The impact of biological asset disclosures and economic sustainability on firm value: Evidence from agricultural companies in Indonesia

This research aims to investigate whether biological asset reporting and the economic sustainability of the firm affect its value. In accordance with the Indonesian Statement of Financial Accounting Standard 69 (PSAK 69), corporations are required to disclose their methods of recognizing and valuing the fair market value of assets pertaining to living things such as plants or animals. Hence, whether biological asset disclosure impacts investors’ decisions to value the firm is the focus of the study. The study also examines if PSAK 69 increased agricultural corporations’ biological asset disclosure. The comparison test shows that PSAK 69 increased the disclosure. The Altman Z-rating probability of bankruptcy is a proxy for economic sustainability. Utilizing 56 listed agricultural firms from 2017 to 2020 as a sample, the regression analysis reveals that biological asset disclosure does not influence firm value. Instead, economic sustainability and other financial indicators such as profitability and the level of debt affect the value of the firm. The results imply that the agricultural corporation’s reputation in the eyes of shareholders is dependent upon its economic sustainability instead of the dissemination of information on its biological assets. The research provides insight into the non-value relevance of biological asset reporting in the context of Indonesia.


Introduction
Indonesia holds a prominent position as a major global producer and exporter of agricultural goods.It plays a significant role in supplying crucial commodities, including palm oil, coffee, and pepper, to international markets.Over the course of recent decades, the agricultural industry has emerged as the predominant sector in terms of employment inside the country [1].Nevertheless, there has been a decline in terms of the percentage of GDP (Gross Domestic Product) generated by agriculture in Indonesia due to the ongoing process of industrialization inside the country [2].Despite the decline, the agricultural sector remains the economy's second-largest economic engine, behind only the manufacturing sector, which reached 13.7% of GDP in 2020 [2,3].
The Indonesian government has identified the agricultural sector as one of key priorities for industrial growth.This industry is also recognized as significant for attracting both international and domestic 1297 (2024) 012069 IOP Publishing doi:10.1088/1755-1315/1297/1/012069 2 investments [4].Therefore, compliance with the international standard of financial reporting, specifically in reporting biological assets in the agriculture industry, is crucial to attracting foreign investors.As stated by Biljon and Scott [5], the comprehensive disclosures have the potential to draw investments, improve industry comparability, and aid users in comprehending the performance of biological assets through the referring financial information.
The natural resources within the agricultural industry are commonly known as biological assets.Biological assets, as described by International Accounting Standard (IAS) 41 [6], encompass live organisms such as plants or animals.In the context of this discussion, agricultural enterprises are defined as entities that engage in the management of biological assets, namely living plants or animals, with the objective of transforming them into consumable or processable products [7].IAS 41establishes the prescribed accounting methodology for calculating the value of biological assets over the course of their transformation and for determining the market value of agricultural products at harvest [8].The standard compels the measurement of agricultural goods is to be conducted at fair value, taking into account the costs associated with selling the food.On January 1, 2018, all businesses operating in Indonesia's agricultural sector were mandated to comply with the Indonesian Statement of Financial Accounting Standard 69 (PSAK 69), which adopts International Accounting Standard 41 [9].
The present research seeks to determine whether biological asset disclosure influence the value of the firm.Hence, this study is value-relevance research.To what extent accounting information influences stock prices and, in turn, investors' decisions is the primary focus of value-relevance studies [10].Researches on biological asset may be categorized in two main broad theme: determinants the extent of biological asset reporting [11][12][13]; and the value relevance of biological asset and biological asset disclosure [8], [10], [14][15][16][17].Studies that explored the value relevance of biological assets measured at fair value and the disclosure of biological assets show inconsistent results.A study in the Spanish context found that there is no evidence of higher volatility or material variations in earnings or revenues [14] or the calculation of future cash flow [18] between farmers valuing their biological assets at fair value and those valuing them at historical cost.On the contrary, a study in European Union countries by Bispo and Lopes [16], in 27 countries by Goncalves et al. [8], in Malaysia by Kadri et al. [19], in Brazilian companies by Silva Filho et al. [17], and in Taipei [20] confirms similar results that measuring biological assets at fair value enhances firm value.
Meanwhile, studies on the association between biological asset disclosure and the value of the firm exhibit contradictory results.In the Indonesian context, Alfarisyi et al. [15] and Khodijah and Utami [21] find that the level of biological asset disclosures is likely to increase the value of the firm, while Domo and Utami's study [22] reveals that such disclosures have no relationship with firm value.The present study applies signaling theory to develop hypothesis of the positive effect of biological asset disclosures of firm value.According to signaling theory, external investors place an emphasis on company-issued information [23].The management endeavors to communicate a positive sign by providing relevant information that investors can utilize to make judgments and decisions in accordance with their assessment of the provided facts.The act of revealing a firm's biological asset disclosure is an endeavor aimed at communicating to investors that the company represents a favorable investment opportunity.Companies are inclined to share information if they see that doing so enhances investor trust and stimulates capital investment.This study expands upon prior research on value relevance by examining the impact of economic sustainability, specifically in relation to the value relevance of biological asset disclosure.The terms economic sustainability refers to the probability of bankruptcy as measured by Altman Z-score rating [24,25].According to Altman [26], Z-score reflects the financial healthiness of a firm, where the higher the score, the healthier the firm, and hence the more confident the company is in maintaining its sustainability.Nam and An [27] provides evidence that the Altman Z-score is statistically associated with the valuation of a company, and companies with a greater return on assets (ROA) tend to have a higher Z-score in the Korean logistical and shipping sector.Therefore, the current research posits that firms with a higher score of economic sustainability exhibit a higher firm value.
3 ROA, the level of debt, and firm size are among the financial characteristics that will be tested in relation to firm value.A higher ROA and size provide information to the investor regarding the capacity of a corporation to make financial gains through the utilization of its resources and the number of resources (assets) a company has to do routine operations, respectively [28,29].Hence, this study expects a favorable association between ROA, company size, and company value.Meanwhile, a corporation's level of debt (leverage) can be viewed from both sides: first, as a business' risk, or second, as the representation of the creditor's trust in lending a company fresh money to put into its operation.Thus, the association between leverage and company value may be favorable or unfavorable, depending on the investor's insight into debt [30].This study then predicts that leverage has an association with firm value.
This research also expands upon prior research by comparing the degree of biological disclosure subsequent to the implementation date of PSAK.This study predicts that the number of biological asset disclosures among the sample firms will increase following PSAK 69, which took effect in January 2018.Since, according to the author's best understanding, no research or little if any has looked into the amount of disclosure before and after PSAK 69 was released, such examination is also the contribution of this study.Previous study confirms, when corporate social responsibility reporting regulations were released, agriculture corporations' disclosure increased the next year [31].
The following is the outline for the current study: The first section of the research is an introduction that discusses the context of the study and the approach used to form the hypotheses.In the second part, we dive into the methodology used in the study.The study's findings are presented and discussed in Section 3. In the conclusion, we summarize our findings and suggest future research directions.

