The Effect of Idiosyncratic Volatility on Corporate Financial Stability: Empirical Evidence on Energy Companies in Indonesia

Novia Hanida; Cipto Wardoyo; Rizky Formansyah

doi:10.59890/ijels.v4i3.286

Authors

Novia Hanida Universitas Negeri Malang
Cipto Wardoyo Universitas Negeri Malang
Rizky Formansyah Universitas Negeri Malang

DOI:

https://doi.org/10.59890/ijels.v4i3.286

Keywords:

Idiosyncratic Volatility, Financial Stability, Altman Z-Score, Firm-Specific Risk, Energy Sector.

Abstract

This study aims to examine the effect of idiosyncratic volatility on corporate financial stability in the energy sector during the 2018–2024 period. Idiosyncratic volatility is measured using the Capital Asset Pricing Model (CAPM) approach, while financial stability is proxied by the Altman Z-score model. The research sample consists of 42 energy sector firms listed on the Indonesia Stock Exchange, selected through purposive sampling. Data analysis is conducted using the Structural Equation Modeling–Partial Least Squares (SEM-PLS) method with the assistance of SmartPLS software version 4.1.1.6. The results indicate that idiosyncratic volatility has a significant effect on corporate financial stability. However, the direction of the relationship is positive and does not support the initial hypothesis, which assumed a negative association. These findings suggest that an increase in firm-specific risk does not automatically reduce financial stability, particularly for firms that remain fundamentally healthy during the observation period. Thus, idiosyncratic volatility appears to reflect market perception dynamics regarding firm-specific information rather than serving as a direct determinant of corporate financial fragility.

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