Does ESG Affect The Firm Value?

Abstract

Objective - As the concept of sustainability develops in the industrial world, stakeholders are compelled to consider ESG performance when measuring company value. A company needs to increase its value and demonstrate its sustainability capabilities by publishing sustainability reports on ESG factors. This research aims to inquire whether ESG affects the firm's value. Methodology/Technique – The causality research is analyzed with Eviews using ASEAN panel data from 2019-2021 to measure the effect of ESG on firm value with a total of 738 firm years of data. Findings - Environmental performance is associated with high ecological costs in developing nations and is a burdensome additional expense that will deteriorate the company's financial condition. Disclosure of nonfinancial information jeopardizes the creation of company value, resulting from meeting the demands of stakeholders imposed on the company, thereby causing other agency conflicts. The relatively low level of investor confidence in the signal contributes to ESG performance that lowers the company's market value. Most investors respond negatively to these signals, assuming that the activities disclosed in ESG reporting are too costly and detrimental to their interests. They could be more enthralling in investing, decreasing market demand, and reducing the company's value. Novelty - This study explains the determinants of firm value from ESG scores and separate ESG scores in the ASEAN market. Type of Paper: Empirical. JEL Classification: F64, L50, Q25, G02, G39, M14 Keywords: ESG, Firm value, Environment score, Social score, Governance score, Sustainability Reference to this paper should be referred to as follows: Palupi, A. (2023). Does ESG Affect The Firm Value?, Acc. Fin. Review, 7(4), 19 – 26. https://doi.org/10.35609/afr.2023.7.4(3)