Exploring the Correlation Between ESG Performance and Firm Value in Indonesia Shariah-Compliant Companies
DOI:
https://doi.org/10.53840/jmm.v14i2.193Keywords:
ESG, Return on Equity, Stock Price, Panel Data, STATAAbstract
Corporate Social Responsibilities (CSR) has become essential to contemporary business operations, highlighting a company’s dedication to ethical, social, and environmental obligations. This study examines the relationship between Environmental, Social, and Governance (ESG) scores and the firm value of Indonesia Shariah-compliant companies. The data is attracted from the Refinitiv database, and all the companies in this study have ESG reporting from 2012 to 2022, with a total data collection of 117. The STATA version 16 software was used to analyze the data for the study. This study employed unbalanced panel data regression analysis with two measures as dependent variables ROE and stock price. Independent variables in this study are return on equity (ROE) and stock price, while control variables are firm age, firm size, and leverage. The findings show varied outcomes regarding the impact of ESG initiatives on financial performance. While ESG initiatives were found to have a significant and strong relationship with overall financial performance, the results were divergent for ROE and stock price. The regression model indicates that ESG initiatives negatively influenced ROE, whereas they positively correlated with increases in stock price. The study is based on secondary data from Shariah-compliant companies in Indonesia, including the ESG disclosure for the company’s performance. Policymakers should promote balanced, tailored ESG initiatives with strong reporting standards, encourage long-term value creation, provide sector-specific support, and enhance investor attraction through education and incentives to optimize financial performance and sustainability in Indonesia's Shariah-compliant companies.
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