Corporate governance, corporate

profitability toward corporate social

responsibility disclosure and
corporate value (comparative study in
Indonesia, China and India stock
exchange in 2013-2016)
Ida Bagus Anom Purbawangsa, Solimun Solimun, Adji Achmad Reinaldo Fernandes
and Sri Mangesti Rahayu
corporate profitability, CSR and corporate value. The originality of
this study is on the reason that many studies that have been
conducted still indicated the inconsistency in the results and
diversity of the indicators, so that a similar study was conducted by
involving the indicators used for measuring the corporate
governance variable, which were the proportion of independent
Abstract
commissioners and audit committee. Meanwhile, for the corporate
Purpose – The purpose of this study is to examine the relationship profitability variable, ROA and ROE were used as the indicators.
of corporate governance and corporate profitability on corporate The originality of this study is that it is a comparative study in three
value with corporate social responsibility (CSR) disclosure as the countries in Asia, namely, China, India and Indonesia. The three
intervening variable. countries have the highest population and highest economic growth
Design/methodology/approach – The population of this study was all in the past five years.
companies listed in Indonesia, China and India Stock Exchange in Keywords Corporate social responsibility, Profitability, Corporate
2013-2016. The inferential statistics used in this study applied the governance, Corporate value Paper type Research paper
partial least square-based (PLS-based) structural equation model
(SEM) method with PLS. The PLS method was selected based on Ida Bagus Anom
the consideration that there was a construct formed with reflective Purbawangsa is based at the Department of
indicators in this study. Management, University of Udayana, Bali, Indonesia. Solimun
Findings – In Indonesia, corporate governance and corporate Solimun and Adji Achmad Reinaldo Fernandes are both based at
profitability have a significant and positive effect on CSR disclosure. the Department of Statistics, University of Brawijaya, Malang,
Similarly, CSR disclosure and corporate profitability have a Indonesia.
significant and positive impact on corporate value. Corporate Sri Mangesti Rahayu is based the Department of Business
governance indirectly influences corporate value, through mediation Administration, Universitas Brawijaya, Malang, Indonesia.
CSR disclosure. In China, corporate governance and corporate
profitability have a significant and positive effect on CSR disclosure.
Similarly, CSR disclosure and corporate governance have a
significant and positive impact on corporate value. Corporate
profitability indirectly affects corporate value, through mediation
CSR disclosure. In India, corporate governance and corporate
profitability have a significant and positive effect on CSR disclosure.
The same thing is seen that CSR disclosure has a significant and
positive effect on corporate value. Corporate governance and
corporate profitability influence indirectly corporate value, through
mediation CSR disclosure.
Originality/value – The study is one of the few studies to investigate
and compare the relationship between corporate governance, Received 26 August 2017 Revised 21 March 2019 Accepted 4 May 2019

DOI 10.1108/SRJ-08-2017-0160 © Emerald Publishing Limited, ISSN 1747-1117

j SOCIAL RESPONSIBILITY JOURNAL j
1. Introduction
One of the main goals of a company is to increase a shareholder’s welfare. Corporate value
 is an indicator to measure a shareholder’s welfare. Increasing corporate value should
become a long-term goal of a company. Corporate value is represented in its stock price
because stock price fluctuation of go-public companies is a reflection of investor’s
evaluation toward the companies. Samuel (2000) explained that enterprise value (EV), or
known as firm value, is an important concept for investors because it is an indicator for the
market to evaluate the overall performance of a company. Therefore, a company should
develop a strategic plan that maximizes its EV or firm value to get a shareholder’s interest
and maintain their trust.
Corporate value is in line with a shareholder’s welfare. Corporate value refers to an
investor’s perception toward a company which is frequently associated to stock price. High
stock price results in high corporate value (Fakhruddin and Hadianto, 2001). Therefore, it is
pivotal for companies to increase owners’ and shareholders’ welfare. High corporate value
will attract more investors. Prior to making investment in a company, investors will find
information from the stock market, and then, evaluate the stock price of the company.
Corporate value is defined as value investors need to make decision related to investment,
and stock price is an indicator of this value (Husnan and Pudjiastuti, 2007). Corporate value
is an investor’s perception about the performance of a company which is closely related to
its stock price (Sujoko and Soebiantoro, 2007). Corporate value is evaluated based on
several aspects, and stock price is one of them. Nurlela and Islahuddin (2008) defined
corporate value as market value. When stock price increases, shareholders will get more
financial benefits. In other words, higher stock price will result in higher shareholder’s
welfare.
A manager and investor are more interested in corporate value. Fact shows that a financial
report does not have any correlation to market value of a company because company has
several assets that cannot be stated in their financial report, such as good management,
good reputation and a very bright prospect.
Financial ratio is used to describe an investor’s perception about market value of a
company. It represents an investor’s assessment about company performance in the past
and its prospect in the future. Corporate value will keep increasing when a company pays
attention to economic, social and environmental aspects (Nurlela and Islahuddin, 2008).
Corporate social responsibility (CSR) is a program that shows responsibility and concern of
a company toward its surroundings. Being a pivotal indicator for investors to evaluate to
what extent a company has achieved its goals, corporate value becomes a dependent
variable in this study. A shift in management responsibility from single bottom line,
corporate value is reflected solely through its financial condition, into triple bottom lines,
financial, social and environmental makes CSR an inseparable element of a company.
Therefore, CSR becomes a mediating variable between independent variables that may
influence corporate value.
Companies develop strategic plans to increase their corporate value and survive business
competition. CSR has become the current trend in the multinational business sector. The
objective of CSR is to help increasing the corporate value and prepare a company to face
the free market. The free market, which facilitated establishment of several international
associations such as AFTA and APEC, encourages companies across the world to start
paying attention to the community and environment, instead of solely focusing on increasing
their business activities. CSR is a commitment of a company to improve the community
around them through good business practices and by contributing some of the company’s
resources (Kotler and Nancy, 2005). Because of the rapid increase of corporate
governance practices, CSR has become one of the growing corporate trends in the past ten

