The Effect of Environmental, Social, and Governance Disclosure and Financial Performance on Firm Value

Abstract

This study aims to examine the effect of Environmental, Social, and Governance (ESG) disclosure and financial performance on firm value of companies listed in the IDX ESG Leaders Index during the 2020-2024 period. Firm value is measured using Tobin’s Q, while ESG disclosure is represented by the Environmental, Social, and Governance dimensions. Financial performance is proxied by Return on Aseets (ROA), Current Ratio (CR), and Debt to Equity Ratio (DER). This study employs a quantitative research approach using secondary data obtained from companies annual reports and sustainability reports. The sample was selected using a purposive sampling technique, resulting in 17 companies with a total of 85 observations. Panel data regression analysis was conducted using Eviews 13. The result indicate that ESG disclosure and financial performance simultaneosly have a significant effect on firm value. Partially, the Environmental and Governance dimensions have a negative effect on firm value, whereas the Social dimensions has a positive effect. Regarding financial performance, only ROA has a positive and significant effect on firm value, while CR and DER have no significant effect. These findings suggest that investors respond positively to social disclosusre and the company’s ability to generate profits, whereas environmental and governance disclosure have not yet succeeded in enhancing firm value. Therefore, companies should improve the effectiveness of ESG implementation and disclosure in a balanced manner while optimizing profitability to strengthen investor confidence and enhance firm value.