Sampling and source of data
The sample for this study consists of IDX-listed agricultural firms from 2017 to 2020.There were 21 corporations in total.The annual report of the company was used as a source of data for this analysis, and it is accessible on both the IDX and the company's respective websites.All the data was analyzed for information on financial performance, economic sustainability, and the disclosure of biological assets.Six companies' annual reports were missing over the four-year observation period, bringing the total number of companies to 15.Four companies' data show an outlier, giving the final sample of 56 firm observations when the data was analyzed with the regression.

Identification of variables and the research model
Firm value (FIV) is the dependent variable of the present research.It is appraised by Tobin's Q ratio, based on Chung and Pruitt [32].FIV exhibits the faith and expectations of its shareholders and provides insight into how well management is doing their job.According to the theory of the firm, the key objective of a company should be to maximize firm value [33].Investors can rest assured that the company will continue to be profitable and successful due to its high market value.Here is how to determine Tobin's Q: An explanation, MVE = Calculated by multiplying the stock's closing price on the final trading day of the fiscal year by the quantity of outstanding shares.DEBT = Total Liabilities TA = Total Assets There are two independent variables in this research, namely biological asset disclosures (BIO) and economic sustainability (ESUS).Utilizing a disclosure index, this study determines the level of reporting on the biologicals of the sample company.Adhering to previous studies [12,34], the index was calculated using information from IAS 41, which deals with agriculture.There are a total of 40 items included in the disclosure.Disclosures of biological assets were assessed in the present research using a nonweighted technique.As a result, it ignores the quality of the information provided and instead focuses entirely on whether or not disclosure-related statements are provided.If an item on the list is shared, it counts as a one; otherwise, it counts as a zero.The overall quantity of statements/items for which disclosure information was provided was then divided by 40.
As explained before, Altman Z-score of business distressed forecast model [26] is the proxy for ESUS.How to calculate the Z-score is as follows: Where 1 = dividing working capital by total assets 2 = dividing retained earnings by total asset 3 = dividing earnings before interest and taxes by total asset 4 = dividing market capitalization by total debt 5 = dividing sales by total asset According to the model, a higher Z-score is indicative of a greater degree of economic sustainability.Z-scores can be categorized into the following groups: The company is doing well financially when the value of Z exceeds 2.99.If Z has a range between 1.81 and 2.99, the firm is considered to fall inside the alert zone (gray region).The company is experiencing financial distress when the value of Z falls below 1.81.
How the company makes profit (PROF) is measured by ROA, dividing net income by total assets.Degree of indebtedness; leverage is computed by the debt-to-asset ratio (DAR).Company size (CSIZE) is calculated by the total asset that is transformed into its natural logarithm.
This study examines the following multiple regression model to explore whether BIO and ESUS affect FIV.

