International Journal of Contemporary Accounting ISSN 2685-8568 (Online)

Vol. 2 No. 1 July 2020 : 43 - 64 ISSN 2685-8576 (Print)

Doi : http://dx.doi.org/10.25105/ijca.v2i1.6319

IS THE ENVIRONMENTAL PERFORMANCE,

ENVIRONMENTAL ACCOUNTING, AGENCY COST IMPACT ON
COMPANY PERFORMANCE?

(CASE STUDY OF REGIONAL WATER COMPANIES IN

INDONESIA)

Hendra Setiawan
Institut Bisnis dan Informastika Kesatuan Bogor
e-mail: hendrasetiawan@ibik.ac.id
Abstract
Companies that want to continue to exist and thrive in this day and age must make an
increase in company performance. The performance referred to here is not just
performance according to the wishes of the company but the following customer needs.
Factors that influence the company's current performance are environmental factors and
agency costs. This study will analyze the effect of environmental performance,
environmental accounting, and agency cost on company performance. The target
population of this study is the local water company (PDAM) of 34 PDAMs out of 368
PDAMs which were evaluated based on PDAM performance audit reports up to 2016
conducted by BPKP and financial audits by the Public Accountant Office (KAP). The
research method used is descriptive quantitative. Data collection techniques are primary
data through questionnaires that are shared with PDAM stakeholders and secondary
data on PDAM performance audit reports. The results showed that environmental
performance had a significant negative effect on PDAM company performance.
Meanwhile, environmental accounting and agency costs have a significant positive
effect on PDAM company performance. The PDAM must pay attention to its
environmental performance effectively and efficiently by always paying attention to
environmental accounting and agency costs.
Keywords: environmental performance, environmental accounting, agency cost,
company performance

JEL Classification: L25, L32, M41

Received: 27/01/2020 Revised: 27/03/2020 Accepted: 01/04/2020

INTRODUCTION
To survive in this globalization era, companies must improve and develop
company performance following the times. Some things done to improve and develop

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company performance include improving the welfare of its employees (Scafà, Papetti,
Brunzini, & Germani, 2019), doing corporate social responsibility (Larsen, Österlin, &
Guia, 2018; Phillips, Thai, & Halim, 2019), making diversified various products and
services (Garrido-prada, Delgado-rodriguez, & Romero-jord, 2018; Li, Cui, Nie, Lin, &
Shan, 2019), create a sustainable energy system (Martí-Ballester, 2017), monitor
customer satisfaction on company performance (Blessing & Natter, 2019), manage
finances especially loans (Xu, Zhang, Wang, & Shi, 2020), and conduct activities that
care for the environment (Song, Zhao, & Zeng, 2017). From the company's
performance activities, several factors that influence are environmental awareness and
financial monitoring.
The environment is one important component that influences company
performance (Betts, Super, & North, 2018; Martinez, Alvarez, Capuano, & Delgado,
2020; Reyes-Santiago, Sánchez-Medina, & Díaz-Pichardo, 2019). Without a good
environment, the company's performance will also not be good. Factors that influence
environmental conditions include technological innovation (Chege & Wang, 2019),
whether or climate in the area (M., P., M., & Kamaruzzaman, 2019), ability and
concern for human resources (Singh, Giudice, Chierici, & Graziano, 2020) waste
including metals (Nagarajan & Haapala, 2018), air pollution or smoke (Martinez et al.,
2020), and hazardous chemicals that pollute water (Teodosiu, Gilca, Barjoveanu, &
Fiore, 2018; Walker, Norton, Harris, Williams, & Styles, 2019; Zhao et al., 2019).
Environmental-related research categories that can company performance are
environmental performance (Betts et al., 2018; Martinez et al., 2020; Reyes-Santiago et
al., 2019) and environmental accounting (Patterson, McDonald, & Hardy, 2017; Qian,
Hörisch, & Schaltegger, 2018).
Environmental performance is a strategic corporate activity in managing who
manages (or does not) operational activities and their interactions with stakeholders by
paying attention and seeing their impact on the environment (Haholongan, 2016; Tahu,
2019; Walls, Berrone, & Phan, 2012). Some environmental performance studies
include the use of technological innovations that pay attention to the environment in
small companies in Kenya that have a greater financial success impact on the company
(Chege & Wang, 2019), integrating human resources, innovation and the environment
in a UAE company (Singh et al., 2020), an increase in the level of production capability
in developing and new companies that are concerned with the environment both its
performance and its implementation (Betts et al., 2018), companies that pay attention to
the environment on pollutants (tractor exhaust emissions) and other wastes get better
Camelina sativa (L.) production, in which Crantz as raw material for animal flour in the
Mediterranean land of Spain (Martinez et al., 2020) and the impact of pollution in
Europe greatly s the deterioration in the quality of water available for drinking
(Teodosiu et al., 2018). Companies that pay attention to the environment get a good
improvement on their finances, especially companies that deal with the environment.
Another thing, the environment is also related to accounting and is referred to as
environmental accounting (Ratulangi, Pangemanan, & Tirayoh, 2018). The full
awareness of the company is demanded by environmental accounting in utilizing the
environment which gives impact to the progress and development of the company's
business. However, in practice, many companies have not been impactive in applying
environmental accounting so that most aside from the risk of damage (Qodriana, 2017;
Ratulangi et al., 2018). he importance of paying attention to environmental accounting,

