A Comparative Analysis of the Influence of ESG Performance and Controversy on Firm Value : a Comparison of Companies in Indonesia and Malaysia
DOI:
https://doi.org/10.56910/literacy.v4i3.2986Keywords:
ESG Controversies, ESG Performance, Firm Value, Indonesia, MalaysiaAbstract
This study examines the impact of Environmental, Social, and Governance (ESG) performance and controversies on firm value in Indonesia and Malaysia, two significant markets with differing regulatory environments. The research addresses three main questions: (1) Does ESG performance enhance firm value? (2) Does ESG controversy reduce firm value? (3) How do ESG performance and controversies differ between the two countries? Using panel data regression analysis, the study analyzes 41 Indonesian and 52 Malaysian non-financial firms (2020–2024) sourced from Refinitiv Eikon. Firm value is measured by Tobin’s Q, while ESG performance and controversies are assessed through composite scores ranging from 0 to 100. The results indicate that ESG performance significantly enhances firm value in Malaysia (β = 0.0387; p < 0.001), likely due to the standardized reporting requirements under the Malaysian Code on Corporate Governance. In contrast, no significant effect is observed in Indonesia (β = 0.0068; p = 0.358), where the adoption of POJK 51/2017 remains voluntary. Regarding ESG controversies, no significant impact on firm value is found in either market (p > 0.05), suggesting that investors are not significantly concerned with sustainability scandals. However, Malaysian firms have superior ESG performance (mean = 58.62 vs. 52.50; p < 0.001), while Indonesian firms experience fewer controversies (mean = 98.60 vs. 96.59; p = 0.038). The study concludes that regulatory frameworks are crucial in transforming ESG commitments into market value, whereas weak enforcement mechanisms may prevent penalties for controversies. The findings highlight the need for ASEAN policymakers to harmonize ESG reporting standards and enhance investor education on sustainability risks.
References
[1] G. Friede, T. Busch, and A. Bassen, "ESG and financial performance: Aggregated evidence from more than 2000 empirical studies," J. Sustain. Finance Invest., vol. 5, no. 4, pp. 210-233, 2015. [Online]. Available: https://doi.org/10.1080/20430795.2015.1118917.
[2] A. W. Ng, J. Nathwani, and J. Zhang, "ESG regulatory divergence in ASEAN: Implications for sustainable investment," Sustainability, vol. 15, no. 7, pp. 589-612, 2023. [Online]. Available: https://doi.org/10.3390/su15075912.
[3] N. H. Ab. Aziz et al., "ESG Disclosure and Firm Performance: Evidence after the Revision of Malaysian Code of Corporate Governance," Int. J. Acad. Res. Bus. Social Sci., 2023. [Online]. Available: http://dx.doi.org/10.6007/IJARBSS/v13-i12/19140. [Accessed: 2023].
[4] S.-P. Lee and M. Isa, "Environmental, Social and Governance (ESG) Practices and Financial Performance of Shariah-Compliant Companies in Malaysia," J. Islamic Account. Bus. Res., 2022. [Online]. Available: https://doi.org/10.1108/jiabr-06-2020-0183.
[5] A. K. Dewi and R. Octaviani, "ESG implementation barriers in Indonesia: Stakeholder perspectives," J. Sustain. Finance Invest., vol. 14, no. 2, pp. 201-219, 2023. [Online]. Available: https://doi.org/10.1080/20430795.2023.1188221.
[6] M. Fabrizi et al., "ESG Controversies and Firm Value: New Evidence from Stock Market Reactions," J. Bus. Ethics, vol. 185, no. 2, pp. 363-385, 2023.
[7] B. Scholtens and K. Tan, "ESG Controversies in Southeast Asia: Financial Implications," Pac.-Basin Finance J., vol. 83, p. 102301, 2024.
[8] A. Fatemi, M. Glaum, and S. Kaiser, "ESG performance and firm value: The moderating role of disclosure," Glob. Finance J., vol. 38, pp. 45-64, 2018. [Online]. Available: https://doi.org/10.1016/j.gfj.2017.03.001.
[9] N. Rahayu and I. Sanjaya, "ESG performance and firm value: An empirical study in Indonesia," Asian J. Sustain. Gov., vol. 5, no. 1, pp. 23-39, 2024. [Online]. Available: https://doi.org/10.5678/rij.esg.2024.
[10] Z. Y. Gunibala, S. N. Maharani, and S. Pujiningsih, "KOMITMEN LINGKUNGAN DAN SOSIAL: APAKAH BERMANFAAT BAGI NILAI PERUSAHAAN?," J. Akunt., vol. 19, no. 1, pp. 55-74, 2025. [Online]. Available: https://doi.org/10.25170/jak.v19i1.5999.