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years. However, there is a constant debate about whether or not investment in CSR is value
enhancing, value-destroying or perhaps even value-irrelevant (William, 2012).
The shift from the single bottom line to the third bottom line allows CSR to develop rapidly.
The third bottom line has proven that financial condition alone is not enough to make
company sustainable. However, several companies listed in the Indonesian Stock
Exchange have not conducted any CSR program. Empirical studies showed that some
factors such as corporate governance and profitability influenced the implementation of
CSR (Anggraini, 2006; Munawaroh, 2014; Pramana and Mustanda, 2016; Jizi et al., 2014;
Abriyani, Wiryono and Sumirat, 2012).
According to OECD (2004), corporate governance is a control and supervision system of
which the goal is to achieve maximum performance without costing its stakeholders.
Corporate governance helps create a conducive and accountable relationship between the
board of commissioners, board of directors and shareholders (Hutapea, 2013).
Implementation of corporate governance within the company will determine the company’s
management practices and decision-making, including those related to disclosure of CSR.
Another variable that influences the implementation of CSR is profitability. Profitability is the
final outcome from a series of management’s policy and decision-making, in which this
policy and decision-making is related to source and utilization of funding to run a company
written in the company’s financial reports and balance sheets (Brigham and Houston,
2001).
A company’s goal is to get profit, and thus, profitability becomes the major concern for both
analysts and investors. Consistent profitability enables a company to survive by gaining
sufficient return compared to the risk (Toto, 2008). Petronila (2003) in Wahidahwati (2002)
stated that profitability represents performance of management in running a company.
Indicators of profitability are profit from operating activities, net income, return on
investment/assets and return on equity. Profitability is the final outcome from a series of
management’s policy and decision-making, in which this policy and decision-making is
related to source and utilization of funding to run a company written in the company’s
financial reports and balance sheets (Brigham and Houston, 2001). Management of
companies that require CSR programs that companies need widely for shareholders
(Heinze (1976) in Hackston and Milne (1996)). Higher profitability allows greater disclosure
of social information (Bowman and Haire (1976) and Preston (1978)). Besides that, a
company will have brighter prospects in the future and approval from investors when it is
concerned about the environment. Therefore, a company that has high profitability will
conduct social events to convince investors that the company focuses not only on their
short-term goals (profit) but also their long-term goals (increasing corporate value) (Yuniasih
and Wirakusuma, 2007).
Studies have been conducted to determine the partial relationship between corporate
governance and CSR profitability and between CSR and corporate value; however, the
results are not consistent. The first inconsistency is regarding the effect of CSR on corporate
value. For instance, Adhitya, Suhadak and Nuzula (2016) and Hartoyo (2016) state that CSR
affects corporate value; however, Agustine (2014) and Saedah (2015) confirm the opposite.
The second inconsistency is regarding the effect of profitability on CSR. Kamil and
Herusetya (2012) confirm that profitability does not influence CSR; however, Pramana and
Mustanda (2016) find the opposite. Besides that, there are very few studies discussing four
variables simultaneously, in which CSR becomes the mediating variable. Furthermore,
previous studies discussing the influence of corporate governance, with various indicators,
toward CSR have come to different findings (Anggraini, 2006; Sembiring, 2006; Hadiyanti,
2016; Jizi et al., 2014; Abriyani, Wiryono, and Sumirat, 2012).
Based on the findings of the previous studies, the researcher is interested in conducting a
study that involves the three variables, in which CSR becomes the mediating variable in
 j SOCIAL RESPONSIBILITY JOURNAL j
influence of corporate governance and profitability toward corporate value. Due to
extensive definition corporate governance has, the researchers used different indicators to
measure corporate governance. The indicators used to measure corporate governance in
this study are independent commissioner proportion and audit committee, whereas those to
measure profitability are ROA and ROE.
The proportion of independent commissioner and audit committee is used as an indicator of
corporate governance because these two parties are needed to establish an effective
system of supervision and control within a company (Sulistyanto, 2008). The proportion of
independent commissioner is used to measure corporate governance because the
existence of an independent board of directors is needed to encourage the implementation
of good corporate governance principles and practices in the company. Beasley (1996) has
found an inverse relationship between the proportion of independent commissioners and
the level of fraud in financial reporting. Companies with a high proportion of independent
commissioners tend to pay more attention to risk compared to companies with a low
proportion of independent commissioners (O’sullivan, 1997, in Hutapea, 2013).
The audit committee is a group of people chosen by a larger group to do a particular job or
to perform special tasks or a number of commissioners of a client company who are
responsible for assisting the auditor in maintaining its independence from management.
This is mainly related to the review of the company’s control system, ensuring the quality of
financial statements and improving the effectiveness of the audit function. The task of the
audit committee is also closely related to the review of risks faced by the company (IKAI,
2004 in Hadiyanti, 2016).
The originality of this study is that it is a comparative study in three countries in Asia,
namely, China, India and Indonesia. The three countries have the highest population and
highest economic growth in the past five years. Based on the World Bank (2016), total
domestic consumption in China, Indonesia and India toward their GDP is 37.45, 56.79 and
57.95 per cent, respectively. Based IMF’s World Economic Outlook (International Monetary
Fund, 2016), China, India and Indonesia have the highest economic growth in the past five
years after the global economic crisis in 2009. The highest source of growth in Indonesia is
consumption. Relatively high consumption increases economic growth amidst the
weakening export rate and investment during the global crisis.
The purpose of this study is to examine the effect of corporate governance and corporate
profitability on corporate value with CSR disclosure as the mediation/intervening variable
and comparing the result of this model in three countries in Asia: Indonesia, China and
India. There have been some previous studies conducted on the influencing factors of CSR
disclosure (Anggraini, 2006; Munawaroh, 2014; Pramana and Mustanda, 2016; Jizi et al.,
2014; Abriyani, Wiryono and Sumirat, 2012), as based on the previous research which
showed that the CSR disclosure is influenced by several factors, such as corporate
governance and corporate profitability. Most of the previous studies on CSR disclosure
were more limited to find out the influencing factors of CSR disclosure and the effect of CSR
disclosure on corporate value (Agustine, 2014; Edmawati, 2012; Hartoyo, 2016; Pramana
and Mustanda, 2016; Retno et al., 2012; Rosiana et al., 2013); Saedah, 2015; Agustina,
2013; Hadiyanti, 2016; Kurniasari and Warastuti, 2015).
The research is one of few studies to investigate and compare the relationship between
corporate governance, corporate profitability, CSR and corporate value. The originality of
this research is on the reason that many studies that have been conducted still indicated
the inconsistency in the results and diversity of the indicators, so that a similar research was
conducted by involving the indicators used for measuring the corporate governance
 variable, which were the proportion of independent commissioners and audit committee.
Meanwhile, for the corporate profitability variable, ROA and ROE were used as the
indicators. The significance of the study is:

