ENHANCING FINANCIAL PERFORMANCE THROUGH CARBON PRODUCTIVITY, LEVERAGE, AND FIRM SIZE: INSIGHTS FROM AN EMERGING MARKET

Abstract

The primary purpose of this study is to examine the effects of carbon productivity, leverage, and firm size on the financial performance of manufacturing companies. The data used in this study comprise 277 firm-year observations from 108 manufacturing companies listed on the Indonesia Stock Exchange (IDX) during the period 2022–2024. This study employs panel data regression analysis, and the results of the Hausman test and the Breusch–Pagan test indicate that the Random Effects Model is the most appropriate approach for achieving the study’s objectives. The findings reveal that carbon productivity has a positive effect on firms’ financial performance in Indonesia, suggesting that companies can gain competitive advantages through more effective carbon emission management strategies. Furthermore, leverage has a negative effect on financial performance, indicating that excessive reliance on debt financing may increase financial burdens and reduce corporate profitability. In addition, firm size is found to have a positive and significant influence on financial performance, implying that larger firms benefit from greater resource availability, economies of scale, and broader access to financing opportunities. Taken together, these findings suggest that improving carbon efficiency and effectively utilizing organizational resources can enhance financial performance, whereas high levels of debt should be carefully managed to mitigate their potential adverse impacts on firm performance.