Enterprise Risk Management Quality and Its Effect on Profitability and Firm Value in Indonesian Energy Sector Public Companies

Abstract

Enterprise Risk Management (ERM) has become increasingly important for energy companies facing volatile commodity prices, regulatory pressures, operational uncertainties, and environmental, social, and governance (ESG) risks. This study aimed to examine the effect of Enterprise Risk Management Quality (ERMQ) on profitability and firm value among Indonesian energy sector public companies. A quantitative explanatory research design was employed using secondary panel data from 53 energy companies listed on the Indonesia Stock Exchange during 2020–2024, resulting in 265 firm-year observations. ERMQ was measured using a 14-indicator disclosure instrument, while profitability and firm value were proxied by Return on Assets (ROA) and Tobin’s Q, respectively. The data were analyzed using Pooled Ordinary Least Squares (Pooled OLS) with robust standard errors after conducting model selection and diagnostic tests. The results showed that ERMQ had a negative but statistically insignificant effect on ROA, whereas it had a positive and significant effect on Tobin’s Q. Leverage significantly reduced profitability, while firm size demonstrated only marginal effects. These findings indicate that higher ERM quality is more readily recognized by capital markets as a signal of stronger governance and long-term organizational resilience than reflected in short-term accounting performance. The study concluded that strengthening ERM quality can enhance firm value, although its impact on profitability remains context-dependent and uncertain.