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to provide insight about influence of corporate governance and profitability toward
corporate value through CSR;

to show importance of CSR to increase corporate value; and

to provide information about corporate governance, profitability and corporate value for
future researchers.

2. Literature review and conceptual framework

2.1 Corporate governance
Corporate governance is the system of rules, practices and processes by which a company
is directed and controlled. Corporate governance essentially involves balancing the
interests of a company’s many stakeholders, such as shareholders, management,
customers, suppliers, financiers, government and the community. As corporate governance
also provides the framework for attaining a company’s objectives, it encompasses
practically every sphere of management, from action plans and internal controls to
performance measurement and corporate disclosure. Corporate governance is a process
that is influenced by a set of legislations, regulations, legal, market mechanisms, standard
listing, best practices and efforts of all organs of corporate governance, including corporate
directors, officers, auditors, legal and financial advisors, which create a system of checks
and balances which is aimed at creating and enhancing the shareholder value, as well as
protecting the interests of other stakeholders (Rezaee et al., 2009). According to Arifin
(2005), there are many definitions of corporate governance which are influenced by the
underlying theory. A company/corporation can be viewed from two theories, namely,
shareholding theory and stakeholding theory.

2.2 Corporate profitability

Every firm is most concerned with its corporate profitability. One of the most frequently used
tools of the financial ratio analysis is corporate profitability ratios which are used to
determine the company’s bottom line and its return to its investors. Corporate profitability
measures are important to company managers and owners alike. If a small business has
outside investors who have put their own money into the company, the primary owner
certainly has to show corporate profitability to those equity investors. Corporate profitability
ratios show a company’s overall efficiency and performance. Corporate profitability ratios
are divided into two types: margins and returns. Ratios that show margins represent the
firm’s ability to translate sales dollars into profits at various stages of measurement. Ratios
that show returns represent the firm’s ability to measure the overall efficiency of the firm in
generating returns for its shareholders.

2.4 Corporate social responsibility disclosure

CSR is a mechanism for an organization to voluntarily integrate environmental and social
concerns into its operations and interaction with stakeholders, which exceeds the legal and
organizational responsibilities (Darwin, 2004 in Anggraini, 2006). The World Business
Council for Sustainable Development (WBCSD) defines CSR as a business commitment to
contribute to sustainable economic development, through collaboration with employees and
 their representatives, their families, local communities and public to improve the quality of
life that is beneficial for both business and development. Another opinion by Kotler and
Nancy (2005) in Hadiyanti (2016) stated that CSR is the commitment of a company to
improve the welfare of communities through good business practices and to give
contribution through some of its resources.

