Does the Use of Renewable Energy Influence Firm Performance? An Empirical Study on the Indonesian Energy Sector

ABSTRACT This study investigates the impact of corporate governance, innovation, and regulation on the use of renewable energy and firm performance. Unlike previous studies, this research models conditional relationships by incorporating corporate governance, innovation, and regulation as determinants of the strength and direction of these impacts in the context of Indonesia's energy sector. Data were collected from 87 energy sector companies listed on the Indonesia Stock Exchange (IDX), and Partial Least Squares Structural Equation Modeling (PLS‐SEM) was applied to analyze the relationships among these variables. The results indicate that innovation significantly drives the use of renewable energy, which, in turn, enhances firm performance by improving operational efficiency, reducing costs, and strengthening corporate reputation. However, corporate governance and regulation do not show statistically significant effects on the use of renewable energy or firm performance, highlighting the complexity of these relationships. These findings underscore the importance of fostering innovation capabilities within firms to leverage renewable energy for performance gains. Moreover, policymakers are encouraged to refine regulatory frameworks, ensuring they are contextually relevant and aligned with economic realities to support the adoption of sustainable energy practices better. The study's practical implications highlight the need for firms to prioritize innovation and for policymakers to design stable, enforceable regulations that account for both institutional pressures and market dynamics.