that it can
encourage companies to disclose CSR more broadly and in detail to stakeholders (Wiyarna &
Sudana, 2019). Profitability has a negative and significant effect on CSR disclosure, indicating
that companies that have high profitability do not necessarily increase CSR disclosure. This is
because the profits owned by the company are prioritized for operational purposes so that the
utilization for corporate social activities is less. The results of this study are consistent with the
research conducted by Madani & Gayatri (2021) which found that profitability had a negative
effect on the disclosure of sustainability reports. Furthermore, Wuttichindanon (2017) states
that CSR disclosure is carried out by companies on the influence of stakeholders, not based on
the level of profitability. Likewise, Antari & Wirawati (2020) found that profitability was not
able to affect the company's ability to implement CSR disclosure.
Effect of Firm Size on CSR Disclosure
The results of this study indicate that firm size has a positive and significant effect on CSR
disclosure. This means that the higher the firm size, the higher the CSR disclosure will be.
Companies with a larger size are usually more socially responsible, because large-scale
companies have a stronger desire to maintain a positive image in the eyes of the wider
community. Theoretically, large companies cannot avoid political pressures regarding their
responsibility to society. The company management system that is expected to be community- oriented is a thought based on legitimacy theory. In addition, this can also give a positive signal
to the public regarding the condition of the company. Large companies are demanded by the
public's desire to attach CSR disclosure reports, so that the larger the size of the company, the
Page 15 of 21
90
Archives of Business Research (ABR) Vol. 9, Issue 9, September-2021
Services for Science and Education – United Kingdom
The Effect of CSR Disclosure on Firm Value
The results of this study indicate that CSR disclosure has a positive and significant effect on firm
value. This means that the higher the CSR disclosure, the higher the firm value. The results of
this study are in line with agency theory, where conflicts of interest between principals and
agents that can cause information asymmetry can be reduced by making disclosures. Agency
conflict can be reduced by minimizing information asymmetry through wider disclosure
(Rahindayati et al., 2015). One form of disclosure that can be made by the company is the CSR
disclosure contained in the company's annual report. In line with the legitimacy theory, the
increasing intensity of CSR disclosure will further increase the value of the company because
the company will gain legitimacy from the community if it is able to create a harmonious
relationship with the community. If the company's image is good in the public, at least the
company has a great opportunity to carry out the company's operations in a longer period of
time and can bring benefits for the welfare of the stakeholders and thus the firm value can
increase. The results of this study are also in line with the thinking in stakeholder theory that
companies that carry out CSR activities and disclose in their annual reports can strengthen and
build better relationships with stakeholders, because the company is not an entity that stands
only for the company's own personal interests. CSR activities of the company can be aimed at
building good relationships with external stakeholders such as communities, customers, and
prospective employees (Mansaray et al., 2017). This shows that the value of the company can
be increased by aligning the company's business through an effective CSR program
(Jitmaneeroj, 2018). The results of this study are in line with research conducted by Paramitha
& Sudana (2021), Firmansyah & Surasni (2020), Wijaya & Wirawati (2019), Darmastika &
Ratnadi (2019) and Damayanthi (2019) which found that CSR disclosure had a positive and
significant effect to the firm value.
The Role of CSR Disclosure in Mediating the Effect of Profitability on Firm Value
The results of this study indicate that CSR disclosure can mediate the effect of profitability on
firm value. This can be interpreted that the higher CSR disclosure will increase the effect of
profitability on firm value. The results of this study are in accordance with the signal theory
which explains that the firm value can be increased by sending signals to external parties
through reporting information related to the company's performance to minimize the
uncertainty of business prospects in the future. Management gives a signal to shareholders
which information can be used as a basis for decision making for shareholders. CSR disclosure
and profitability have the same goal, namely increasing the value of the company and providing
benefits and benefits to stakeholders and shareholders. Companies displaying profitability
information when accompanied by CSR disclosure in the annual report are able to make
shareholders respond positively to it and use it as a material consideration in making
investment in the company. Disclosure of CSR is a way to build a positive image of the company
in the eyes of the community and the environment. Companies that carry out social
responsibility through annual reports mean providing opportunities for stakeholders and
shareholders to evaluate and make decisions about how social responsibility activities are
carried out during the current period (Sopian & Mulya, 2018). This causes investors to feel that
the company in carrying out its activities not only obtains financial benefits but also pays
attention to the interests of all stakeholders. Carrying out social responsibility in a sustainable
manner provides a good image for the company so as to attract investors to invest in companies
which have an impact on increasing stock prices (Siregar et al., 2018). The increase in stock
Page 16 of 21
91
Anto, L. O. (2021). Profitability, Firm Size, Corporate Social Responsibility Disclosure, and Firm Value. Archives of Business Research, 9(9). 76-96.
URL: http://dx.doi.org/10.14738/abr.99.10902
prices is a reflection of investor confidence in the company (Haryono & Iskandar, 2015). The
results of this study are in line with the results of Ayu & Suarjaya (2017) who found that CSR
disclosure can mediate the effect of profitability on firm value.
The Role of CSR Disclosure in Mediating the Effect of Firm Size on Firm Value
The results of this study indicate that CSR disclosure can mediate the effect of firm size on firm
value. This can be interpreted that the higher the CSR disclosure will increase the influence of
firm size on firm value. The results of this study are in line with signal theory where
management tries to provide relevant signals to shareholders so that the information can be
utilized by shareholders (including investors) as a basis for decision making. The company is
aware that the company's survival in the future depends on a good relationship with the
community and the environment in which the company operates (Ayu & Suarjaya, 2017).
Companies must be able to balance between economic goals with environmental and social
responsibilities in order to be well received by the community (Lingga, 2019). Therefore,
companies are encouraged to carry out CSR activities and report them in their annual reports.
Information about a good firm size and accompanied by extensive CSR disclosure will increase
the legitimacy and public trust in the company so that it can encourage investors to buy
company shares even at a higher price. Both of these information can describe good business
prospects in the future so that investors will respond to it as a positive signal which has an
impact on increasing stock prices and firm value (Nindita et al., 2017). The results of this study
are in line with research conducted by Robert (2019) which found that CSR disclosure can
mediate the effect of firm size on firm value.
CONCLUSIONS AND SUGGESTIONS
Conclusion
Based on the results of the research and discussion that have been stated previously, the
following conclusions can be drawn:
1. Profitability has a negative and significant effect on CSR disclosure, which means that
the higher the profitability, the lower the CSR disclosure.
2. Firm size has a positive and significant effect on CSR disclosure, which means that the
higher the firm size, the higher the CSR disclosure.
3. Profitability has a positive and significant effect on firm value, which means that the
higher the profitability, the higher the firm value.
4. Firm size has a positive but not significant effect on firm value, which means that the
higher the firm size, the firm value will increase but not significantly.
5. CSR disclosure has a positive and significant effect on firm value, which means that the
higher the CSR disclosure, the higher the firm value.
6. CSR disclosure can mediate the effect of profitability on firm value, which means that the
higher CSR disclosure will increase the profitability effect on firm value.
7. CSR disclosure can mediate the effect of firm size on firm value, which means that the
higher CSR disclosure will increase the firm size effect on firm value.
Suggestions
Based on the results of the research conducted, the researchers can provide the following
suggestions:
Page 21 of 21
96
Archives of Business Research (ABR) Vol. 9, Issue 9, September-2021
Services for Science and Education – United Kingdom
Youn, H., Hua, N., & Lee, S. 2015. Does size matter? Corporate Social Responsibility and Firm Performance in the
Restaurant Industry. International Journal of Hospitality Management, 51, 127-134.