CEO Busyness, Climate Risk, and Capital Structure on Firm Value: Evidence from High-Carbon Firms in Indonesia

Abstract

Corporate governance and sustainability issues are increasingly urgent areas of research, especially for carbon-intensive companies facing regulatory pressures and market expectations regarding climate risks. The urgency of this research lies in the need to understand how internal factors, in the form of CEO busyness and external factors in the form of climate risk, affect company value, as well as how financial policies through capital structures can play a role as a mitigation mechanism. The purpose of this study is to analyze the influence of CEO busyness and climate risk on firm value, and to test the role of capital structure as a mediating variable. This study employs a quantitative, structural equation modeling (SEM-PLS) approach on a sample of carbon-based companies in Indonesia. The results show that CEO busyness and climate risk negatively affect firm value, while capital structure positively affects firm value. In addition, the capital structure has been proven to partially mediate the influence of CEO busyness and climate risk on firm value. These findings confirm that the right funding policies can mitigate the negative impact of weak internal governance and external pressures, such as climate risks. The contribution of this research is to strengthen Agency Theory, Legitimacy Theory, and Trade-Off Theory with new empirical evidence in the context of carbon-based enterprises. The novelty of this research lies in integrating the three theoretical perspectives into a single conceptual framework and in emphasizing the role of capital structure as both a compensation mechanism and an adaptation to internal and external factors that affect the company’s value.