THE EFFECT OF CSR AND LEVERAGE ON FINANCIAL PERFORMANCE IN MANUFACTURING COMPANIES OF INDONESIA Rezki Achmad Fauzy 1, Ayu Rakhmawati 1, Henny Setyo Lestari 1, Farah Margaretha 1 1 Economy and Bussines Department, Trisakti University, Jakarta, Indonesia
1. INTRODUCTION The issue of environmental problems currently has become the spotlight of the world community which is interesting to discuss. Environmental pollution in Indonesia, which is getting worse, is the impact of environmental management that is not in accordance with what has been stipulated. Some companies still have not thought about the social impacts arising from industrial practices that use advanced technology and hazardous chemicals. Among them are when obtaining raw materials, production processes, and production results which have the effect of causing environmental pollution such as air, water, waste pollution and so on. Corporate Social Responsibility is a sort of corporate social responsibility application to society and the environment. The corporation prioritizes its objective of generating the best potential profit through Corporate Social Responsibility, but also covers financial, social, and other environmental factors. The Corporate Social Responsibility program is an investment in the development and long-term viability of the company, and it is no longer viewed as an expense, but as a means of making profit. Kabir and Chowdhury (2022) revealed a favourable relationship between Corporate Social Responsibility and financial performance with exceptions Manufacturer Maturity (MAT) and Earning per Share in previous studies. This research also discovered that the previous year of Corporate Social Responsibility has an effect on the research year's spending on Corporate Social Responsibility due to expenses of Corporate Social Responsibility registered manufacturers in Bangladesh adhere to the process autoregresif first order. Leverage as part of the corporate's fundamental financial performance and demonstrates the corporate's ability to manage the source of funds, either from debt or from assets held by the corporation. A research done by Sarwar et al. (2022) reveals that Corporate Social Responsibility has a positive influences on profitability and overall financial performance which is influenced by one of them, namely leverage. Several successful studies prove a positive relationship between leverage with other company values, namely those carried out by Firda and Efriadi (2020), as well as research conducted by Anita and Dini (2021). However, different study carried out by Irfandani et al. (2017) showed different outcomes. According to the findings of Wu et al. (2020) study, fulfilling Corporate Social Responsibility is a win-win scenario that supports not only social development but also allows firms to reap economic advantages. Second, leverage plays a role as one that affects a company's financial performance. Regarding the discussion of the background and the conditions underlying it, the researcher conducted a study entitled "The Influence of Corporate Social Responsibility and Leverage Against the Financial Performance of Manufacturing Companies Listed on the Indonesia Stock Exchange" The novelty in this study is by adding the return on equity (ROE) and earning per share (EPS) as an additional variable and not discussed corporate governance. This study utilizes a combination variable with reference to the previous studies. This research focuses on manufacturing companies. This is because a manufacturing company is one that processes raw materials to turn them into marketable commodities by utilizing multiple sources of raw materials, production processes, and technology. Besides that, manufacturing companies cannot be separated from society as their external environment. Therefore, It can be concluded that manufacturing companies are closely related to social and environmental aspects or in the sense that firms are needed to make disclosures of Corporate social responsibility is mandated under Article 74 of the Limited Liability Company Law (UU Perseroan Terbatas) No. 40 of 2007. 2. MATERIALS AND METHODS 2.1. METHODS This study employs descriptive quantitative research methodologies using the Secondary Data Analysis (ADS) methodology. A technique that uses secondary data as the primary data source is ADS. The question in secondary data is used by employing a suitable statistical test procedure to extract the necessary data deriving from a body of material or mature data collected at specific institutions or organizations (for example, BPS, IDX departments, or educational institutions), which is then processed objectively and systematically. To simplify the procedure for evaluating research findings, the hypothesis testing research design was employed to examine the effect of the independent variables, CSR, and Leverage (DER) to the dependent variable, Financial Performance which is measured using ROA ROE and EPS. 2.2. DATA SOURCE AND PERIOD The data utilized in this research is panel data, a blend of cross-sectional and time series data on the Indonesian manufacturing sector quoted on the IDX during 2017 to 2021. In this study, it consists of 2 (two) variables, which are the dependent variable and the independent variable. The variables and measurements used in this research intend to examine the link among the independent variables and the dependent variable, each of which is measured as follows: Table 1
