The Impact of Environmental, Social, and Governance Performance on The Financial Health and Firm Value of The Publicly Listed Firms at Indonesia Stock Exchange

Rangkuti, Riko and Sembel, Roy and Malau, Melinda (2023) The Impact of Environmental, Social, and Governance Performance on The Financial Health and Firm Value of The Publicly Listed Firms at Indonesia Stock Exchange. In: Contemporary Exploration of Social Sciences in the Post Pandemic Era - 1. NCM Publishing House, Bursa, pp. 174-190. ISBN 978-625-99157-2-2

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Abstract

During the last decade, companies have increasingly enhanced corporate sustainability by targeting Environment, Social, Governance (ESG), and financial objectives. Several studies highlight the benefits of ESG on financial performance and stock return. However, the effect of ESG on overall firm risk still remains an open debate. This study examines the impact of ESG performance on the financial health and firm value of publicly listed firms at the Indonesia Stock Exchange. We hypothesize that ESG performance positively affects financial health and firm value. The research method uses a quantitative approach by observing ESG performance from the KEHATI foundation and financial reports of the publicly listed firms as secondary data sources. The samples use the 40 cross-sectional selected firms and 6 semesters selected time series balanced data for a period of 2019 to 2021 which form a 240 samples observation. The measurement of variables is the ESG performance pillar scores, financial health proxied by Altman Z-score, financial performance, and firm value proxied by Tobin’s Q score. The equations use a panel data regression model. The tool uses EViews 12 software for general statistical analysis and econometric analyses. Our findings are the ESG pillars scores have a high correlation among themselves, individually has an insignificant effect on Altman Z-score and Tobin’s Q, and jointly have an insignificant effect and very low relationship to Altman Z-score and Tobin’s Q. Furthermore, Altman Z-score has insignificant effect as the mediating variable to Tobin’s Q. Overall, we conclude that ESG performance does not have a significant effect to the financial health and firm value. Keywords: ESG performance, environment social governance, financial health, financial performance, firm value

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