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among others, for the application of environmental accounting information systems in-
state gas companies wherewith this information system gives a positive value on
acceptance and competitive advantage of the company (Utama, 2016), environmental
accounting calculations show the use of 14.79% renewable energy and 8, 41% of trade
policies cause 0.6% and 9.88% of environmental damage (Usman, Alola, & Sarkodie,
2020), companies in Germany, US, Japan and Australia that use EMA (environmental
management accounting) that have a good impact on company management. (Qian et
al., 2018), and calculate environmental degradation including agricultural, industrial,
and social losses due to air, water, and waste pollution in the delta region of China
(Wang et al., 2019). Therefore, this is very important because it can affect the
company's financial management which has an impact on company performance.
Besides, the company's performance shows the company's ability to provide
benefits from assets, equity, and debt. One measure of company performance is Return
on Equity (ROE) (Adib, 2016). According to Prihadi (2011: 167), ROE is used by
investors to find out how far the results obtained from the investment of capital (Adib,
2016). Therefore, the role of managers is very important in managing the company.
However, managers who tend to make decisions that benefit themselves rather than the
interests of shareholders can cause agency conflict. Agency conflict can lead to agency
costs, which is in the form of providing appropriate incentives to managers and
oversight costs. Agency costs can occur between controlling shareholders and minority
shareholders, between shareholders and creditors, between shareholders and
stakeholders (Adib, 2016). Agency cost can affect company performance such as
financial performance in family companies in the consumer goods industry sector on
BEI family companies where agency cost simultaneously influences financial
performance (Muchlas & Alamsyah, 2017), companies that have a family ownership
structure where ownership families with moderation techniques can weaken the
positive impact of agency costs proxied by the asset utilization ratio on company
performance (Layyinaturrobaniyah, Sudarsono, & Fitriyana, 2014), company adoption
of complex asset-based financing (Abdul Halim, How, & Verhoeven, 2017), companies
that pay attention to high agency costs have better manager performance (Varela,
2017), the occurrence of agency cost inconsistencies with the government transport
authority decreases the quality of service (Canitez, Alpkokin, & Black, 2019), and
Chinese state-owned companies during 2004 - 2017 the handover of state capital gains
has an impact significant positive on reducing agency costs (Lin, He, Wang, & Huang,
2019). Based on that agency cost also s the performance of the company.
One of the companies in Indonesia that is ed by environmental conditions is a
regional water company (PDAM). Water is one of the national resources and is a basic
need for all members of the community, including the need for drinking water. By-Law
Number 7 of 2004 concerning Water Resources and Law Number 32 of 2004
concerning Regional Governments, that the development of drinking water supply and
service systems to the public is the responsibility of the Government and Regional /
Regency / City Governments organized in the framework of realizing the welfare of the
community by guaranteeing the basic needs of drinking water for the people who meet
the requirements for quality, quantity, and continuity whose implementation policies
are implemented by the Regional Drinking Water Company (Indonesia, 2004b, 2004a).
The environment around the water source that is managed by the PDAM is very
influential on the performance of the PDAM. However, not many have examined the

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environmental impact on PDAM performance. Most of the research related to PDAM

regarding the assessment of the performance of human resources in PDAM Pekanbaru
(Istiana, 2017), the service quality of the Regional Water Supply Company (PDAM)
Sragen District (Sumantri & Parwiyanto, 2017) Mempawah District (Sianipar &
Wahyono, 2018) Jember District (R & Hafifi, 2017), PDAM performance is seen from
financial, operational and administrative aspects in Malinau District (Prakoso,
Jonathan, & Lau, 2013), and water quality in PDAM Tirta Manggar in Balikpapan City
(Suseno & Widyastuti, 2014).
In general, in improving services to customers, the development of PDAM
infrastructure is a strategic program in meeting the level of service needs, drinking
water service infrastructure that is built in the form of Raw Water Catchers (intake),
Raw Water and Clean Water Transmission Pipes, Construction of Water Treatment
Plants Treatment Plan / WTP) as well as the development of the Distribution Pipeline
to the location of customer service, where the infrastructure development is related to
various activities of the surrounding community, thus building and developing
infrastructure will have an impact on the environment. As happened in the city of
Lampung where the PDAM pipeline work according to the majority of people affected
by the work was disturbed because it would cause congestion and air pollution (dust)
(Gustimigo, 2017). Besides, PDAM drinking water treatment also causes sludge
disrupting the environment as happened in Pontianak (Fitri, 2013), Cilacap (Sucahyo,
Firdaus, Lintang, & Limbah, 2018), and Lamongan (Hakim & Mubin, 2016).
Therefore, PDAM management is accused of having poor environmental performance,
this can be seen from the many cases of environmental damage caused by PDAMs in
each region.
PDAM management is carried out by people appointed as managers by the
owner of the company in this case the local government. This is in line with Agency
theory where company management as an "agent" for company owners, will act with
full awareness for their interests (Murwaningsari, 2009). Therefore, this study will
analyze the environmental impact and managerial financing of PDAM performance in
Indonesia. The examined environmental impacts are environmental performance and
environmental accounting. Data is taken from several PDAMs in Indonesia. The data
obtained were processed using SEM PLS. The test results analyzed the impact of
environmental performance, environmental accounting, and agency cost on the
performance of the PDAM. The results of this study can be a reference in taking action
to take care of the environment that s the PDAM's performance.

