ESG Disclosure Negatively Impacts Firm Value in the Indonesian Capital Market

Natalia Sihombing S.Pd Rabu, Agustus 12, 2026
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FORMOSA NEWS

Jakarta, Formosa News – The implementation of Environmental, Social, and Governance (ESG) practices is often considered a primary driver of corporate value in modern capital markets. However, a recent study conducted by Aditya Sri Yanto, Agung Dharmawan Buchdadi, and Etty Gurendrawati from the Master of Management program at the Faculty of Economics and Business, Universitas Negeri Jakarta, Indonesia, reveals contrasting findings. Published in the International Journal of Management Analytics (IJMA) in July 2026, this research examined panel data of non-financial companies listed on the Indonesia Stock Exchange (IDX) from 2017 to 2024 to analyze the impact of ESG disclosure on firm value, with CEO tenure as a moderating variable. This research is significant because it offers investors and corporate management a new perspective that sustainability commitments do not always immediately boost market value in the short term.

Background and Research Methodology

Since the enactment of the Financial Services Authority Regulation (POJK) No. 51/POJK.03/2017 regarding Sustainable Finance, sustainability reporting in Indonesia experienced a significant surge, reaching 97% of issuers by 2024. On the other hand, ESG-based investments have also grown rapidly. Nevertheless, previous empirical evidence regarding the relationship between ESG and firm performance has shown inconsistent results—some find a positive impact, while others report negative effects due to high administrative burdens and compliance costs.

To resolve these discrepancies, the study employs a descriptive quantitative approach using the Fixed Effect Model (FEM) regression on panel data. Sampling was conducted using purposive sampling on non-financial companies on the IDX from 2017 to 2024. This analytical model also controlled for variables such as leverage, firm size, CEO turnover, the COVID-19 pandemic, and lagged firm performance to ensure estimation accuracy.

Main Findings of the Research

Based on data analysis covering a model with an explanatory power of 91.54% regarding the variation in firm value, the study highlights several key points:

  • Negative Impact of ESG Disclosure: ESG disclosure proved to have a significant negative impact on firm value as measured by Tobin's Q.
  • The Role of CEO Tenure: CEO tenure statistically has no significant direct influence on firm value, nor does it act as a moderating variable in the relationship between ESG and firm value.
  • Financial Supporting Factors: Leverage and lagged firm performance show a positive and significant relationship with firm value.

Implications and Impact on Business and Policy

These findings indicate that ESG implementation and reporting in Indonesia during the study period still functioned as a cost center rather than an instant value driver. Building reporting infrastructure, technology, staff training, and governance adjustments demand substantial initial investments, the benefits of which will only be realized in the long term.

For corporate management, these research findings suggest that ESG investments should be viewed as long-term strategic commitments rather than activities to chase instant market returns. Meanwhile, for investors, ESG scores should not be used as the sole signal for short-term valuation, but rather need to be analyzed alongside capital structures and historical performance trajectories. The government and regulators are also encouraged to provide incentives or transition support to help companies absorb the initial costs of ESG compliance.

"ESG implementation requires substantial initial costs and investments, so its economic benefits are not always directly reflected in market valuations in the short term," revealed the researchers from Universitas Negeri Jakarta.

Author Profiles

  • Aditya Sri Yanto – Master of Management Student, Faculty of Economics and Business, Universitas Negeri Jakarta, Indonesia (Fields of expertise: Financial Management and Corporate Sustainability).
  • Agung Dharmawan Buchdadi – Lecturer and Researcher at the Master of Management program, Faculty of Economics and Business, Universitas Negeri Jakarta, Indonesia (Fields of expertise: Strategic Management and Finance).
  • Etty Gurendrawati – Lecturer and Researcher at the Master of Management program, Faculty of Economics and Business, Universitas Negeri Jakarta, Indonesia (Fields of expertise: Accounting and Corporate Governance).

Research Sources:

Natalia Sihombing S.Pd

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