The influence of liquidity risk, market value, and expected return on corporate social and environmental expenditures in Indonesia’s natural resource-based industries : the moderating role of financial distress

Abstract

This research plays a pivotal role in exploring the equilibrium between securing organizational legitimacy and preserving corporate financial stability. Therefore, the purpose of this study is threefold. First, it investigates the simultaneous relationship between liquidity risk, market value, and expected return on Corporate Social and Environmental Expenditures (CSEE); secondly, to explain the moderating role of financial distress among the considered variables; and thirdly, to examine the contribution of the lagged dependent variable (prior CSEE) into the model. The analysis focuses on natural resource-based industries including energy, mining, forestry, and plantation companies listed on the Indonesia Stock Exchange during the 2018–2024 period, yielding 280 panel observations. This study employs a two-step Generalized Method of Moments (GMM) estimation. The findings display a positive but statistically insignificant effect of liquidity risk and expected return on CSEE, while market value has significant positive effect. Moreover, financial distress moderates the relationships among the variables examined; and the lagged CSEE found to be positively significant. These findings highlight that internal financial conditions and distress play a critical role in shaping firms’ sustainability investment strategies. Stronger regulatory frameworks and fiscal incentives are recommended to support long-term commitments to environmental and social programs. To the best knowledge of the researcher, the study is first to measure the moderating impact of financial distress of the influential factors of corporate management’s decision-making in determining the allocation of CSEE funds by considerating the simultaneous relationship between independent and dependent variables.