LITERATURE REVIEW
Theory
Agency theory developed by Michael Johnson in Achmad Daniri, 2006 states
that company management as an "agent" for shareholders, will act with awareness for
their interests (Murwaningsari, 2009). Agency theory wants to solve problems arising
from agency relationships, that is, when shareholders cannot know for certain whether
agents have acted appropriately, and when shareholders have different views of risk-
related agents (Kovermann & Velte, 2019; Sofia, 2019). Agency theory stipulates that
conflicting interests of shareholders and managers can trigger conflicts and will disrupt
the smooth running of the company (Rodriguez-Fernandez, 2016). The separation

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between the agent and the shareholders contained in the agency theory results in the
risk of conflict that can affect the quality of the profits generated. Management tends to
prepare earnings reports by specific objectives and interests and not in the interests of
shareholders. Therefore, a control mechanism is needed so that it can harmonize
differences in interests between the two parties (Wati & Putra, 2017). In the PDAM,
the local government as the PDAM owner shows someone to be the manager and
manage the PDAM. Therefore, local governments that have issued agency costs need to
analyze the PDAM's performance.
According to Lakonski (2000), environmental performance is a company
performance that focuses on the company's program in preserving nature and reducing
the environmental impact arising from company activities (Tahu, 2019). Suratno et al.,
(2006) states environmental performance is the company's performance in paying
attention and protecting the environment to be good (Tahu, 2019). Also, Haholangon
(2016) states that environmental performance is a company program to voluntarily
integrate company programs about the environment with stakeholders, which exceeds
organizational concern in the legal field (Haholongan, 2016). Dinding et.al (2011)
states that environmental performance is the result of a company's strategic activities
being managed (or not) and having an impact on the environment (Walls et al., 2012).
Important things that cause environmental performance influence on company
performance, among others, environmental management initiatives require large
investments and long-term implications so that they have risks and have an impact on
the company's capital structure and need extensive coordination at various levels of the
company that affects the influence of the company outside the company and cross-
interests occur (Walls et al., 2012). Thus, environmental performance is the ability of
the company's work that focuses on preserving the environment and reducing the
environmental impact arising from company activities.
Environmental accounting is a study of costs and business processes related to
the environment to see the cost-efficiency used to measure the quality and services
provided by the company. This science aims to make companies comply with
environmental laws so that they can do what makes the environment safe and
sustainable. Full awareness of the company is demanded by environmental accounting
in making use of the environment where it gives impact to the progress and
development of the company's business. The benefits that were taken turned out to have
an impact on the progress and development of the company's business. Therefore,
companies or organizations need to consider environmental conservation sustainably so
that their efforts improve (Ratulangi et al., 2018). According to Irawan (2001),
Nowadays, environmental problems become a complex crisis and touch on all aspects
including accounting (Utama, 2016). Environmental accounting has begun to develop
and play a role in increasing the value of the company. However, environmental
accounting is relatively new and needs to be developed. This needs attention because
the data and information contained therein are very useful for companies to make
decisions. According to Lutz (1991), three things cannot be explained by financial
accounting for environmental information, namely (1) environmental and natural
resources are not included in the balance sheet, which shows the limitations of
measurement, changes in the environment and natural conditions (2) Accounting that
conventional nature on a national scale fails to record the depreciation of natural
resources (such as water, air, and natural gas) (3) Expenditures to improve

