ESG as an Important Factor of Company Profitability and as a Moderation of Corporate Value

Agung DINARJITO

doi:10.38142/ijesss.v5i1.928

Authors

Agung DINARJITO Polytechnic of State Finance STAN, Indonesia

DOI:

https://doi.org/10.38142/ijesss.v5i1.928

Keywords:

ESG, profitability, the value of the company, sustainability

Abstract

Environmental, social, and corporate governance (ESG) aspects are currently one of the important things that investors consider. This is related to the company's efforts to participate in protecting the environment to achieve sustainability. The ESG aspect is expected to be able to increase profitability which later with ESG can also affect company value. The purpose of this study is to analyze whether ESG can affect company profitability and firm value as well as moderate profitability to firm value. Samples were selected using a purposive sampling technique which was then analyzed using linear regression. The research object is a company listed on the Indonesia Stock Exchange from 2016 to 2021 that already has an ESG score, the data of which was obtained from Bloomberg. The results showed that ESG had no effect on profitability and firm value, profitability had a significant effect on firm value, and ESG had not been able to moderate profitability on firm value. The results of this study have implications that ESG aspects need to be aligned with company goals and improvements to all ESG aspects also need to be done. ESG is not only carried out to fulfill regulatory requirements.

Downloads

Download data is not yet available.

References

Aboud, A., & Diab, A. (2018). The impact of social, environmental and corporate governance disclosures on firm value. Journal of Accounting in Emerging Economies, 8(4), 442–458. https://doi.org/10.1108/JAEE-08-2017-0079

Ahdiat, A. (2022, July 25). Skor Keberlanjutan Lingkungan di Negara Asia Pasifik (2022). Katadata.Co.Id. https://databoks.katadata.co.id/datapublish/2022/07/25/pelestarian-lingkungan-indonesia-tergolong-buruk-di-asia-pasifik

Alareeni, B. A., & Hamdan, A. (2020). ESG impact on performance of US S&P 500-listed firms. Corporate Governance: The International Journal of Business in Society, 20(7), 1409–1428. https://doi.org/10.1108/CG-06-2020-0258

Atan, R., Alam, Md. M., Said, J., & Zamri, M. (2018). The impacts of environmental, social, and governance factors on firm performance. Management of Environmental Quality: An International Journal, 29(2), 182–194. https://doi.org/10.1108/MEQ-03-2017-0033

Aydo?mu?, M., Gülay, G., & Ergun, K. (2022). Impact of ESG performance on firm value and profitability. Borsa Istanbul Review, 22, S119–S127. https://doi.org/10.1016/j.bir.2022.11.006

Balasubramanian, A. (2019). A study on relationship between corporate financial performance and environmental social & governance score (ESG score). FIFI-2019.

Barney, J. B., Ketchen, D. J., & Wright, M. (2021). Resource-Based Theory and the Value Creation Framework. Journal of Management, 47(7), 1936–1955. https://doi.org/10.1177/01492063211021655

Bhimantara, G. R., & Dinarjito, A. (2021). Pengaruh Profitabilitas terhadap Nilai Perusahaan dengan Moderasi Pengungkapan Elemen-Elemen Integrated Reporting. E-Jurnal Akuntansi, 31(4). https://doi.org/10.24843/eja.2021.v31.i04.p16

Bodhanwala, S., & Bodhanwala, R. (2018). Does corporate sustainability impact firm profitability? Evidence from India. Management Decision, 56(8), 1734–1747. https://doi.org/10.1108/MD-04-2017-0381

Brigham, E. F., & Houston, J. F. (2018). Dasar-Dasar Manajemen Keuangan: Essentials of Financial Management (M. Masykur, Ed.; 14th ed.). Salemba Empat.

Buallay, A. (2019). Is sustainability reporting (ESG) associated with performance? Evidence from the European banking sector. Management of Environmental Quality: An International Journal, 30(1), 98–115. https://doi.org/10.1108/MEQ-12-2017-0149

Cakranegara, P. A., & Sidjabat, F. M. (2021). Green Investment: Incorporate Environment, Social, And Government Factors In Investment Decision. Eksis: Jurnal Riset Ekonomi Dan Bisnis, 16(1), 17–28. https://doi.org/10.26533/eksis.v16i1.773

Clark, G. L., Feiner, A., & Viehs, M. (2014). From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2508281

Dahlsjö, E., & Hedström, A. (2023). ESG Scores and Financial Perfrormance: A Comparison Between China and Sweden. JÖNKÖPING University.

