Bridging Transparency and Risk Nexus: Does ESG Performance, Financial Reporting Quality, and Corporate Risk-Taking Matter? Evidence from Indonesia

Yanuar Bachtiar, Mujennah () and Nirza Marzuki Husien
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Yanuar Bachtiar: Department of Economic and Management, Institut Bisnis dan Teknologi Kalimantan, Banjarmasin 70124, Indonesia
Mujennah: Department of Economic and Management, Institut Bisnis dan Teknologi Kalimantan, Banjarmasin 70124, Indonesia
Nirza Marzuki Husien: Department of Economic and Management, Institut Bisnis dan Teknologi Kalimantan, Banjarmasin 70124, Indonesia

Risks, 2025, vol. 13, issue 12, 1-28

Abstract: This study investigates the impact of environmental, social, and governance (ESG) performance on the link between financial reporting quality (FRQ) and corporate risk-taking (CRT). Building upon agency and stakeholder theories, we contend that ESG practices represent a transparency mechanism that is distinct from the mainstream and addresses information asymmetry in environments susceptible to earnings management. Operationalizing the framework with panel data, we estimated panel regression models and generalized structural equation modeling (GSEM) to examine the hypothesized framework. The findings show that ESG performance mediates the relationship between FRQ and CRT. In particular, we found that in weaker institutional environments, higher FRQ is associated with greater ESG engagement, which leads to relatively prudent risk-taking behavior. These results demonstrate the significance of ESG as a governance mechanism and underscore the significant role of ESG in encouraging responsible corporate conduct and curbing excessive risk. This research contributes to the existing literature on integrated reporting and sustainable finance by demonstrating how effective ESG governance can bolster corporate resilience and support long-term value creation, especially within emerging markets.

Keywords: ESG; financial reporting quality; corporate risk-taking (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:13:y:2025:i:12:p:232-:d:1807091

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