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2.4 Corporate value
Corporate value is the value needed by the investors in order to make decisions regarding
their investment as reflected in the market price of the company (Husnan, and Pudjiastuti
2007). Corporate value is the perception of the investors toward the success rate of the
company that is closely related to the stock price (Sujoko and Soebiantoro, 2007). The
company aims to increase the corporate value by increasing the wealth of the owners or
shareholders. Corporate value is basically measured from several aspects; one of the
aspects is the market price of the stock of the company. According to Nurlela and
Islahuddin (2008), corporate value is defined as a market value, because the corporate
value of a company can provide maximum wealth to the shareholders if the stock price of
the company increases. The higher the stock price, the higher the wealth of the
shareholders.

2.5 Conceptual framework

The conceptual framework for this study can be seen in Figure 1 below.

2.6 First, corporate governance and corporate social responsibility disclosure

The Indonesian Institute for Corporate Governance or IICG (2000) defines corporate
governance (CG) as the process and structure applied in running a company, with the
primary objective of increasing shareholder value over the long term while still taking into
account the interests of other stakeholders. CG is a process and structure used by
corporate organs to provide added value to the company in long-term sustainability for
shareholders while still paying attention to the interests of other stakeholders, based on
legislation and prevailing norms. In practice, CG differs in every country and company, as it
relates to the economic system, law, ownership structure, social and culture. This practice
difference raises several versions of CG principles, but basically has many similarities. To
apply the various principles of governance so that the principle can be shared, executed
and controlled, a governance structure is necessary. Basically, the governance structure is
governed by the act as the foundation of the legality of the establishment of an entity. The
governance structure within the company can take the form of various models. The legal
system in Indonesia is strongly influenced by the Dutch legal system. So, the governance
structure adopted in Indonesia was influenced by the structure in force in The Netherlands
that is the Continental Europe model. Such a structure is called the two-board system, a
CG structure that explicitly separates the membership of the board, i.e. between the
members

Figure 1 Conceptual framework

Corporate
Governance (X1)
Corporate Value
(Y2)
 Corporate Social
Responsibility
Disclosure (Y1)

Corporate
Profitability (X2)

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of the board of commissioners as the supervisor and the board of directors as corporate
executives:
H1. CG has an effect on CSR disclosure.

2.7 Second, corporate profitability and corporate social responsibility disclosure

Profitability is the end result of a series of management policies and decisions, where these
policies and decisions concern the source and use of funds in carrying out the company’s
operations summarized in the balance sheet and elements report in the balance sheet
(Brigham and Houston, 2001). Profitability is a factor that makes management free and
flexible to disclose CSR to shareholders (Heinze (1976) in Hackston and Milne (1996)). So,
the higher the level of corporate profitability, the greater the disclosure of social information
(Bowman and Haire (1976) and Preston (1978) in Hackston and Milne (1996)). Belkaoui and
Karpik (1989) say that their concern for society (social) will encourage management to
make the company become profitable. In addition, companies that care about the
environment are considered to pay more attention to the company’s future performance
prospects so that it will be assessed positively by investors. Therefore, companies with a
high level of profitability will always strive to increase the disclosure of social activities
undertaken by the company as an attempt to convince investors that the company not only
pays attention to short-term goals (profit), but also the long-term goal of increasing the value
of the company (Yuniasih and Wirakusuma, 2007, in Pramana and Mustanda (2016):
H2. Corporate profitability has an effect on CSR disclosure.

2.8 Third, corporate social responsibility disclosure and corporate value

CSR is a mechanism for an organization to voluntarily integrate environmental and social
concerns into its operations and its interaction with stakeholders, which exceeds the legal
and organizational responsibilities (Darwin, 2004 in Anggraini, 2006). The WBCSD defines
CSR as a business commitment to contribute to sustainable economic development,
through collaboration with employees and their representatives, their families, local
communities and the general public to improve quality of life in a way that is beneficial for
both business and development. CSR as a corporate idea is no longer confronted with the
responsibility of a single bottom line, that is, the corporate value reflected in its financial
condition. But the company’s responsibility should rest on the triple bottom lines. Here, the
other bottom lines in addition to finance are social and environmental. Financial condition
alone is not enough to guarantee the value of sustainable growth companies (sustainable).
The value of the company will be guaranteed to grow sustainably if the company takes into
account the economic, social and environmental dimensions because sustainability is a
balance between economic, environmental and community interests. The dimension is in
the implementation of CSR by the company as a form of responsibility and concern for the
environment around the company. A survey conducted by Booth–Harriss Trust Monitor in
2001 in Sutopoyudo (2009) indicates that the majority of consumers will leave a product that
has a bad image or is reported negative. The CSR concept involves shared partnership
responsibilities between corporations, governments, community resource agencies and
local communities. The company’s obligations on CSR are regulated in Law no. 25 of 2007
concerning Investment and Law no. 40 Year 2007 regarding Limited Liability Company. This
provision is intended to support the establishment of harmonious, balanced and
harmonious corporate relationships with local communities, values, norms and cultures. The
CSR arrangement also aims to achieve sustainable economic development to improve the
quality of life and the environment. The company will disclose information if the information
can increase the value of the company, one of which is the disclosure of CSR. Disclosure of
CSR is the process of communicating the social and environmental impacts of the
company’s economic activities on society. Companies that have good environmental and