D’Amato, V., D’Ecclesia, R., & Levantesi, S. (2023). Firms’ profitability and ESG score: A machine learning approach. Applied Stochastic Models in Business and Industry. https://doi.org/10.1002/asmb.2758

Dinarjito, A. (2022). Penyusunan Forecasting Laporan Keuangan Menggunakan Weighted Moving Average Dan Penilaian Penyertaan Modal Negara Pada BUMN Konstruksi. Jurnal Pajak Dan Keuangan Negara (PKN), 4(1), 147–165. https://doi.org/10.31092/jpkn.v4i1.1766

Drews, S., & van den Bergh, J. C. J. M. (2017). Scientists’ views on economic growth versus the environment: a questionnaire survey among economists and non-economists. Global Environmental Change, 46, 88–103. https://doi.org/10.1016/j.gloenvcha.2017.08.007

Firer, S., & Mitchell Williams, S. (2003). Intellectual Capital and Traditional Measures of Corporate Performance. Journal of Intellectual Capital, 4(3), 348–360. https://doi.org/10.1108/14691930310487806

Ghozali, I., & Ratmono, D. (2017). Analisis multivariat dan ekonometrika: teori, konsep, dan aplikasi dengan eview 10.

Han, J.-J., Kim, H. J., & Yu, J. (2016). Empirical study on relationship between corporate social responsibility and financial performance in Korea. Asian Journal of Sustainability and Social Responsibility, 1(1), 61–76. https://doi.org/10.1186/s41180-016-0002-3

Harahap, I. M., Septiani, I., & Endri, E. (2020). Effect of financial performance on firms’ value of cable companies in Indonesia. Accounting, 1103–1110. https://doi.org/10.5267/j.ac.2020.7.008

Husaini, A. (2022, November 29). Terapkan ESG Dalam Bisnis, KPI Siap Jadi Perusahaan Kilang & Petrokimia Global. Kontan.Co.Id. https://industri.kontan.co.id/news/terapkan-esg-dalam-bisnis-kpi-siap-jadi-perusahaan-kilang-petrokimia-global

Khairina, D. (2018). Pengaruh Integrated Reporting Terhadap Asimetri Informasi (Studi Empiris Pada Perusahaan Manufaktur Sektor Real Estate dan Konstruksi Bangunan Periode 2013-2016). Universitas Islam Indonesia.

Kor, Y. Y., & Mahoney, J. T. (2004). Edith Penrose’s (1959) Contributions to the Resource-based View of Strategic Management. Journal of Management Studies, 41(1), 183–191. https://doi.org/10.1111/j.1467-6486.2004.00427.x

Leman, W., Suriawinata, I. S., & Noormansyah, I. (2020). The Effect of Capital Structure, Profitability and Company Size on Value of Companies In The Automotive Industry Sector Listed on IDX 2014-2018. IJBAM, 3(2), 77–82.

Li, Y., Gong, M., Zhang, X.-Y., & Koh, L. (2018). The impact of environmental, social, and governance disclosure on firm value: The role of CEO power. The British Accounting Review, 50(1), 60–75. https://doi.org/10.1016/j.bar.2017.09.007

Liow, K. H. (2010). Firm value, growth, profitability and capital structure of listed real estate companies: an international perspective. Journal of Property Research, 27(2), 119–146. https://doi.org/10.1080/09599916.2010.500459

López-Toro, A. A., Sánchez-Teba, E. M., Benítez-Márquez, M. D., & Rodríguez-Fernández, M. (2021). Influence of ESGC Indicators on Financial Performance of Listed Pharmaceutical Companies. International Journal of Environmental Research and Public Health, 18(9), 4556. https://doi.org/10.3390/ijerph18094556

Ma’in, M., Asmuni, S., Junos, S., Rustam, S. N., Azmi, N. H. A. A., & Sahidza, K. R. (2022). Impact of Environmental, Social, and Governance (ESG), Profitability and Macroeconomics Indicators on Firm Performance. Journal of Entepreneurship, Business and Economics, 10(2), 1–17.

