Can Competitive Intensity Act a Bridge between Institutional Pressures and Corporate Financial Performance in Indonesia's Footwear Industry? A Structural Equation Modelling Approach

Abstract

Our study aims to ascertain the relationship between institutional pressures and corporate financial performance, with Indonesia's footwear industry as a mediator. The data was collected using a 307-person stratified random sample. The study employs confirmatory factor analysis and structural equation modeling to investigate the effects of incorporated variables on the financial performance of corporations. Multiple tests were utilized, including descriptive analysis, rotated component matrix, KMO, Bartlett's test, and convergent and discriminant validity. Direct effects demonstrated that normative institutional pressure and cognitive institutional pressure are significant drivers of the firm's financial performance and substantially impact the determination of financial performance. In contrast, regulative institutional pressure was insignificant in predicting corporate financial performance. Indirect effects, conversely, demonstrate that competitive intensity does not substantially mediate the relationship between cognitive institutional pressure and firm financial performance, even though this relationship is mediated by normative, regulatory, and institutional pressure. In addition, the study includes several theoretical, practical, and policy implications for financial management practitioners and strategy developers who seek to achieve significant levels of economic performance and profitability expansion. In conclusion, numerous limitations have been identified, along with suggestions for future researchers who wish to conduct in-depth studies.