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social performance will respond positively by investors through an increase in stock prices.
If the company has poor environmental and social performance, it will appear as doubt from
the investor, so it responds negatively through the decline in stock prices. Thus, the
implementation of CSR will increase the value of the company; this can be seen from the
stock price and profit of the company. Several previous studies have also shown that CSR
disclosure affects the value of the company (Adhitya, Suhadak and Nuzula, 2016;
Edmawati, 2012; Hartoyo, 2016; Rosiana et al., 2013 and Hadiyanti, 2016):
H3. CSR disclosure has an effect on the corporate value.

2.9 Corporate governance, corporate social responsibility disclosure and corporate

value.
Company value is an investor’s perception of the level of success of the company that is
closely related to its stock price (Sujoko and Soebiantoro, 2007). The value of the company
can provide maximum shareholder prosperity if the company’s stock price increases. The
high share price shows a high corporate value. To improve and maintain the value of the
company, the company management needs to pay attention to matters that affect company
value, one of which is CSR disclosure. CSR is a mechanism for an organization to voluntarily
integrate attention to the environment and social aspects into its operations and interactions
with stakeholders, which exceeds organizational responsibility in the field of law (Darwin,
2004 in Anggraini, 2006). Empirical research shows that disclosure of CSR is influenced by
several factors, including CG (Anggraini, 2006; Munawaroh, 2014; Pramana and Mustanda,
2016; Jizi et al., 2014; Abriyani, Wiryono and Sumirat, 2012).
H4. CG has an effect on the corporate value through CSR disclosure.

2.10 Corporate profitability, corporate social responsibility disclosure and corporate

value
The value of the company may not reflect the investor’s perception of the level of success of
the company that is closely related to its stock price (Sujoko and Soebiantoro, 2007). The
value of the company can provide maximum shareholder prosperity if the company’s stock
price increases. To improve and maintain the value of the company, the company
management needs to pay attention to matters that affect company value, one of which is
CSR disclosure. Empirical research shows that CSR disclosure is influenced by several
factors, one of which is profitability (Anggraini, 2006; Munawaroh, 2014; Pramana and
Mustanda, 2016; Abriyani, Wiryono and Sumirat, 2012). Profitability is the end result of a
series of management policies and decisions, where these policies and decisions relate to
the sources and uses of funds in carrying out the company’s operations which are
summarized in the balance sheet and elements in the balance sheet (Brigham and
Houston, 2001 in Agustina, 2013).
H5. Corporate profitability has an effect on the corporate value through CSR disclosure.
 3. Methodology
This research is to examine the effect of CG and corporate profitability on corporate value
with CSR disclosure as the mediation/intervening variable and comparing the result of this
model in three countries in Asia: Indonesia, China and India. The population of this study
was all companies listed in Indonesia, China and India Stock Exchange in 2013-2016.
The population was selected by the author because, in Indonesia, China and India, one of
the indexes is trusted by the investors. In this study, the data to measure CG, corporate
profitability, CSRD and corporate value are obtained from the S&P BSE IPO index (India),
Pefindo 25 index (Indonesia) and CHINEXT 100 index (China). In addition, the secondary

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data are obtained through the reports the Indonesian Stock Exchange Indonesia, SZSE
(China) and BSE (India) issued. These reports are retrieved through the following
websites, namely, www.finance.yahoo.com (stock price), www.bi.go.id (the Indonesian
Bank interest rate) and www.global-rates.com (Indian and China central bank interest
rate). Stock price, in this context, refers to the closing stock price in 2013-2016.
The inferential statistics used in this study applied the partial least square-based (PLS
based) structural equation model (SEM) method with SmartPLS. The PLS method was
selected based on the consideration that there was a construct formed with reflective
indicators in this study. The variable or construct with reflective indicator assumes that the
covariance between the model measurements is explained by the variant which is the
manifest of the construct domain. The direction of the indicator is from the construct to
indicator (Latan and Ghozali: 60, 2012). In this study, the construct of CG was formed with
two indicators, corporate profitability was formed with two indicators and corporate value
was formed with two indicators.

