Enterprise Risk Management, Sustainability and Governance: Implications for Financial Performance in Indonesia

Abstract

The transportation and warehousing sector contributed more than 4% to Indonesia’s Gross Domestic Product (GDP), underscoring its strategic importance. However, despite its significant potential, the sector has experienced substantial fluctuations in financial performance, particularly in Return on Assets (ROA), during the 2019–2024 period. Enterprise Risk Management (ERM) can strengthen organisational resilience. However, the moderating effect of ERM remains underexplored in emerging market contexts. This study aims to examine the effect of environmental performance, firm size, and managerial ownership on the financial performance of transportation and logistics companies listed on the Indonesia Stock Exchange (IDX), as well as to analyse the moderating role of Enterprise Risk Management (ERM) in these relationships. The study employs a quantitative approach with a causal design, utilising Moderated Regression Analysis (MRA) on panel data with a Fixed Effect Model (FEM). The research is conducted using secondary data obtained from reports of transportation and logistics companies listed on the IDX from January 2021 to December 2024. The sample consists of 30 transportation and logistics companies that meet the sampling criteria. The findings show that while firm size and managerial ownership improve financial performance, environmental performance has a negative influence. ERM strengthens the relationship between environmental and financial performance but weakens the benefit of managerial ownership. The Resource-Based View (RBV) can serve as a source of sustainable competitive advantage. Similarly, Stakeholder Theory emphasises that companies are accountable not only to shareholders but also to a broader set of stakeholders, and that legitimacy is essential for sustaining business operations. Lastly, Agency Theory explains the conflict of interest between principals and agents as well as governance mechanisms. In the context of this study, managerial ownership serves as an incentive alignment mechanism, encouraging managers to focus on improving financial performance. ERM functions as a moderator that can enhance the financial benefits of environmental initiatives but may limit the positive effects of managerial ownership. Integrating ERM with sustainability practices can improve profitability, although its implementation should be balanced to avoid excessive constraints on managerial decision-making.