The role of internationalisation in moderating the impact of ESG disclosure on financial performance
DOI:
https://doi.org/10.18559/ebr.2024.3.1217Keywords:
CSR, ESG, corporate governance, financial performanceAbstract
This study aims to determine the influence of environmental responsibility, social responsibility, and governance practice disclosures on the financial performance of non-financial companies listed on the Indonesia Stock Exchange from 2012 to 2021. It employs moderated regression analysis and sub-group regression to explain the relationships between the variables. The results suggest a surprising finding that the indicators of environmental responsibility and governance disclosure practices lead to a decline in corporate financial performance, while the social responsibility indicator does not significantly affect corporate financial performance. Expenditures resulting from ESG practices can be perceived as a misuse of corporate resources, a missed opportunity, or, alternatively, as an overinvestment. However, the decline in performance due to environmental responsibility disclosure and governance practices can be mitigated by companies that engage in internationalisation. To sustain environmental, social, and governance activities over the long term, managers are required to deliver consistently increasing and higher financial performance.
Downloads
References
Alareeni, B. A., & Hamdan, A. (2020). ESG impact on performance of US S&P 500-listed firms. Corporate Governance (Bingley), 20(7), 1409–1428. https://doi.org/10.1108/CG-06-2020-0258
View in Google Scholar
ASEAN CSR Network. (2020). Corporate Sustainability Reporting in ASEAN Countries 2020. https://bschool.nus.edu.sg/cgs/wp-content/uploads/sites/7/2021/07/ACN-CGS-Corporate-Sustainability-Reporting-in-ASEAN-Countries-Presentation-2020.pdf
View in Google Scholar
Bahadori, N., Kaymak, T., & Seraj, M. (2021). Environmental, social, and governance factors in emerging markets: the impact on firm performance. Business Strategy and Development, 4(4), 411–422. https://doi.org/10.1002/bsd2.167
View in Google Scholar
Buallay, A. (2019). Is sustainability reporting (ESG) associated with performance? Evidence from the European banking sector. Management of Environmental Quality: An International Journal, 30(1), 98–115. https://doi.org/10.1108/MEQ-12-2017-0149
View in Google Scholar
Buallay, A., Fadel, S. M., Alajmi, J., & Saudagaran, S. (2021). Sustainability reporting and bank performance after financial crisis. Competitiveness Review: An International Business Journal, 31(4), 747–770. https://doi.org/10.1108/CR-04-2019-0040
View in Google Scholar
Buallay, A., Kukreja, G., Aldhaen, E., Al Mubarak, M., & Hamdan, A. M. (2020). Corporate social responsibility disclosure and firms’ performance in Mediterranean countries: a stakeholders’ perspective. EuroMed Journal of Business, 15(3), 361– 375. https://doi.org/10.1108/EMJB-05-2019-0066
View in Google Scholar
Capital Markets Board of Türkiye. (2014). Communiqué on corporate governance. https://cmb.gov.tr/data/628162651b41c617eced0fc9/19d8a66624b-c310562e89537d22b64df.pdf
View in Google Scholar
Chen, Z., & Xie, G. (2022). ESG disclosure and financial performance: Moderating role of ESG investors. International Review of Financial Analysis, 83, 102291. https://doi.org/10.1016/j.irfa.2022.102291
View in Google Scholar
Chijoke-Mgbame, A. M., Mgbame, C. O., Akintoye, S., & Ohalehi, P. (2019). The role of corporate governance on CSR disclosure and firm performance in a voluntary environment. Corporate Governance: The International Journal of Business in Society, 20(2), 294–306. https://doi.org/10.1108/CG-06-2019-0184
View in Google Scholar
Contractor, F. J. (2012). Why do multinational firms exist? A theory note about the effect of multinational expansion on performance and recent methodological critiques. Global Strategy Journal, 2(4), 318–331. https://doi.org/10.1111/j.2042-5805.2012.01045.x
View in Google Scholar
de Souza Barbosa, A., da Silva, M. C. B. C., da Silva, L. B., Morioka, S. N., & de Souza, V. F. (2023). Integration of Environmental, Social, and Governance (ESG) criteria: Their impacts on corporate sustainability performance. Humanities and Social Sciences Communications, 10(1), 1–18. https://doi.org/10.1057/s41599-023-01919-0
View in Google Scholar
Elmghaamez, I. K., Nwachukwu, J., & Ntim, C. G. (2023). Disclosure and financial performance of multinational enterprises: The moderating effect of board standing committees. International Journal of Finance & Economics, 29(3), 3593–3638. https://doi.org/10.1002/ijfe.2846
View in Google Scholar
Fahad, P., & Busru, S. A. (2021). CSR disclosure and firm performance: evidence from an emerging market. Corporate Governance: The International Journal of Business in Society, 21(4), 553–568. https://doi.org/10.1108/CG-05-2020-0201
View in Google Scholar
Farhan, N. H. S., Alhomidi, E., Almaqtari, F. A., & Tabash, M. I. (2019). Does Corporate Governance Moderate the Relationship between Liquidity Ratios and Financial Performance? Evidence from Indian Pharmaceutical Companies. Academic Journal of Interdisciplinary Studies, 8(3). https://doi.org/10.36941/ajis-2019-0013
View in Google Scholar
Finger, M., & Rosenboim, M. (2022). Going ESG: The economic value of adopting an ESG policy. Sustainability, 14(21), 13917. https://doi.org/10.3390/su142113917
View in Google Scholar
Freeman, R. E. (1984). Strategic management: A stakeholder approach. Pitman Publishing.