[11] A. Zulianto and S. Aisjah, "Sustainability and Profitability: Does ESG Disclosure Influence Firm Value? Evidence From Indonesia," J. Manage. Risiko Keuangan, vol. 4, no. 1, 2025. [Online]. Available: https://jmrk.ub.ac.id/index.php/jmrk/article/view/162.
[12] C. Faure, E. Nys, and A. Tarazi, "Subcategories of ESG controversies and firm value," Finance Res. Lett., vol. 79, p. 107260, 2025. [Online]. Available: https://doi.org/10.1016/j.frl.2025.107260.
[13] K. Rahman and A. Bahari, "The Influence Of Environmental, Social And Governance (ESG) Performance On The Severity Of Losses And The Recovery Time Of Stock During The Crisis Of The Covid-19 Pandemic In Southeast Asia," Manage. Stud. Entrepreneurship J., vol. 4, no. 5, pp. 4624-4638, 2023. [Online]. Available: https://doi.org/10.37385/msej.v4i5.2754.
[14] T. Angela and N. Sari, "The Effect of Environmental, Social, and Governance Disclosure on Firm Value," E3S Web Conf., vol. 426, 2023. [Online]. Available: https://doi.org/10.1051/e3sconf/202342601078.
[15] Y. Kong et al., "The Moderating Role of Technological Innovation on Environment, Social, and Governance (ESG) Performance and Firm Value: Evidence from Developing and Least-Developed Countries," Sustainability, vol. 15, no. 19, 2023. [Online]. Available: https://doi.org/10.3390/su151914240.
[16] A. M. Ismail et al., "Board Capabilities and the Mediating Roles of Absorptive Capacity on Environmental Social and Governance (ESG) Practices," Int. J. Financial Res., 2019. [Online]. Available: https://doi.org/10.5430/ijfr.v10n3p11.
[17] Y. Zheng and Q. Feng, "ESG performance, dual green innovation and corporate value-based on empirical evidence of listed companies in China," Environ., Develop. Sustain., vol. 27, no. 1, pp. 609-624, 2025. [Online]. Available: https://doi.org/10.1007/s10668-024-05394-8.
[18] U. S. Al Azizah and R. Haron, "The sustainability imperative: evaluating the effect of ESG on corporate financial performance before and after the pandemic," Discov. Sustain., vol. 6, no. 1, 2025. [Online]. Available: https://doi.org/10.1007/s43621-025-01401-8.
[19] J. B. Wong and Q. Zhang, "Stock market reactions to adverse ESG disclosure via media channels," Br. Account. Rev., vol. 54, no. 1, p. 101045, 2022. [Online]. Available: https://doi.org/10.1016/j.bar.2021.101045.
[20] A. C. Nugroho and K. A. Fachrudin, "Analyst coverage, ESG performance, and firm value: Evidence from Southeast Asia," J. Akunt. Keuangan Indones., vol. 18, no. 1, pp. 1-21, 2021. [Online]. Available: https://doi.org/10.21002/jaki.2021.01.
[21] A. D. Nugroho and S. V. Siregar, "Does TCFD adoption reduce cost of capital? Evidence from ASEAN-5," J. Environ. Manage., vol. 335, p. 117129, 2023. [Online]. Available: https://doi.org/10.1016/j.jenvman.2023.117129.
[22] N. G. P. Negara, G. Ishak, and R. E. A. Priambodo, "Impact of ESG Disclosure Score on Firm Value: Empirical Evidence From ESG Listed Company in Indonesia Stock Exchange," Eur. J. Bus. Manage. Res., vol. 9, no. 2, pp. 114-118, 2024. [Online]. Available: https://doi.org/10.24018/ejbmr.2024.9.2.2064.
[23] F. Istiqomah, H. Prabowo, and A. Wicaksono, "Do intellectual capital and corporate reputation matter to firm value? Evidence from F&B sector," Int. J. Intell. Cap., vol. 11, no. 1, pp. 15-31, 2024. [Online]. Available: https://doi.org/10.6789/istiq.intcap.2024.
[24] W. Utami et al., "Competitive Advantage in Moderating the Three Pillars of ESG on Firm Value," Int. J. Econ. Financial Issues, vol. 15, no. 4, pp. 292-298, 2025. [Online]. Available: https://doi.org/10.32479/ijefi.19099.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 LITERACY : International Scientific Journals of Social, Education, Humanities
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
