An empirical analysis of sustainability disclosure and its impact on firm performance: a study of companies in the agriculture sector listed on the Indonesian stock exchange

Abstract

Abstract The agriculture sector plays a key role in the Indonesian economy, contributing significantly to the nation’s Gross Domestic Product (GDP) and providing livelihoods to a substantial portion of the population. In the last decades, there has been an increasing appreciation of the importance of sustainability within this sector. However, research exploring the influence of sustainability on company performance within the Indonesian agriculture sector remains limited, highlighting the ongoing need for further research. This study investigates how companies in the Indonesian Stock Exchange’s Agriculture Sector use sustainability disclosure to signal their sustainability practices and how this relates to their firm performance. The sample data of this study comprised of 135 observations of 44 companies listed in the Agriculture Sector from 2020 to 2022. Research data was collected from three sources: the sustainability report, the company’s annual report, and publicly available capital market data. The research data was analysed empirically using multiple linear regression analysis. The results indicate that the relationship between sustainability disclosure and financial performance unfolds as follows: Environmental, Social and Governance (ESG) factors positively influence financial performance, as measured by ROA and Return on Equity (ROE), yet exhibit no significant impact on firm performance when measured by Return on capital employed (RoCE). However, it’s noteworthy that, apart from book value, which unexpectedly displays a substantial negative relationship with both Return on Asset (ROA) and Return on Equity (ROE), all other control variables align with our expectations. Specifically, current assets, Earnings per Share (EPS), and net profit are consistent with our positive expectations, while current debt and leverage conform to our anticipated negative results.