The Effect of Environmental, Social, and Governance on Financial Performance with Firm Size as a Moderating Variable in Companies Listed on the Indonesia Stock Exchange for the Period 2020–2024
DOI:
https://doi.org/10.59890/ijmbi.v4i3.13Keywords:
ESG. Financial Performance, Tobin's Q, Firm Size, ModerationAbstract
This study examines the effect of Environmental, Social, and Governance (ESG) disclosure on financial performance proxied by Tobin's Q, as well as the moderating role of firm size in that relationship. A quantitative causal-associative design using balanced panel data was employed. The sample consists of 71 companies listed on the Indonesia Stock Exchange (IDX) that consistently held Bloomberg ESG Scores throughout 2020–2024, yielding 355 observations after two-stage iterative outlier removal using the Z-score criterion (±2.5). Panel data regression with the Random Effect Model (REM), corrected for heteroskedasticity through White Period Cross-section Cluster Standard Errors, was applied. Moderated Regression Analysis (MRA) with mean-centering was used to test the moderating hypotheses. Results indicate that composite ESG (β = +0.0074, p = 0.0025), the Environmental pillar (β = +0.0052, p = 0.0006), and the Governance pillar (β = +0.0067, p = 0.0099) each exert a positive and significant effect on Tobin's Q, while the Social pillar shows a negative and significant effect (β = −0.0057, p = 0.0328). Firm size significantly strengthens the positive effect of composite ESG (β = +0.0057, p = 0.0003) and the Environmental pillar (β = +0.0033, p = 0.0000) on Tobin's Q, but does not moderate the effects of the Social (p = 0.6844) or Governance (p = 0.4318) pillars. These findings support Stakeholder Theory (Freeman, 1984) and Legitimacy Theory (Suchman, 1995) in explaining how ESG practices translate into market valuation in the Indonesian capital market context.
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