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environmental assets that are often included in income (Utama, 2016). According to
Hansen and Mowen (2003), the environmental performance has a very large influence
on a company's financial position regarding environmental cost information (Utama,
2016). According to Makarin (2004), environmental management is very important
accompanied by environmental-related reports, in addition to the company's financial
statements because they relate to company performance. Environmental reporting
standards do not yet have standards, so reports are made according to the perception of
their respective companies, including costs to improve environmental improvements or
costs to improve production systems so as not to pollute the environment (Utama,
2016).
According to Fachrudin (2011), agency cost is the provision of appropriate
incentives to managers as well as monitoring costs to prevent hazards. Also, agency
cost means the use of cash flow for bonuses or unnecessary expenses by managers of
free cash flow (Adib, 2016). According to Jensen and Meckling (1976), agency theory
shows that if the owner becomes a manager, the value of the company will decrease.
According to Jensen and Meckling (1976), losses to companies as non-financial
benefits to finance managers and a bond and monitor their performance are agency
costs (Varela, 2017). The owner of an outside company can determine someone to be
an agent where the agent can be controlled, monitored, and bound by agency costs
(Varela, 2017). Measurement of agency costs is based on the number of the company's
losses to agency costs, ties, and monitoring. Jensen and Meckling (1976) do not
consider whether managers work better or not than company owners (Varela, 2017).
According to Smith (1776), when the company is managed by someone else, there will
be a dilution of the objectives of the owner of the company (Varela, 2017). Berle and
Means (1932) found ownership dispersion because the difference between ownership
and managers influential about firm performance leads to agency cost (Varela, 2017).
The business performance or company performance is part of an organization's
effectiveness which includes operational and financial results. The definition of
company performance in the decade of the 21st century focuses on how companies
make efficient resources to consistently improve capabilities and abilities to achieve
company goals (Taouab & Issor, 2019). According to Cameron (1986), organizational
effectiveness includes all aspects related to the functioning of an organization (Selvam,
Gayathri, Vasanth, Lingaraja, & Marxiaoli, 2016). Verboncu and Zalman (2005) state
that special results from economic, marketing, and economic processes so that
companies have characteristics so that they can compete effectively and efficiently with
all stakeholders and internal components is a company's performance (Taouab & Issor,
2019). Another thing stated by Lebans and Euske (2006) where there are 3 (three)
concepts of company performance, namely (1) information about the level of
achievement of objectives and results based on the amount of information from
financial and non-financial indicators (2) requires assessment and interpretation (3)
using a model causal to illustrate the results in the future as a result of current actions
(4) a different understanding occurs depending on the role of the people involved in it
in company performance (5) it is necessary to know the concept of fundamental
characteristics for each area of responsibility (6) the need for level reporting company
performance so that results can be measured (Taouab & Issor, 2019). Siminica's
opinion (2008) reinforces that a company has a performance when it can maximize
time effectively and efficiently (Taouab & Issor, 2019). In contrast to the statement

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from Colase (2009) which defines performance as profitability, productivity, growth,

profit, efficiency, and competitiveness (Taouab & Issor, 2019). Bartoli and Blatrix
(2015) state that achieving performance can be achieved by testing, evaluation,
effectiveness, efficiency, and quality (Taouab & Issor, 2019). Also, the company's
performance is related to operational performance and financial performance where
according to Venkatraman & Ramanujam, V. (1986), operational performance is seen
as an antecedent (past activity) to financial performance which will affect existing
resources. Also, customer satisfaction is part of the company's performance which is
the result of the perspective of customers - and stakeholders on company performance
(Selvam et al., 2016). Sudhahar et. al. (2006) states, this can create a competitive
environment for companies to protect the interests of their customers in the long run
(Selvam et al., 2016).

Hypothesis Development
According to Lakonski (2000), environmental performance is a company
performance that focuses on the company's activities in preserving the environment and
reducing the environmental impacts arising from company activities (Tahu, 2019).
These environmental performance activities can improve company performance such as
small companies in Kenya where companies that use technological innovations that pay
attention to the environment have an impact on the financial success (Chege & Wang,
2019), companies in developing and new countries that are concerned with the
environment experience increased production capabilities in the company (Betts et al.,
2018), companies that produce fodder experience increased production when they
begin to pay attention to the environment for pollutants (Martinez et al., 2020).
Companies that pay attention to the environment get a good improvement in their
finances, especially companies that deal with the environment. Based on these
references, the relationship of environmental performance to company performance is:

H1: Company performance is positively influenced by environmental

performance.

Irawan (2001) states that currently, environmental problems become a complex

crisis and touch on all aspects including accounting (Utama, 2016). Environmental
accounting has begun to develop and is used in enhancing corporate governance.
However, environmental accounting is relatively new and needs to be developed. This
needs attention because the data and information contained therein are very useful for
companies to make decisions. However, in practice, many companies have not been
effective in applying environmental accounting so that most aside from the risk of
damage (Qodriana, 2017; Ratulangi et al., 2018). In fact, by implementing
environmental accounting, the costs associated with the environment can minimize the
impact on company performance such as the state gas company whereby implementing
environmental information systems can increase acceptance and competitive advantage
of the company (Utama, 2016), the use of renewable energy and trade policies can be
minimized (Usman et al., 2020), minimize environmental degradation due to pollution
that occurs (Wang et al., 2019). Based on these references, the relationship of
environmental accounting to company performance is:

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H2: Company performance is positively influenced by environmental

accounting.

According to Fachrudin (2011), agency cost is the provision of appropriate

incentives to managers as well as monitoring costs to prevent hazards. Also, agency
cost means the use of cash flow for bonuses or unnecessary expenses by managers of
free cash flow (Adib, 2016). Agency cost can occur between controlling shareholders
and minority shareholders, between shareholders and creditors, between shareholders
and stakeholders (Adib, 2016). Therefore, agency cost can affect company
performance. However, the effect of agency cost on company performance has not
been consistent in the sense that it can increase or decrease company performance in
family companies where family ownership weakens agency cost so that company
performance also decreases (Layyinaturrobaniyah et al., 2014; Muchlas & Alamsyah,
2017) and decreases in service performance public transportation due to agency cost is
not in line with government policy (Canitez et al., 2019). But in some cases, companies
that pay attention to high agency costs have better manager performance and lead to
improved company performance (Varela, 2017). Based on these references, the
relationship between company performance and agency cost is:

H3: Company performance is positively influenced by agency cost.

