Stable Financial Performance as the Antecedent of ESG Activity and Firm Value Relationship: An Evidence from Indonesia

Abstract

This study provides evidence that financial performance becomes a foundation of environmental, social, and governance (ESG) activities, and it will be appreciated positively by the market through the firm value. This examination is triggered by different views of ESG activities, such as philanthropy, doing business ethically, the indirect benefit for shareholders, or maintaining reputation. Therefore, it causes differences in ESG activity appreciation by market. Meanwhile, corporate social responsibility (CSR) activity is voluntary in Indonesia, so this activity aims to maintain reputation or avoid risk allegations according to environmental and social abuse. This study predicts that a stable firm’s financial performance concerns environmental and social issues. This study uses 139 companies from Indonesian Stock Market Data from 2013 to 2019, which fulfill the criteria of Thompson Reuters for ESG score. The empirical evidence shows that firm financial performance influences ESG score consistently as the antecedent. Further, ESG performance mediates the effect of firm financial performance on firm value. This research contributes to stakeholder theory, CSR practice, and good governance.