View in Google Scholar
Fu, T., & Li, J. (2023). An empirical analysis of the impact of ESG on financial performance: The moderating role of digital transformation. Frontiers in Environmental Science, 11, 1–11. https://doi.org/10.3389/fenvs.2023.1256052
View in Google Scholar
Gaur, A., & Kumar, V. (2010). Internationalization of emerging market firms: A case for theoretical extension. In T. Devinney, T. Pedersen, L. Tihanyi (Eds.), The past, present and future of international business & management (pp. 603–627). https://doi.org/10.1108/S1571-5027(2010)00000230031
View in Google Scholar
Ghozali, I. (2016). Aplikasi analisis multivariate dengan Program IBM SPSS 23 Update PLS Regresi (8th ed.). Badan Penerbit Universitas Diponegoro.
View in Google Scholar
Grishunin, S., Naumova, E., Burova, E., Suloeva, S., & Nekrasova, T. (2022). The impact of sustainability disclosures on value of companies following digital transformation strategies. International Journal of Technology, 13(7), 1432. https://doi.org/10.14716/ijtech.v13i7.6194
View in Google Scholar
Grozdić, V., Marić, B., Radišić, M., Šebestová, J., & Lis, M. (2020). Capital Investments and Manufacturing Firms’ Performance: Panel-Data Analysis. Sustainability, 12(4), 1689. https://doi.org/10.3390/su12041689
View in Google Scholar
Grünig, R., & Morschett, D. (2016). Reasons for the internationalization of companies. In Developing international strategies (pp. 29–43, 2nd ed.). https://doi.org/10.1007/978-3-662-53123-5
View in Google Scholar
Guillén, M. F., & García-Canal, E. (2009). The American model of the multinational firm and the “new” multinationals from emerging economies. Academy of Management Perspectives, 23(2), 23–35. https://doi.org/10.5465/amp.2009.39985538
View in Google Scholar
Habib, A. M., & Mourad, N. (2024). The influence of environmental, social, and governance (esg) practices on US firms’ performance: Evidence from the coronavirus crisis. Journal of the Knowledge Economy, 15, 2549–2570. https://doi.org/10.1007/s13132-023-01278-w
View in Google Scholar
Hair Jr., J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2014). Multivariate data analysis (7th ed.). Pearson Education Limited.
View in Google Scholar
Handoyo, S., & Anas, S. (2024). The effect of environmental, social, and governance (ESG) on firm performance: The moderating role of country regulatory quality and government effectiveness in ASEAN. Cogent Business and Management, 11(1), 2371071. https://doi.org/10.1080/23311975.2024.2371071
View in Google Scholar
Huang, D. Z. X. (2021). Environmental, social and governance (ESG) activity and firm performance: A review and consolidation. Accounting & Finance, 61(1), 335–360. https://doi.org/10.1111/acfi.12569
View in Google Scholar
Husnah, H. (2023). Integrating environmental, social and governance (ESG) disclosure on financial performance of Indonesian mining industry sector. Jurnal Aplikasi Bisnis Dan Manajemen, 9(3), 763–773. https://doi.org/10.17358/jabm.9.3.763
View in Google Scholar
Jaisinghani, D., & Sekhon, A. K. (2022). CSR disclosures and profit persistence: Evidence from India. International Journal of Emerging Markets, 17(3), 705–724. https://doi.org/10.1108/IJOEM-03-2020-0246
View in Google Scholar
Khan, M. A. (2022). ESG disclosure and Firm performance: A bibliometric and meta analysis. Research in International Business and Finance, 61. https://doi.org/10.1016/j.ribaf.2022.101668
View in Google Scholar
Kristaung, R., & Riorini, S. V. (2020). Mediation-moderation modeling for marketing in supply chain management. International Journal of Supply Chain Management, 9(1), 996–1006. http://ojs.excelingtech.co.uk/index.php/IJSCM/article/viewFile/4378/2260
View in Google Scholar
Laskar, N., & Maji, S. G. (2016). Disclosure of corporate social responsibility and firm performance: Evidence from India. Asia-Pacific Journal of Management Research and Innovation, 12(2), 145–154. https://doi.org/10.1177/2319510X16671555
View in Google Scholar