METHOD
This type of research used in this research is explanatory survey research.
Singarimbun and Efendi (1995) explain that explanatory research is research that
explains causal relationships and hypothesis testing (Amerieska & Nurhidayah, 2014).
The polls from this study are PDAMs in the Healthy category according to an
assessment from the Agency for the Improvement of the Drinking Water Supply
System (BPPSPAM) of the Ministry of Public Works and Public Housing in all regions
of Indonesia, which is divided from Region I to Region IV. This study determines that
the PDAM used is the PDAM that provides drinking water services through pipelines
to customers, both those who have a raw water treatment plant (Water Treatment Plan)
or with a spring, whose conclusions are drawn. Sampling is not done randomly but the
whole population is the total number of samples, this is because not many choices are
used.
The technique of collecting data in this study is the primary method through the
submission of questionnaires to the Directors and Heads of Section / Managers of
PDAMs and secondary methods by looking at the Financial Statements and
Performance Reports of PDAMs in 2017 from PDAMs that were evaluated against 368
PDAMs based on PDAM performance audit reports up to 2016 which conducted by
BPKP and financial audits by the Public Accounting Firm (KAP).
The variables in this study consisted of the dependent variable (Y) namely
company performance and the independent variable namely environmental
performance (X1), environmental accounting (X2), and agency cost (X3). Company
performance measurement (Y) of the PDAM uses the PDAM Technical Guidance
Book issued by the Water Supply System Development Organizing Agency in the
Regional Drinking Water Company Number 002 / KPTS / K-6 / IV / 2010 concerning

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Performance Evaluation of Service Providing Services for the Development of

Drinking Water Supply System Development the Regional Water Company that there
are 4 dimensions of measurement, namely (1) financial (2) services (3) operational (4)
human resources (5) total value of performance (Rakyat, 2010). The dimensions
measured on environmental performance (X1) in this study are (1) Chemicals (2)
Energy (3) Raw Water (4) Environment (5) Waste (6) Clean Water Products and
Services (7) Employment (8) Occupational safety and health (9) community (10) Safety
and health of customers (11) Water Supply Products and Services (12) Marketing
Communication (Walls et al., 2012). The dimension measured in environmental
accounting (X2) is the cost to the environment. The dimensions measured at agency
cost (X3) are monitoring costs, bonding costs, and residual cost (Varela, 2017). The
dependent variable (Y) company performance, (X2) environmental accounting, and
(X3) agency cost uses secondary data. Whereas the independent variable (X1) uses
primary data.
Structural Equation Modeling (SEM) Partial Least Square (PLS) analysis
technique used in this study. This analysis technique is used because each variable has
a different indicator (Hair, Hult, Ringle, & Sarstedt, 2014; Marko Sarstedt, Christian
M. Ringle, 2017). Partial Least Square (PLS) is a method of analysis that is not based
on many assumptions. The data obtained do not have to be multivariate normally
distributed and the samples do not have to be large. Although PLS can also be used to
confirm theories, it can also explain the presence or absence of relationships between
latent variables. The PLS model is based on latent variables, which are variables
measured based on indicators (variables that can be observed / can be measured
empirically) with the following model.
1. Reflective Model, indicators are seen as variables that are influenced by latent
variables. This results if changes in one indicator will result in changes in other
indicators in the same direction. The characteristics of the reflective indicator
model are:
a. The direction of causal relations from construct to indicator.
b. It is expected to correlate between indicators.
c. It will not change the meaning and meaning of latent variables even though one
indicator from the measurement model is missing.
d. Calculates the measurement error (error) at the indicator level.
2. Formative models, where the indicator is seen as a variable that affects latent
variables, if one indicator increases, it does not have to be followed by an increase
in other indicators in one construct, but will certainly increase the latent variable.
The characteristics of the formative indicator model are:
a. The direction of the causal relationship from the indicator to the latent variable.
b. It is assumed that the indicators are not correlated.
c. The meaning of the variable changes when one indicator disappears.
d. Calculates the measurement error (error) at the variable level.
The reflective measurement model aims to ensure the validity and reliability of
the data obtained. Analysis carried out included (1) validity testing using cross-loading
values where the loading factor value for each indicator variable used > 0.5 (2)
reliability testing using composite reliability values for each indicator variable. where
all indicators have composite reliability values > 0.7 (3) reliability testing using the
value of Average Variance Extracted (AVE) where for each indicator variable must

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have a value > 0.5 (Hair et al., 2014).