4. Results and discussion

4.1 Measurement model (outer model)
This study used four variables, with three of them being unobservable variables, requiring
a measurement model. Except for CSR disclosure, the other three variables are measured
formatively. The indicators of each variable include, among others, the CG variable
composed by two indicators, namely, the proportion of independent commissioners and
audit committee (Abriyani et al., 2012; Jizi et al., 2014); the corporate profitability variable
composed by two indicators, namely, ROA and ROE (Adhitya, Suhadak, and Nuzula,
2016; Anggraini, 2006; Hartoyo, 2016; Pramana and Mustanda, 2016); furthermore, the
corporate value variable composed by two indicators, namely, PBV and Tobin’s Q
(Hadiyanti, 2016; Bidhari et al., 2013). The six indicators are significant as the
measurements of the three variables, which are seen at p < 0.05. Figure 2 below gives the
result of comparison

Figure 2 Results of outer weight

Outer Weight
pr v Commi e
o
o

C
ec G
0.606
Audit Commi e 0.619
n
e

t a
0.738 0.732
a n

r r
0.644
o e
Independence 0.750
 Book Value Tobins'Q

a
0.701
r 0.668
o
0.607
pr
o

C
y

t
il
i

b 0.775
a
0.840
t

fi
0.870
o

P
0.889
0.936
0.818 Indonesia China India
e

u 0.861
la
V 0.844
e
0.950
t

r
0.0 0.2 0.4 0.6 0.8 1.0

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o

pr
o

j
C

Return on Asset Return on Equity Price to JOURNAL

between the outer weight on each indicator of variable measurement, as well as

comparison between regions (countries).
In Indonesia, CG further highlighted the main measurement is the audit committee, while
China and India are more concerned with the measurement of independence committee as
a measure of CG variables. For corporate profitability variables, in Indonesia, China and
India, the main gauge is return on equity, compared to return on assets. In corporate value
variables, the countries of Indonesia and China are more concerned with the measurement
of price-to-book value as the main measure of corporate value, but in India, the importance
of the value of Tobin’s Q is the main measure of corporate value.

4.2 Structural model (inner model)

The structural model (inner model) was assessed by looking at the R2 value for each
endogenous latent variable as the predictor of the structural model. The R2 value of 0.75
indicates that the model is strong, the R 2value of 0.50 indicates that the model is moderate
and the R2 value of 0.25 indicates that the model is weak. The results of the PLS R2
represent the number of variance of the constructs described by the model (Latan and
Ghozali, 2012: 82). The results of R2 using SmartPLS are presented in Table I below:
Based on the three models, R2 was between 62 and 65 per cent, and therefore, categorized
as moderate. 65.43 per cent of corporate value and CSR disclosure in Indonesia was
determined by CG and corporate profitability. In China, 64.34 per cent of corporate value
and CSR disclosure was determined by CG and corporate profitability. In India, 62.51 per
cent of corporate value and CSR disclosure was determined by CG and corporate
profitability.

4.3 Structural model

The result of testing the relationship between variable presented as follows. The hypothesis
is significant if the p-value < 0.05; otherwise, it is not significant if the p-value > 0.05
(Figure 3).
The result of structural model analysis on the model in Indonesia (IDN) concluded that CG
and corporate profitability have a significant and positive effect to CSR disclosure. Similarly,
CSR disclosure and corporate profitability have a significant and positive impact on
corporate value. Different results appear on the influence of CG; it has no direct effect on
corporate value, but through indirect influence (Figure 4), it appears that CG indirectly
influences corporate value, through mediation CSR disclosure.
 The result of structural model analysis on model in China (CHN) obtained the conclusion
that CG and corporate profitability have a significant and positive effect to CSR disclosure.
Similarly, CSR disclosure and CG have a significant and positive impact on corporate value.
Different results appear on the influence of corporate profitability; it has no direct effect on
corporate value, but through indirect influence (Figure 4), it appears that corporate
profitability indirectly affects corporate value, through mediation CSR disclosure.
The result of structural model analysis on model in India (IND) concluded that CG and
corporate profitability have a significant and positive effect to CSR disclosure. The same

Table I Results of R2
Endogenous variables Indonesia model China model India model

CSR disclosure 0.2934 0.2736 0.2936

Corporate value 0.5107 0.5092 0.4693
Overall 0.6543 0.6434 0.6251

Source: The results of PLS data processing

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Figure 3 Structural model: direct effect
CHI: B=0.311 (P=0.004)
IND: B=0.251 (P=0.015)

IDN: B=0.111 (P=0.141) CHI: B=0.231

(P=0.048) IND: B=0.089 (P=0.233)

Corporate
Governance (X1)

IDN: B =0.256 (P=0.014)

CHI: B=0.233 IND: B=0.385
(P=0.020) IND: (P=0.001)
B=0.252 (P=0.015) Corporate Value
CSR Disclosure (Y2)
(Y1)
IDN: B=0.301
(P=0.005) CHI:
IDN: B=0.411 (P=0.001) B=0.305 (P=0.005)

Profitability (X2)
IDN: B=0.408
(P=0.001) CHI:
B=0.077 (P=0.241)
IND: B=0.088
(P=0.234)
Corporate

Figure 4 Structural model: indirect effect (mediation effect)

IDN: B=0.077 (P=0.042)

CHI: B=0.095 (P=0.033)
IND: B=0.097 (P=0.032)

Corporate
Governance (X1) IDN: B=0.124
(P=0.010) CHI:
B=0.071 (P=0.047)
IND: B=0.097
(P=0.032)

Corporate Value
(Y2)
CSR Disclosure
(Y1)
Corporate Value
Corporate (Y2)
Profitability (X2)
CSR Disclosure
(Y1)
thing is seen that CSR disclosure has a significant and positive effect on corporate value.
Different results appear to influence CG and corporate profitability; they have no direct
effect on corporate value, but through indirect influence (Figure 4), it can be seen that CG
and corporate profitability influence indirectly on corporate value, through mediation CSR
disclosure.