Le Thi Kim, N., Duvernay, D., & Le Thanh, H. (2021). Determinants of financial performance of listed firms manufacturing food products in Vietnam: Regression analysis and Blinder–Oaxaca decomposition analysis. Journal of Economics and Development, 23(3), 267–283. https://doi.org/10.1108/jed-09-2020-0130
View in Google Scholar
Lian, Y., Li, Y., & Cao, H. (2023). How does corporate ESG performance affect sustainable development: A green innovation perspective. Frontiers in Environmental Science, 11, 1–16. https://doi.org/10.3389/fenvs.2023.1170582
View in Google Scholar
Lubis, M. F. F., & Rokhim, R. (2021). The effect of environmental, social, and governance (ESG) disclosure and competitive advantage on companies performance as an implementation of sustainable economic growth in Indonesia for period of 2015–2019. IOP Conference Series: Earth and Environmental Science, 940(1), 1–6. https://doi.org/10.1088/1755-1315/940/1/012059
View in Google Scholar
Manotas, E. C., & Gonzalez-Perez, M. A. (2020). Internationalization and performance of small and medium-sized enterprises from emerging economies: Using hazards methodology for competitiveness study. Competitiveness Review, 30(5), 635–663. https://doi.org/10.1108/CR-03-2019-0028
View in Google Scholar
Marsh, A. (2020). U.S. falls further behind Europe in fast-growing ESG market. BNN Bloomberg. https://www.bloomberg.com/news/articles/2020-12-21/u-s-falls-further-behind-europe-in-fast-growing-esg-market
View in Google Scholar
Meiryani, Olivia, Sudrajat, J., & Daud, Z. M. (2020). The effect of firm’s size on corporate performance. International Journal of Advanced Computer Science and Applications, 11(5), 272–277. https://doi.org/10.14569/IJACSA.2020.0110536
View in Google Scholar
Moghaddam, K., Sethi, D., Weber, T., & Wu, J. (2014). The smirk of emerging market firms: A modification of the dunning’s typology of internationalization motivations. Journal of International Management, 20(3), 359–374. https://doi.org/10.1016/j.intman.2014.01.002
View in Google Scholar
Mohammad, W. M. W., & Wasiuzzaman, S. (2021). Environmental, social and governance (ESG) disclosure, competitive advantage and performance of firms in Malaysia. Cleaner Environmental Systems, 2, 100015. https://doi.org/10.1016/j.cesys.2021.100015
View in Google Scholar
Mulyono. (2023). Business sustainability performance on pandemic: Lesson from IDX ESG Leaders Company. E3S Web of Conferences, 426, 02067. https://doi.org/10.1051/e3sconf/202342602067
View in Google Scholar
Mutascu, M., & Murgea, A. (2020). Exports and financial performances in French cosmetic industry: Long live the ‘lipstick effect’! The Economic Research Guardian, 10(1), 44–68. https://www.ecrg.ro/files/p2020.1(10)10y4.pdf
View in Google Scholar
Oware, K. M., & Mallikarjunappa, T. (2022). CSR expenditure, mandatory CSR reporting and financial performance of listed firms in India: an institutional theory perspective. Meditari Accountancy Research, 30(1), 1–21. https://doi.org/10.1108/MEDAR-05-2020-0896
View in Google Scholar
Park, S., Song, S., & Lee, S. (2017). Corporate social responsibility and systematic risk of restaurant firms: The moderating role of geographical diversification. Tourism Management, 59, 610–620. https://doi.org/10.1016/j.tourman.2016.09.016
View in Google Scholar
Plastun, A., Makarenko, I., Khomutenko, L., Osetrova, O., & Shcherbakov, P. (2020). SDGs and ESG disclosure regulation: Is there an impact? Evidence from Top-50 world economies. Problems and Perspectives in Management, 18(2), 231–245. https://doi.org/10.21511/ppm.18(2).2020.20
View in Google Scholar
Platonova, E., Asutay, M., Dixon, R., & Mohammad, S. (2018). The impact of corporate social responsibility disclosure on financial performance: evidence from the GCC Islamic banking sector. Journal of Business Ethics, 151(2), 451–471. https://doi.org/10.1007/s10551-016-3229-0
View in Google Scholar
Pulino, S. C., Ciaburri, M., Magnanelli, B. S., & Nasta, L. (2022). Does ESG disclosure influence firm performance? Sustainability (Switzerland), 14(13), 1–18. https://doi.org/10.3390/su14137595