The formative measurement model aims to ascertain the effect between
variables using determination and t-statistic measurements. This determination test uses
R2 value where R2 value of 0.25 can show a weak predictive accuracy while 0.50 is
categorized as moderate and 0.75 is categorized as substantial (Hair et al., 2014).
Testing the t-statistic measurement using a bootstrap coefficient test consisting of the
value of the influence of variables, the average variable, standard deviation, standard
error, and t-statistics. If the value of t calculation statistics> t table statistics then Ho is
accepted, but if vice versa, then Ho is rejected. Model analysis of structural equation
modeling partial least square (SEM-PLS) can be seen in Figure 1:

Figure 1. PDAM Company Performance Model in Indonesia

RESULT

PDAM Profile
The sampling used in this study is a purposive sampling method, in which
company samples are selected based on certain criteria. The researchers' considerations
in determining the sample are as follows:
1. The PDAM must be registered with BPPSPAM in 2017.
2. PDAM categorized as Healthy.
3. PDAMs are grouped into small, medium, and large groups.
4. Publish financial reports and performance reports ending December 31, 2015, to
2016 in succession.
5. Represents from Regions I to Region IV throughout Indonesia.
6. Companies that have complete data regarding Environmental Costs / Subscription
Relations Fees, Supervisory Board Fees / Audit fees / Loan Interest Costs from
2015 to 2016.

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Based on the aforementioned criteria, a sample of PDAMs that can be used for
research by 34 companies with a recapitulation of the number of groups can be
obtained can be seen in Table 1:

Table 1. PDAM Group Recapitulation

Group Total
Small 8
Medium 14
Large 12
Total 34
Source: BPPSPAM - Ministry of PUPR

Reflective Measurement Results

The results of validity testing using crossloading values for each indicator
variable where all indicators have a loading factor value for environmental performance
using primary data can be seen in table 2.

Table 2. Value of Loading Factor Indicators in the Environmental

Performance Model of PDAM in Indonesia
Variable Indicator Loading Factor Value
1. Chemical material X1 0.900252
X2 1. 0.708837
2. Energy X3 0.322945
X4 0.366638
X5 0.758147
X6 0.909755
X7 0.915718
3. Raw water X8 0.820820
X9 0.821815
X10 0.393875
4. Environmental X11 0.437897
X12 0.702339
X13 0.821429
X14 0.853812
5. Waste X15 0.782178
X16 0.891931
X17 0.802840
X18 0.606773
X19 0.600882
6. Clean Water Products
X20 0.638074
and Services

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Variable Indicator Loading Factor Value

X21 0.727137
X22 0.806813
7. Employment X23 0.867839
X24 0.744156
8. Occupational Health
X25 0.718390
and Safety
X26 0.776205
X27 0.813802
9. Society X28 1.000000
10. Customer Safety and
X29 0.81109
Health
X30 0.775723
11. Labeling, Clean
Water Products and X31 0.699437
Services
X32 0.711739
X33 0.857988
12. Marketing
X34 0.772243
Communication
X35 0.631569
X36 0.716013
Source: Primary Data Processed, 2018

The cross-loading value for each indicator variable shown in table 2 has a
loading factor value> 0.5 except X3 of 0.322945, X4 of 0.366638, X10 of 0.393875,
X11 of 0.437897. Similarly, other indicators have a loading factor value> 0.50. This
shows that the indicator variable used has good convergent validity. The cross-loading
value also shows a good discriminate validity because the indicator value of the
constructed value on similar variables has a higher correlation value than the indicator
variable with other constructs.
The results of validity testing using cross-loading values for each indicator
variable where all indicators have a loading factor value using secondary data can be
seen in table 3.

Table 3. Value of Loading Factor Indicators of environmental accounting,

agency cost and PDAM company performance in Indonesia
Variable Indicator Loading Factor Value
ENVIRONMENTAL ACCOUNTING
1. Environmental Costs X37 1.000000
AGENCY COST
1. Monitoring Cost X8 1.000000

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Variable Indicator Loading Factor Value

2. Bonding Cost X39 1.000000
3. Residual Cost X40 1.000000
COMPANY PERFORMANCE
1. Finance Y1 0.627547
2. Service Y2 0.627370
3. Operational Y3 0.801207
4. Human resources Y4 0.724814
5. Total Performance Y5 0.988595
Source: Secondary Data Processed, 2018
Table 3 shows that the cross-loading value for each indicator variable has a
loading factor value> 0.5. This shows that the indicator variable used has good
convergent validity. The cross-loading value also shows a good discriminate validity
because the correlation value of the indicator to its construct is higher than the
correlation value of the indicator with other constructs.
As an illustration, the cross-loading value of indicator X1 on the
variable/construct of Chemicals is 0.900386 which is higher than the cross-loading
value of X1 with other constructs, namely with raw water (0.499330), environmental
accounting (0.079), bonding cost (-0.114 ), energy (0.337), occupational safety and
health (0.251), customer safety and health (0.552), community (0.366), and
employment (0.151). The results of the correlation of the indicator value X1 can be
seen in table 4.

