The impact of ESG implementation on financial performance : a case study of Indonesia stock market

Abstract

This Study examines whether there is a relationship among companies between disclosure of environmental, social, and governance (ESG), operational performance (ROA), financial performance (ROE), market performance (Tobin’s Q), and market value (PER). And if these relationships are positive, negative, or simply neutral. This study aims to assess the influence of Environmental, Social, and Governance (ESG) implementation in Indonesia, comparing it to the situations in Japan and South Korea. It will consider the discrepancies in results found in previous studies conducted in other countries. Panel regression analysis was used to examine the study hypothesis. The study sample from companies listed on the Jakarta Composite Index with a total sample of 87 companies or 696 observations for the period 2015 to 2022 is used. During the given observation period, the sample data from Japan, as reported on the Nikkei 225 Index, consisted of 221 firms, totaling 1768 during the observation time. Similarly, South Korea, as listed on the Kospi Index, has a sample size of 294 companies, totaling 2352 throughout the observation period. The analysis indicates that the introduction of Environmental, Social, and Governance (ESG) practices in Indonesia has a significant negative impact on market performance, particularly measured by Tobin's Q. ESG implementation has no significant impact on other variables. The comparison of countries shows vary. The implementation of Environmental, Social, and Governance (ESG) practices in Japan has a significant negative influence on Return on Assets (ROA) and Tobin's Q. Meanwhile, South Korea has a negative relationship with market value as measured by PER.