Moderating role of enterprise risk management in the relationship between sustainability performance and a firm’s competitive advantage

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The emergence of sustainable business practices has garnered interest among stakeholders. However, the question of whether sustainability performance provides companies with a competitive advantage is still being debated in the literature. This paper aims to examine the influence of sustainability performance – namely economic sustainability performance and environmental, social, governance (ESG) – on competitive advantage, with the effectiveness of enterprise risk management (ERM) as the moderating variable. This paper used 202 firm-year observations during 2015–2022 from non-financial sector companies listed on the Indonesia Stock Exchange. To test the hypotheses, panel data regression with a one-year time-lag analysis is conducted. The findings show that economic sustainability performance has no relationship with competitive advantage, while ESG has a positive effect. Furthermore, ERM effectiveness strengthens the effect of economic sustainability and ESG on competitive advantage. Further investigation used a two-year time-lag analysis for a long-term perspective. The analysis shows that economic sustainability performance and ESG have a positive impact on competitive advantage. In contrast, ERM effectiveness has no effect on the relationship between economic sustainability performance and competitive advantage. Moreover, additional analysis incorporates the effect of COVID-19 into the main model and shows that the pandemic did not affect competitive advantage; this is consistent with the main results. The findings encourage companies to improve their risk management and sustainability initiatives. The government may also take it into account when developing rules that promote the implementation of sustainable development.

Acknowledgment
This research was supported by the Ministry of Education, Culture, Research, and Technology of the Republic of Indonesia through the Center for Higher Education Fund (BPPT) and Indonesia Endowment Funds for Education (LPDP) for providing the Indonesian Education Scholarship (BPI-Beasiswa Pendidikan Indonesia).

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    • Table 1. Descriptive statistics analysis and correlation matrix
    • Table 2. Hypothesis testing results with a time lag of one (1) year
    • Table 3. Competitive advantage model test results with a time lag of two (2) years
    • Conceptualization
      Ayu Aryista Dewi, Erwin Saraswati, Aulia Fuad Rahman, Sari Atmini
    • Data curation
      Ayu Aryista Dewi, Erwin Saraswati, Aulia Fuad Rahman, Sari Atmini
    • Formal Analysis
      Ayu Aryista Dewi, Erwin Saraswati, Aulia Fuad Rahman, Sari Atmini
    • Funding acquisition
      Ayu Aryista Dewi
    • Investigation
      Ayu Aryista Dewi, Erwin Saraswati, Aulia Fuad Rahman, Sari Atmini
    • Methodology
      Ayu Aryista Dewi, Erwin Saraswati, Aulia Fuad Rahman, Sari Atmini
    • Project administration
      Ayu Aryista Dewi
    • Resources
      Ayu Aryista Dewi, Erwin Saraswati, Aulia Fuad Rahman, Sari Atmini
    • Software
      Ayu Aryista Dewi
    • Supervision
      Ayu Aryista Dewi, Erwin Saraswati, Aulia Fuad Rahman, Sari Atmini
    • Validation
      Ayu Aryista Dewi, Erwin Saraswati
    • Visualization
      Ayu Aryista Dewi
    • Writing – original draft
      Ayu Aryista Dewi
    • Writing – review & editing
      Ayu Aryista Dewi, Erwin Saraswati, Aulia Fuad Rahman, Sari Atmini