View in Google Scholar
Ratajczak, P., & Mikołajewicz, G. (2021). The impact of environmental, social and corporate governance responsibility on the cost of short- and long-term debt. Economics and Business Review, 7(2), 74–96. https://doi.org/10.18559/ebr.2021.2.6
View in Google Scholar
Rohendi, H., Ghozali, I., & Ratmono, D. (2024). Environmental, social, and governance (ESG) disclosure and firm value: The role of competitive advantage as a mediator. Cogent Business and Management, 11(1), 1–17. https://doi.org/10.1080/23311975.2023.2297446
View in Google Scholar
Saygili, E., Arslan, S., & Birkan, A. O. (2022). ESG practices and corporate financial performance: Evidence from Borsa Istanbul. Borsa Istanbul Review, 22(3), 525–533. https://doi.org/10.1016/j.bir.2021.07.001
View in Google Scholar
Sekhon, A. K., & Kathuria, L. M. (2019). Analyzing the impact of corporate social responsibility on corporate financial performance: Evidence from top Indian firms. Corporate Governance: The International Journal of Business in Society, 20(1), 143–157. https://doi.org/10.1108/CG-04-2019-0135
View in Google Scholar
Soesetio, Y., Anggraeni, C. N., Rudhiningtyas, D. A., & Fuad, M. (2023). Corporate governance implementation on earnings management practices: Firm size as moderation Yuli. Jurnal Ekonomi Modernisasi, 19(2), 112–127. https://ejournal.unikama.ac.id/index.php/JEKO/article/view/8431/4322
View in Google Scholar
Soesetio, Y., Rudiningtyas, D. A., & Sukmawati, A. C. (2023). Factors affecting firm performance: Does corporate governance implementation matter? Adpebi International Journal of Multidisciplinary Sciences, 2(1), 1–12. https://doi.org/10.54099/aijms.v2i1.487
View in Google Scholar
Sudirman, S., Abdullah, M. W., & Obie, M. (2020). The effect of current ratio and debt to asset ratio on net profit margin and stock prices: A study of basic industry and chemicals companies. International Journal of Scientific Research in Science and Technology, 7(5), 282–294. https://doi.org/10.32628/IJSRST207561
View in Google Scholar
Teoh, C. K. S. (2021). Financial distress and firm performance: Evidence from COVID-19. UNIMAS Review of Accounting and Finance, 5(1), 108–122. https://doi.org/10.33736/uraf.3526.2021
View in Google Scholar
Veeravel, V., Sadharma, E. K. S., & Kamaiah, B. (2024). Do ESG disclosures lead to superior firm performance? A method of moments panel quantile regression approach. Corporate Social Responsibility and Environmental Management, 31(1), 741–754. https://doi.org/10.1002/csr.2598
View in Google Scholar
Velte, P. (2017). Does ESG performance have an impact on financial performance? Evidence from Germany. Journal of Global Responsibility, 8(2), 169–178. https://doi.org/10.1108/JGR-11-2016-0029
View in Google Scholar
Wasiuzzaman, S., Ibrahim, S. A., & Kawi, F. (2023). Environmental, social and governance (ESG) disclosure and firm performance: Does national culture matter? Meditari Accountancy Research, 31(5), 1239–1265. https://doi.org/10.1108/MEDAR-06-2021-1356
View in Google Scholar
World Bank. (2023). The World Bank in Indonesia. https://www.worldbank.org/en/country/indonesia/overview
View in Google Scholar
Zahroh, B. M., & Hersugondo, H. (2021). The effect of ESG performance on the financial performance of manufacturing companies listed in the Indonesian. AFEBI Management and Business Review, 6(2), 129. https://doi.org/10.47312/ambr.v6i2.475
View in Google Scholar
Zhan, S. (2023). ESG and corporate performance: A review. SHS Web of Conferences, 169, 01064. https://doi.org/10.1051/shsconf/202316901064
View in Google Scholar
Zhang, D., & Liu, L. (2022). Does ESG performance enhance financial flexibility? Evidence from China. Sustainability, 14(18), 11324. https://doi.org/10.3390/su141811324
View in Google Scholar
Downloads
Published
Issue
Section
License
Copyright (c) 2024 Yuli Soesetio, Ely Siswanto, Subagyo Subagyo, Muhammad Fuad, Dyah Arini Rudiningtyas, Siti Astutik
This work is licensed under a Creative Commons Attribution 4.0 International License.
