THE EFFECT OF CORPORATE SUSTAINABILITY PERFORMANCE ON THE SPEED OF LEVERAGE ADJUSTMENT: THE ROLE OF MODERATION OF FINANCIAL CONSTRAINTS AND ENVIRONMENTAL POLICY STRINGENCY

Abstract

This study aims to examine the influence of Corporate Sustainability Performance on Speed of Leverage Adjustment, as well as analyze the role of moderation from Financial Constraints and Environmental Policy Stringency. Using a quantitative approach, the sample of this study includes non-financial public companies listed on the Indonesia Stock Exchange during the 2023–2025 observation period using the purposive sampling method. The estimation of the test model was carried out using dynamic panel data regression analysis with the Generalized Method of Moments (GMM) approach. The results of the analysis show that Corporate Sustainability Performance has a positive and significant effect on the Speed of Leverage Adjustment, proving that sustainability commitments accelerate the recovery of the capital structure towards its optimal target. However, the testing of interaction variables confirmed that Financial Constraints significantly weakened the positive relationship due to the company's internal liquidity limitations. In addition, Environmental Policy Stringency was also found to moderate the relationship negatively, indicating that tightening environmental regulations at the national level creates an external compliance burden that hinders the flexibility of corporate debt restructuring. The contribution value of this study lies in the simultaneous integration between internal capacity constraints and external macro policy pressures in influencing dynamic capital adjustment behavior. These findings provide important implications for financial managers to align the green agenda with liquidity resilience, as well as for regulators in formulating accommodative green transition incentive policies in developing countries.