Melinda, A., & Wardhani, R. (2020). The Effect of Environmental, Social, Governance, and Controversies on Firms’ Value: Evidence from Asia (pp. 147–173). https://doi.org/10.1108/S1571-038620200000027011

Mousa, G. A., & Hassan, N. T. (2015). Legitimacy Theory and Environmental Practices: Short Notes. International Journal of Business and Statistical Analysis, 2(1), 41–53.

Newson, M., & Deegan, C. (2002). Global Expectations and Their Association With Corporate Social Disclosure Practices In Australia, Singapore, and South Korea. The International Journal of Accounting, 37(2), 183–213. https://doi.org/10.1016/S0020-7063(02)00151-6

Parsons, T. (1960). Structure and Process in Modern Societies. American Journal of Sociology, 66(5).

Plumlee, M., Brown, D., Hayes, R. M., & Marshall, R. S. (2015). Voluntary environmental disclosure quality and firm value: Further evidence. Journal of Accounting and Public Policy, 34(4), 336–361. https://doi.org/10.1016/j.jaccpubpol.2015.04.004

Safriani, M. N., & Utomo, D. C. (2020). PENGARUH ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG) DISCLOSURE TERHADAP KINERJA PERUSAHAAN. Diponegoro Journal of Accounting, 9(3).

Salvi, A., Vitolla, F., Rubino, M., Giakoumelou, A., & Raimo, N. (2021). Online information on digitalisation processes and its impact on firm value. Journal of Business Research, 124, 437–444. https://doi.org/10.1016/j.jbusres.2020.10.025

Satito, B. P. H. (2023, March 17). Ketahui Ini Perbedaan Sustainability dan ESG Bagi Perusahaan. Fortune Indonesia.

Sebti, I. (2019). Pengaruh Integrated Reporting Terhadap Nilai Perusahaan Yang Dimoderasi oleh Kompleksitas Organisasi dan Pembiayaan Eksternal di Asia. Universitas Negeri Malang.

Setiani, E. P. (2023). The Impact of ESG Scores on Corporate Financial Performance: Moderating Role of Gender Diversity. Nominal Barometer Riset Akuntansi Dan Manajemen, 12(1), 128–139. https://doi.org/10.21831/nominal.v12i1.59778

Sugiyono. (2016). Metode Penelitian Kuantitatif, Kualitatif, R&D. IKAPI.

Titman, S., Keown, A. J., & Martin, J. D. (2018). Financial Management: Principles and Applications (13th ed.). Pearson.

Triyani, A., Setyahuni, S. W., & Kiryanto. (2020). The Effect Of Environmental, Social and Governance (ESG) Disclosure on Firm Performance: The Role of Ceo Tenure. Jurnal Reviu Akuntansi Dan Keuangan, 10(2), 261270.

Wong, K. T. K. (2017). A Literature Review on Environmental, Social and Governance Reporting and It’s Impact on Financial Performance. Austin Journal Business Administration and Management, 1(4).

Wu, Z. (2023). The Analysis of the Relationship Between ESG and Profitability of Stocks by Linear Regression. In Proceedings of the 2022 International Conference on Mathematical Statistics and Economic Analysis (MSEA 2022) (pp. 699–703). Atlantis Press International BV. https://doi.org/10.2991/978-94-6463-042-8_100

Yildiz Çankaya, S., & Sezen, B. (2019). Effects of Green Supply Chain Management Practices on Sustainability Performance. Journal of Manufacturing Technology Management, 30(1), 98–121. https://doi.org/10.1108/JMTM-03-2018-0099

Yoon, B., Lee, J. H., & Byun, R. (2018). Does ESG Performance Enhance Firm Value? Evidence from Korea. Sustainability, 10(10), 1–18. https://EconPapers.repec.org/RePEc:gam:jsusta:v:10:y:2018:i:10:p:3635-:d:174931