Teble 4. CrossLoading value of raw water indicators in the PDAM Performance

Model in Indonesia

Indicator CheMat EnvAcc RawWa BondCost Energy KKK KKPel Socie OcuHealt
X1 0.900386 0.079087 0.499440 -0.114383 0.337682 0.251481 0.552532 0.366532 0.151110
-
X2 0.708620 0.291088 -0.177562 0.389826 0.022813 0.218231 0.182765 -0.019523
0.095840
Source: Primary Data Processed, 2018
The results of reliability testing using composite reliability values for each
indicator variable can be seen in table 5.

Table 5. Composite Value of Latent Variability in the Performance

Model of PDAM in Indonesia
Variable Composite Reliability Value
Agency Cost 0.755245
Raw water 0.749321
Environmental Accounting 1.000000
Chemical material 0.790532
Bonding Cost 1.000000
Energy 0.910321
Occupational Health and Safety 0.813821

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Variable Composite Reliability Value

Customer Safety and Health 0.772780
Society 1.000000
Employment 0.789433
Environmental Performance 0.919433
Company performance 0.872954
Marketing Communication 0.750772
Labeling of Clean Water Products and Services 0.802384
Waste 0.859525
Environment 0.840282
Monitoring Cost 1.000000
Clean Water Products and Services 0.769484
Residual Cost 1.000000
Source: Primary and Secondary Data Processed, 2018

All variables have composite reliability values > 0.70 and are shown in table 4.
The greatest value of composite reliability is found in environmental accounting
variables, bonding costs, community costs, monitoring costs, and residual costs of 1.
This shows that all variables have good reliability.
The results of reliability testing using the value of Average Variance Extracted
(AVE) can be seen in table 6.
Table 6 shows the value of AVE produced by each variable > of 0.5 except
agency cost of 0.3913400. The greatest AVE value is found in the environmental
accounting variable, bonding cost, community, monitoring cost, and residual cost of 1.
However, the AVE value on all variables is > 0.5. This shows that all variables have
good reliability.

Table 6. Value of AVE and AVE Root Variables in PDAM Performance

Model in Indonesia
Variabel Nilai AVE Nilai Akar AVE
Agency Cost 0.3913400 0.625572
Raw water 0.5214460 0.722112
Environmental Accounting 1.0000000 1.000000
Chemical material 0.6564190 0.810197
Bonding Cost 1.0000000 1.000000
Energy 0.7721070 0.878696
Occupational Health and Safety 0.5936340 0.770476
Customer Safety and Health 0.6298120 0.793607
Society 1.0000000 1.000000
Employment 0.6534510 0.808363
Environmental Performance 0.4926200 0.701869
Company performance 0.5864050 0.765771
Marketing Communication 0.5026950 0.709010
Labeling of Clean Water Products and 0.5772990 0.759802

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Variabel Nilai AVE Nilai Akar AVE

Services
Waste 0.5562290 0.745808
Environment 0.6394180 0.799636
Monitoring Cost 1.0000000 1.000000
Clean Water Products and Services 0.5289230 0.727271
Residual Cost 1.0000000 1.000000
Source: Primary and Secondary Data Processed, 2018
Formative Measurement Results
The results of testing the determination measurement using R2 values can be
seen in table 7.

Table 7. R-Square Value of Endogenous Constructions in the PDAM Performance

Model in Indonesia
Variable R-Square Value
Environmental Performance 0,99752
Environmental Accounting 0,61369
Agency Cost 0,61690

Table 7. shows that the R2 value of the Environmental Performance variable is

0.99752, Environmental Accounting is 0.61369, and Agency Cost is 0.6169. This
shows that the influence of indicators on environmental performance on company
performance is 99.75%, indicators in environmental accounting are 61.36% and
indicators in agency cost are 61.69%.
To see the relationship and influence between the independent construct
variables on the dependent t-statistic test using the bootstrap coefficient test which the
results can be seen in table 8.

Table 8. Bootstrap Test Result Value of Company Performance Constructive

Path Coefficient
Influence Mean of Standart Standart
T Statistics
CONSTRUCT of variabel variabel Deviation Error
(|O/STERR|)
(O) (M) (STDEV) (STERR)
Agency Cost ->
0.381627 0.360111 0.108355 0.108355 3.522011
Company Performance
Environmental
Accounting -> Company 0.469222 0.489492 0.063607 0.063607 7.376918
Performance
Environmental
Performance -> -0.333600 -0.32622 0.092932 0.092932 3.589769
Company Performance

Table 8 shows that the value of t-statistics between environmental performance

and company performance is 3,589 > 1.96 and the effective value is -0.333. The t-
statistics value between environmental accounting for company performance is 7.3769
> 1.96 and the influence value is 0.4692. The t-statistics value between agency cost and
company performance is 3.522 > 1.96 and the effective value is 0.3816.

