The Effect of Environmental Performance and Stock Liquidity on Stock Return in Mining Companies Listed on the Indonesia Stock Exchange

Abstract

Purpose: This study examines the partial and simultaneous effect of environmental performance and stock liquidity on stock returns in mining sector companies listed on the Indonesia Stock Exchange
during the 2020–2024 period, in order to understand how both nonfinancial and market-based indicators influence investor behavior and equity valuation in emerging markets.

Methodology: The study adopts a quantitative, causalcomparative research design using secondary panel data. Environmental performance is measured using the PROPER rating issued by the Ministry of Environment and Forestry, while stock liquidity is proxied by Trading Volume Activity. Purposive sampling is applied, resulting in 13 mining
companies with 65 firm-year observations.

Results: The findings show that environmental performance has a positive and significant effect on stock returns, indicating that better environmental management is rewarded by the market. Conversely, stock liquidity has a negative and significant effect on stock returns, suggesting that excessive trading activity may reflect noise or speculative behavior.

Conclusion: Environmental performance acts as a credible positive signal for investors, while liquidity conditions may introduce return instability in the mining sector.

Limitations: The study is limited by a relatively small number of predictors, a pooled data structure, and a sector-specific sample, which may limit the generalizability of the findings across industries and countries.

Contributions: This study contributes to the literature by extending signaling theory and stakeholder theory in the context of emerging market mining firms, while also providing empirical evidence on how non-financial environmental indicators and liquidity jointly shape stock return behavior.