Results of descriptive statistics
Table 1 summarizes the descriptive statistics of the variables under examination.The table suggests that the mean score of company value as measured by Tobin's Q is 1.015, slightly bigger than 1 (100%).Hence, the sum of the market value of equity and total debts is higher than the total assets of the companies.PT Bakrie Sumatra Plantation Tbk.(UNSP) obtained the highest FIV in 2020, which is 1,963.The high company value was due to the increase in profits generated by the company of 0.53% compared to the previous year.This shows that many investors are speculating about getting investment returns in the future, thus making investors interested in investing in the company.PT Austindo Nusantara Jaya Tbk.(ANJT) obtained the lowest FIV in 2019, which is 0.417.The number suggests that there are still companies that have not been able to provide maximum profits or wealth to their investors.
The average value of BIO is 0.729, suggesting that the amount of biological asset reporting of the sample firms is nearly 73%.The number is almost similar to previous studies that used nearly the same sample and period, i.e., 74% [22].The highest BIO is 85%, achieved by PT Dharma Satya Nusantara Tbk.(DSNG) in 2020, a ply wood product and palm oil group corporation.The lowest BIO score is 44%, reported by PT Salim Ivomas Pratama Tbk.(SIMP), a palm oil corporation, in 2017.As exposed in Table 1, the score of ESUS is 1.805 on average, demonstrating that the sample companies were experiencing distress according to the Z-score categorization.The minimum score of ESUS is -4.248 reported by UNSP in 2020.Meanwhile, the maximum score of ESUS is 8,742, taken by PT Provident Agro Tbk.(PALM), a palm oil firm in 2020.The company have shown a strong performance as the Z-score far above 2.99.

Testing the PSAK effective implementation effect on the subsequent biological asset disclosure
While Table 2 demonstrates the descriptive statistic of BIO from 2017 to 2020, Table 3 performs the paired-sample t test of BIO between BIO before the year before PSAK 69 took effect and years following the implementation of the standard.As reported in Table 2, there was an upward trend in BIO, both in the minimum score and the mean score, from 2017 to 2020.The results of the comparison test in Table 3 suggest that the increase in BIO was statistically significant in the period before and after the PSAK took effect.The significant differences were observed from the sig score, which was all below 0.05.
From the data input as shown in Figures 1 and 2, the companies that experienced the highest improvement in BIO are PT Eagle High Plantantions Tbk (BWPT) and SIMP.In 2017, before the effective implementation of PSAK 69, BWTP disclosed 59% of its BIO, and in 2018, the company improved its BIO to 71%.Similarly, SIMP reported an increase of 30% of the disclosure, from 44% in 2017 to 74% in 2018.Hence, the figures confirm the statistical analysis presented in Table 3.

Hypotheses testing.
This research performs a multiple regression test to observe whether independent biological asset reporting and economic sustainability influence firm value.Table 4 displays the findings of the statistical analysis.As shown in Table 4, BIO does not affect firm value as the sig score is above 0.05.The results suggest that biological asset disclosure is not value relevance for the investors.Hence it implies that regardless the level of biological asset disclosure, the market would ignore such information in valuing the company.Meanwhile, ESUS, PROF, and DAR all are positively affect firm value.The results indicate that company financial healthiness as reflected in the Z-score, profitability, and leverage are still to be the most consideration information for the investors to value the company.
The results that biological asset disclosure does not affect firm value consistent with Domo and Utami [22] but contradict with Alfarisyi et al [15].The plausible reason for the different results relates to the different matching tabulations of BIO and FIV between the present study and Alfarisyi et al. [15].In the present research, BIO and FIV are calculated in the same year.It is in line with previous research

Table 1 .
Descriptive statistics of observed variables.

Table 2 .
Descriptive statistics of BIO.

Table 3 .
Results of compare means of BIO in period before and after of PSAK 69 implementation.
6.Figure 1.The level of BIO in 2017.Figure2.The level of BIO in 2018.

Table 4 .
Results of the regression data analysis