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Discussion
The results of validity testing using cross-loading values for each indicator
variable show that most indicators of the company's performance variables and
environmental performance variables, environmental accounting, and agency cost are
valid enough to be used as data analysis where the loading factor value generated is
average > 0.5. Indicator variables that get a loading factor value < 0.5 based on table 2
there are only 4 indicators namely X3, X4, X10, and X11. This shows the variable
indicators for measuring PDAM performance consisting of the dependent variable (Y)
based on those users based on the PDAM Technical Guidelines issued by the Drinking
Water Supply System Development Agency at the Regional Water Company) Number
002 / KPTS / K-6 / IV / 2010 consisting of 4 dimensions (Rakyat, 2010), an
independent variable of environmental performance (X1) consisting of 12 dimensions
(Walls et al., 2012), an independent variable of environmental accounting (X2)
consisting of 1 dimension, and an independent variable agency cost (X3) which
consists of 3 valid dimensions and can be used for further analysis.
The results of reliability testing on indicators of company performance variables
and environmental performance variables, environmental accounting, and agency cost
using composite reliability values state that the indicators used are reliable by reality
and is shown in table 4, where all indicator variables have composite reliability values>
0, 7 This is corroborated by testing the value of Average Variance Extracted (AVE)
where the results in table 5 show that almost all existing indicator variables have a
value of AVE> 0.5 except the indicator on the agency cost variable of 0.3913400. The
data held by each indicator variable used is truly the original data and is not
manipulated at all even though the agency cost variable contains unreliable data based
on AVE test values, but from the composite reliability test data on the reliable agency
cost, so the existing data at agency cost can be used as material for analysis.
The results of the determinant measurements show that the indicators in the
independent variable environmental performance on company performance (99.75%)
have greater influence than the influence of the indicators on the agency cost and
environmental accounting variables (61.69% and 61.36%). This shows the existing
indicators on environmental performance consisting of chemicals, energy, raw water,
environment, waste, clean water products and services, employment, occupational
safety and health, community, customer safety and health, product flow, and clean
water services, and marketing communication is very influential on company
performance. Water pollution greatly affects the quality of water produced by the
PDAM (Suseno & Widyastuti, 2014). Therefore, the PDAM must perform a large
enough environmental performance so that the resulting water quality can be good and
can be consumed by its customers.
The bootstrap test results of the construct path coefficient in Table 7 show that
the first hypothesis stating that the company's performance implementation was
positively influenced by environmental performance was rejected, because the t-
statistics value of 3.589 > 1.96 indicates that the environmental performance variable
significantly influences the variable company performance but the relationship is
negative because the influence value is -0.333. This is in contrast to the results obtained
in studies of small companies in Kenya (Chege & Wang, 2019), animal feed production
companies in the Mediterranean Spain (Martinez et al., 2020), and several companies in

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developing countries (Betts et al., 2018). Research conducted by Chang (2015) shows
that environmental performance negatively influences financial performance (Chang,
2015). Likewise, research conducted by Gurr (2017) in which environmental
responsibility has a negative influence on financial performance (Gurr, 2018). One
indicator of company performance in this study is finance. Based on that, it is probable
that financial indicators have a significant influence on company performance so that
environmental performance hurts company performance. The second hypothesis
statement states that the company's performance is positively influenced by
environmental accounting is accepted because the t-statistics value obtained is 7.3769>
1.96 which indicates that the environmental accounting variable significantly
influences the company performance variable and the relationship is positive because
the effect value amounts to 0.4692. This statement is consistent with the results of
research conducted) on state gas companies (Utama, 2016) and Qian (2018) at
companies in Germany, the US, Japan, and Australia (Qian et al., 2018). Companies
that do environmental accounting can better manage their finances for environmental
activities that require less money. The third hypothesis statement stating that company
performance is influenced positively by agency cost is accepted because the t-statistics
value obtained is 3.522> 1.96 which indicates that the agency cost variable
significantly influences the company performance variable and the relationship is
positive because the effect value is 0.3816. This statement is in line with research
conducted by Varela (2017) where companies that pay attention to high agency costs
will have better manager performance which causes company performance to improve
(Varela, 2017). Therefore, PDAM leaders consisting of directors and managers get
sufficient or more payments in running PDAM operations so that PDAM performance
improves.

CONCLUSION
The results of the study related to the relationship between environmental
performance, environmental accounting, agency cost on the performance of the
Regional Water Company (PDAM) in Indonesia shows that all indicators used on all
variables are valid and reliable. The indicator variable that most influences on PDAM
performance are the indicator found on the environmental performance of 99.75%.
Nevertheless, the results of the measurement of the bootstrap coefficient test indicate
that the company's performance is negatively and significantly affected by the
implementation of environmental performance. It is possible that PDAM that pays
attention to environmental performance requires considerable resources and finances
and is not in line with the financials that are obtained so that environmental
performance negatively influences company performance. In contrast to the results on
the environmental accounting variable and agency cost which both have a significant
positive effect on PDAM performance. Companies that do environmental accounting
can manage their finances better for environmental activities that require a lot of costs
and companies that pay attention to high agency costs will have better manager
performance which causes the company's performance to improve. The PDAM must
pay attention to its environmental performance effectively and efficiently by always
paying attention to environmental accounting and agency costs.

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