5. Discussion
First, this study accepted H1 that CG has an effect on CSR disclosure. There were two
indicators used for measuring CG, namely, the proportion of independent board of
commissioners and audit committee. The proportion of independent commissioners and
audit committee in the companies listed in LQ 45 may have less effect on the CSR
disclosure policy. CSR disclosure policy is mostly affected by the management of the
companies, namely, the board of directors and board of commissioners, and supported by
other stakeholders. In addition, in Indonesia, China and India, there are many companies
listed in the Indonesia, China and India Stock Exchange, including those that are listed in
the LQ 45 index group whose shares are owned by family or are family companies, which
results in high concentration of ownership. It may have an effect on CG, where the functions
of the independent board of commissioners and audit committee are limited to formality, not

j SOCIAL RESPONSIBILITY JOURNAL j

directly involved in corporate control and supervision. Thus, the CG as measured by
indicators of the proportion of independent commissioners and audit committee does not
have any effect on CSR disclosure. The results of this study are in line with the results of the
study conducted by Abriyani et al. (2012).
Second, the results of this study accepted H2 which states that the corporate profitability of
the company has an effect on CSR disclosure. There were two indicators used for
measuring the corporate profitability of the company, namely, ROA and ROE. ROA is
referred to earning power because this ratio illustrates the profit of every rupiah of assets
used. Through this ratio, we will be able to know whether the company has been efficient in
utilizing its assets in the operational activities or not. Thus, the higher the value of this ratio,
the better the condition of a company. A company that has a good financial performance
will have more resources and funds to invest in social activities. It shows that the higher the
profit obtained by the company and disclosed through ROA ratio, the more the CSR
activities and disclosures conducted by the company.
In addition to ROA, ROE is the financial ratio used for measuring the level of corporate
profitability from the equity side. The higher the value of ROE, the better the performance of
the company, as the increased ratio means a good management performance in managing
the sources of operational financing effectively to generate the net income. The better ROE
value will reflect a good financial performance of the company to its stakeholders, and later,
the stakeholders will encourage companies to make more positive contributions and report
all of its social activities transparently into a more detailed and completed CSR disclosure. It
shows that the higher the profit obtained by the company through ROE proxy, the more the
CSR disclosure conducted by the company.
Thus, the corporate profitability of a company measured by ROA and ROE indicators has an
effect on CSR disclosure. The results of this study support the results of the studies
conducted by Yuniasih and Wirakusuma, 2007, in Pramana and Mustanda (2016), Hartoyo
(2016), Mulyadi and Anwar (2012); and Haryanto and Hong (2013).
Third, the results of this study accepted H3 that CSR disclosure has an effect on corporate
 value. CSR, as an idea of the company, is no longer confronted with the responsibility that is
based on the single bottom line, which is the corporate value reflected in the financial
condition only, but also on triple bottom lines. Here, the other bottom lines in addition to
finance are the social and environment. Financial condition is not enough to guarantee the
sustainable growth of corporate value. Corporate value will be guaranteed to grow
sustainably if the company takes into account the economic, social and environmental
dimensions, as sustainability is a balance between economic, environmental and
community interests. These dimensions are available in the implementation of CSR by the
company as a form of responsibility and concern for the surrounding environment of the
company.
The company will disclose information if the information can increase its corporate value;
one of which is the CSR disclosure. CSR disclosure is the process of communicating the
social and environmental impacts of the economic activities of the company on society. A
company that has good environmental and social performances will get positive responses
from the investors through the increasing stock price. If the company has poor
environmental and social performances, it will raise the doubts from investors, so that it will
get negative responses through the decline in stock prices. Thus, the implementation of
CSR will increase the corporate value, as can be seen from the stock price and profit of the
company. There have been several studies conducted which also showed that CSR
disclosure has an effect on corporate value.
Thus, CSR disclosure will increase the corporate value through the disclosure in terms of
community welfare and environmental awareness that will improve the image of the
company, so that, finally, it will also increase the corporate value. The results of this study