2.3. DATA PROCESSING METHOD Probability Sampling is the sampling method utilized in this research. It is a sampling strategy that provides equal chances for each component (participant) of the population to be chosen as a participant. The companies in the manufacturing sector quoted on the Indonesia Stock Exchange for 3 years (2019-2021) Bursa Efek Indonesia. (n.d.) are the sample of this research. Data samples were chosen using the following criteria: 1) Companies in the manufacturing sector quoted on the Indonesia Stock Exchange for the 2019- 2021 timeframe. 2) Availability of company financial reports 3) Availability of data related to measurement of each variable used. The method of data collecting utilized a secondary data collection method where the data obtained is taken from sources that have published the data. The data source of the research was acquired from the website of the IDX (https://www.idx.co.id/) Bursa Efek Indonesia. (n.d.) and the website within each company that was sampled. 3. RESULTS AND DISCUSSIONS 3.1. DESCRIPTION OF RESEARCH DATA The data utilized in this research is secondary. Financial reports and annual reports for manufacturing sector firms quoted on the Indonesia Stock Exchange between 2019 and 2021 were collected from the IDX's official website, www.idx.co.id, and the company's official website. This study's population consists of Indonesian industrial companies. A study sample of 101 manufacturing companies were registered on the Indonesia Stock Exchange using the purposive sampling approach for 2019-2021 which met certain criteria. Descriptive statistics is a data processing method utilized to offer an overview or explanation of data based on the minimum, maximum, average (mean), and standard deviation. The maximum value and minimum value are used to see the highest and lowest value of each variable. The mean value is used to see the middle value of each variable. The standard deviation value is used to see the homogeneity value of each variable. Descriptive statistics use a statistical approach for each variable to describe data, namely CSR, DER, ROE, ROA and EPS. The dependent variables in this research are ROA, ROE and EPS, the independent variables are CSR, DER. Table 2 shows the findings of the descriptive statistical analysis. Table 2
The findings of the descriptive statistical data table above demonstrate that the ROA variable in manufacturing sector companies in Indonesia has an average value of 0.075150, the maximum value is equal to 0.865828, while the minimum value is -0.187963, with a standard deviation of 0.113019. The findings of the descriptive statistical data table above demonstrate that the ROE variable in manufacturing sector companies in Indonesia has an average value of -0.005062, the maximum value is 1,454,829, while the minimum value is -2,136,374, with a standard deviation of 1,570,034. The findings of the descriptive statistical data table above demonstrate that the EPS variable in manufacturing sector companies in Indonesia has an average value of 1,286,648, the maximum value is equal to 2,178,968, while the minimum value is -2,670,481, with a standard deviation of 3.044.523. The findings of the descriptive statistical data table above demonstrate that DER variable in manufacturing sector companies in Indonesia has an average value of 1,893,391, the maximum value is equal to 1,445,462, while the minimum value is -2,127,341, with a standard deviation of 1.051.707. The findings of the table of descriptive statistical data above demonstrate that the CSR variable in manufacturing sector companies in Indonesia has an average value of 7,008,314, the maximum value is equal to 1,152,290 as for the minimum value of 1,009,636, with a standard deviation of 2.348.890. 3.2. DATA ANALYSIS Multiple regression tests were used to analyze the data for this research, which used panel data. There are three models that may be employed in panel data research: the common effect model, the random effect mode, and the fixed effect model. Before carrying out the regression test, a regression model test is performed. This study's findings of the regression model test in this study are using the random effect model. The multiple regression test seeks to determine whether or not there is an influence of CSR and DER on ROE, ROA, and EPS with the control variable BS. The results of processing multiple regression statistics produce a regression model equation, which are: Regression Equation for Model 1: ROEit = -0.068864 + 0.050975 CSRit – 0.153867 DERit Regression Equation for Model 2: ROAit = -0.010250 + 0.012612 CSRit -0.001577 DERit Regression Equation for Model 3: EPSit = 520.2761 - 55.73344 CSRit - 0.535510 DERit Table 3
