The impact of esg factors on financial performance: Analyzing the company’s roe as a mediating effect to the relationship of esg practices and company market value

Rachman, Jewel Divahartini (2024) The impact of esg factors on financial performance: Analyzing the company’s roe as a mediating effect to the relationship of esg practices and company market value. Bachelor thesis, Universitas Pelita Harapan.

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Abstract

This study examines the relationship between Environmental, Social, and Governance (ESG) performance and company valuation, framed within the Indonesian context. Utilizing a Driscoll-Kraay regression model with Return on Equity (ROE) as a mediating variable, we analysed the ESG scores sourced from Refinitiv against market valuations represented by Tobin’s Q. Our findings indicate a marginally negative impact of ESG performance on Tobin’s Q, suggesting that ESG disclosures may not correlate strongly with the Indonesian market perceptions of value. Despite the limitations posed by data availability, this research contributes to the nuanced understanding of ESG’s role in financial performance and prompts further investigation into the long-term effects of sustainability practices. The implications are valuable for policymakers and businesses considering ESG- focused strategies in emerging markets.

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