j SOCIAL RESPONSIBILITY JOURNAL j

support the results of the studies conducted by Adhitya, Suhadak and Nuzula (2016);
Edmawati (2012), Hartoyo (2016); Rosiana et al. (2013) and Hadiyanti (2016).
Fourth, the results of this study rejected H4 which states that CG has an effect on the
performance of the company through CSR disclosure. Corporate value is the value needed
by the investors to make a decision regarding their investments as reflected by market price
of the company that is closely related to the stock price. Corporate value can provide
maximum shareholder wealth if the stock price of the company increases. The high stock
price indicates a high corporate value. To improve and retain the corporate value, the
management of the company needs to pay attention to the influencing factors of the
corporate value. Based on the results of this study, corporate value can be directly
influenced by CG without CSR disclosure.
CG is a system of control and supervision on a business entity that has a goal to
achieve maximum performance without disserving its stakeholders. CG helps creating
a conducive and accountable relationship between the board of commissioners, the
board of directors and shareholders (Hutapea, 2013). The implementation of CG in a
company as indicated by the proportion of independent commissioners and audit
committee will determine the supervision and control in the company that will have an
effect on the management practices of the company by the management of the
company. The management practices will determine the success of the company that
will ultimately show the corporate value. Thus, CG proxied by the proportion of
independent commissioners and audit committee can have a direct effect on the
corporate value without CSR disclosure. It means that CSR disclosure is not able to
mediate the effect of CG on corporate value.
Fifth, the results of this study accepted H5 which states that the corporate profitability of the
company has an effect on corporate value through CSR disclosure. Corporate profitability is
a factor that makes management free and flexible to disclose CSR to the shareholders.
Thus, the higher the level of corporate profitability, the greater the disclosure of social
information. The higher the level of disclosure, the higher the level of corporate awareness
on society that will encourage the management to make the company become profitable as
indicated by ROA and ROE.
ROA is referred to earning power because this ratio illustrates the profit of every rupiah
of assets used. Through this ratio, we will be able to know whether the company has
been efficient in utilizing its assets in the operational activities or not. Thus, the higher
the value of this ratio, the better the condition of a company. A company that has a good
financial performance will have more resources and funds to invest in social
activities. This shows that the higher the profit value obtained by the company and
expressed through the ROA ratio will be more and more disclosure of CSR conducted
by the company. It shows that the higher the profit obtained by the company and
disclosed through ROA ratio, the more the CSR activities and disclosures conducted by
the company.
In addition to ROA, corporate profitability of a company is also indicated by its ROE. ROE is
a ratio which indicates the ability of a company in generating the net profit for the return on
equity of the shareholders. ROE is the financial ratio used for measuring the level of
corporate profitability from the equity side. According to Helfert (2000), ROE always gets
attention from the shareholders because, through this ratio, the shareholders will know how
much the profit they will gain based on the stocks/shares invested to the management.
Theoretically, the better ROE value will reflect a good financial performance of the
company to its stakeholders, and later, the stakeholders will encourage companies to
make more
positive contributions and report all of its social activities transparently into a more detailed
and completed CSR disclosure. Thus, corporate profitability can increase corporate value
through CSR disclosure.

j SOCIAL RESPONSIBILITY JOURNAL j

6. Implications
This research adds insight and knowledge about the effect of CG and profitability on
corporate values through CSR disclosure. Also, it provides input for company management
about the importance of the role of CSR disclosure by companies to increase company
value. It also provided information for research related to CG, profitability and corporate
value in the future.

7. Conclusions and recommendations

From the results of this study, it can be concluded that the result of structural model analysis
on model in Indonesia (IDN) concluded that CG and corporate profitability have a significant
and positive effect on CSR disclosure. Similarly, CSR disclosure and corporate profitability
have a significant and positive impact on corporate value. CG indirectly influences corporate
value, through mediation CSR disclosure. The result of structural model analysis on model in
China (CHN) obtained the conclusion that CG and corporate profitability have a significant
and positive effect on CSR disclosure. Similarly, CSR disclosure and CG have a significant
and positive impact on corporate value. Corporate profitability indirectly affects corporate
value, through mediation CSR disclosure. The result of structural model analysis on model in
India (IND) concluded that CG and corporate profitability have a significant and positive effect
to CSR disclosure. The same thing is seen that CSR disclosure has a significant and positive
effect on corporate value. CG and corporate profitability influence indirectly on corporate
value, through mediation CSR disclosure.
From the conclusion above, it can be seen that CSR can increase the influence of CG and
 corporate profitability on corporate value. Thus, it can be said that CSR is an important
variable and should be given more attention by practitioners to improve corporate value.
The variables tested in this study were limited to CG, corporate profitability and CSR
disclosure, although there are other variables assumed to have some effects on corporate
value. The companies as the object of this study were only limited on those listed in LQ 45
index group in 2013 to 2016, so the results still cannot be generalized for all companies.
Therefore, further studies are expected to increase or expand the variables, which are
assumed to have some effects on corporate value, either being a mediator or having a
direct effect. Furthermore, it is expected to expand the object of study to all companies
listed in the Indonesia, China and India Stock Exchange. Thus, the result of the study will be
generally applicable to all companies.
This study is expected to be able to provide empirical evidences and support the theory
concerning the effect of CG and corporate profitability of company on CSR disclosure, as
well as on the effect of CSR disclosure on corporate value. Some of the results of this study
support the results of previous studies. For example, the result of structural model analysis
on models in India shows that CSR disclosure has a significant and positive effect on
corporate value. This finding supports the research results of Adhitya, Suhadak and Nuzula
(2016) and Hartoyo (2016). In addition, the result of structural model analysis on models in
Indonesia, China and India shows that CG and corporate profitability have a significant and
positive effect on CSR disclosure. This finding is also in line with the results of research by
Pramana and Mustanda (2016).

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Corresponding author
Ida Bagus Anom Purbawangsa can be contacted at: bagus.unud.jp@gmail.com

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