According to Table 3 above, some of the test results can be viewed as follows: Testing CSR Variables on ROE Variables Based on Table 4, the probability value is obtained one tailed of 0.0276 with a coefficient of 0.050975. The CSR coefficient shows a positive result. The probability value is less than 0.05 so it may be said that t has a significant effect between the CSR variable and ROE variables. Testing the DER Variable on the ROE Variable Based on Table 9, the probability value is obtained one tailed of 0.000 with a coefficient of -0.153867 The DER coefficient shows a negative result. The probability value is lower than 0.05, we may conclude that it has a significant influence between the DER variable and the ROE variable. This t statistical test is employed to examine how much influence the independent variables have in describing the dependent variable. Testing the statistical hypothesis is done by looking at the probability value on the analysis results using Eviews 12. A significance level of 0.05 (α = 5%) can also be used for hypothesis testing. The hypothesis is accepted or rejected based on the following criteria: if the probability value is > 0.05, the hypothesis is rejectable (the regression coefficient is not significant). This implies that the independent factors have a limited impact on the dependent variable. The hypothesis is acceptable if the probability ≤ 0.05. (Significant regression coefficient). This implies that the independent variable has some impact on the dependent variable. Table 4
According to Table 4 above, some of the test results can be viewed as follows: Testing CSR Variables on ROE Variables Based on Table 5, the probability value is obtained one tailed of 0.0276 with a coefficient of 0.050975. The CSR coefficient shows a positive result. The probability value is less than 0.05 so it may be said that t has a significant effect between the CSR variable and the ROE variable. DER Variable Testing of ROE Variables Based on Table 9, the probability value is obtained one tailed of 0.000 with a coefficient of -0.153867 The DER coefficient shows a negative result. The probability value is lower than 0.05 so it may be said that t has a significant influence among the DER variable and the ROE variable. Table 5
Based on Table 5 above, some of the test results can be seen as follows: Testing CSR Variables on ROA Variables Based on Table 5, the probability value is obtained one tailed of 0.0047 with a coefficient of 0.012612. The CSR coefficient shows a positive result. The probability value is less than 0.05 so it can be said that t has a significant effect between the CSR variable and the ROA variable. DER Variable Testing of ROA Variables Based on Table 9, the probability value is obtained one tailed of 0.0276 with a coefficient of -0.001577 The DER coefficient shows a negative result. The probability value is lower than 0.05 so it may be said that t has a significant influence among the DER variable and the ROA variable. Table 6
Based on Table 6 above, some of the test results can be seen as follows: Testing CSR Variables on EPS Variables Based on Table 7, the probability value is obtained one tailed of 0.0000 with a coefficient of -55.73344. The CSR coefficient shows a negative result. The probability value is less than 0.05 so that it may be said that t has a significant effect between the CSR variable and the EPS variable. DER Variable Testing of EPS Variables. Based on Table 9, the probability value is obtained one tailed of 0.0000 with a coefficient of -0.535510 The DER coefficient shows a negative result. The probability value is lower than 0.05 so it may be said that t has a significant influence between the DER variable and the EPS variable. 3.3. DISCUSSION AND RESEARCH RESULTS H1: There is an influence Corporate Social Responsibility (CSR) on Financial Performance H2: There is an influence Leverage (DER) on Financial Performance 4. CONCLUSIONS AND RECOMMENDATION 4.1. CONCLUSIONS Based on the findings of study conducted to examine the effect of risk management as evaluated by (CSR, DER, ROE, ROA, and EPS) on company financial performance in the manufacturing sector in Indonesia with the control variable manufacturing size, the following are some possible outcomes: 1) Risk Management as measured by Coorporate Social Responsibility (CSR) has a significant and favourable influence on financial performance as evaluated by ROE, ROA, and EPS. 2) Risk Management as measured by Debt-to-Equity Ratio (DER) has a significant and favourable influence on financial performance as evaluated by by ROE, ROA and EPS. 4.2. RECOMMENDATION According to the findings of the research and discussion along with the difficulties that have been put forward by the researchers, recommendations that can be suggested for further research are: 1) Future researchers should be allowed to add or use additional dependent variables so that other variables which can affect risk management are revealed, such as DAR. 2) It is believed that future researchers will have to be able to add samples in the form of companies from the index, type of business or other sectors. 3) Future researchers will be challenged to examine the consequences of the risk of distributing CSR, the value of debt, and the size of manufacturing companies on financial performance more specifically, namely general manufacturing companies in certain sectors.
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