The Effect of Environmental Social Governance (ESG) Performance and Financial Performance on Firm Value: Evidence from the Banking Sector in ASEAN

Mochamad Perdana (), Ubud Salim, Kusuma Ratna and Ainur Rofiq
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Mochamad Perdana: Brawijaya University
Ubud Salim: Brawijaya University
Kusuma Ratna: Brawijaya University
Ainur Rofiq: Brawijaya University

A chapter in Proceedings of the 1st Brawijaya International Conference on Business and Law (BICoBL 2022), 2023, pp 183-193 from Springer

Abstract: Abstract Company’s sustainability has recently become an important goal for stakeholders as it will support financial and operational sustainability of the company. Using the stakeholder theory, which stated that a company must maintain the balance and essential matters for all company’s stakeholders, this study focuses on company’s sustainability. It is also expected that when a company focuses on sustainability, as represented by the Environmental Social Governance performance and financial performance, its operation becomes legitimate and profitable, increasing its firm value. This is in line with the legitimacy theory that, in running its business, a company must ensure that they operate efficiently and comply to social boundaries and norms to be more profitable and valuable. This study aims to examine whether Environmental Social Governance (ESG) performance and Financial Performance could impact the firm value. The authors employed the panel data multiple regression analysis with a data set from all banks with ESG score in the ASEAN region during 2015–2021. The firm value was then measured using Tobins’ Q, while the Environmental Social Governance (ESG) performance and Financial Performance were measured using the ESG score and Return on Asset, respectively. Based on signalling theory, this study found that the Environmental Social Governance performance and financial performance will increase the firm value. Thus, it is suggested that the disclosure of the ESG score is as essential as the financial disclosure, since both disclosures will increase the value of the firm.

Keywords: Firms’ Value; Environmental Social Governance (ESG); Financial Performance; Sustainability (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-214-9_20

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DOI: 10.2991/978-94-6463-214-9_20

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