The Effect of ESG Disclosure, Ownership Structure, and Profitability on Firm Value in the Banking Sector

Abstract

This study aims to examine the effect of Environmentals Social, and Governance (ESG) disclosure, ownership structure (proxied by institutional ownership), and profitability (proxied by Return on Assets) on the firm value (proxied by Tobin's Q) of banking companies listed on the Indonesia Stock Exchange (IDX) during the 2021–2024 period. Employing a quantitative approach with panel data regression analysis, the research used purposive sampling to select 21 companies. This initially yielded 84 observations, which were reduced to 51 after an iterative outlier treatment procedure conducted to improve data normality. The Fixed Effect Model (FEM) was utilized after passing the Chow and Hausman tests, alongside all necessary classical assumption tests. The empirical results indicate that ESG disclosure has a significant negative effect on firm value, while institutional ownership shows a positive but non-significant effect. Conversely, profitability exhibits a significant positive effect on firm value. Simultaneously, all three independent variables significantly influence firm value, supported by an Adjusted R-squared of 74.56%. In conclusion, the negative impact of ESG disclosure indicates a negative market response toward sustainability related information, which may reflect investor skepticism during the early adoption phase of sustainable finance in Indonesia. However, this finding should not be interpreted as direct evidence of greenwashing, as greenwashing was not explicitly measured in this study. The findings suggest that market valuation remains more strongly associated with profitability than with sustainability disclosure during the observation period.