ESG Performance and Firm Value in Indonesia: Do Political Connections and External Assurance Matter?

This study examines how ESG performance translates into firm value in an Indonesia setting characterized by high information asymmetry, strong political–business linkages, and weak ESG assurance adoption. Using panel data from non-financial firms listed on the Indonesia Stock Exchange over the 2010–2023 period (1700 firm-year observations), we analyze whether political connections and external ESG assurance condition the value relevance of ESG performance. The results show that ESG performance is positively associated with firm value; however, this relationship is highly context-dependent. Political connections significantly strengthen the ESG–firm value relationship, suggesting that politically connected firms are better able to convert ESG engagement into economic value by enhancing legitimacy, reducing regulatory uncertainty, and securing stakeholder support. In contrast, external ESG assurance does not significantly moderate this relationship, reflecting the limited credibility and weak differentiation of assurance practices in Indonesia’s immature sustainability assurance market. These findings highlight that, in emerging markets, ESG disclosures are not uniformly credible and may be subject to political capture or symbolic reporting. ESG creates firm value primarily when it is reinforced by institutional mechanisms that reduce perceived risk and enhance credibility. This study contributes to the ESG literature by demonstrating that the valuation effects of sustainability performance depend not only on ESG outcomes but also on the political and institutional environment in which firms operate, with important implications for regulators, investors, and managers in Indonesia.