The digital era has intensified firms’ pursuit of digital transformation, yet its impact on firm value remains inconclusive. This study examines the relationship between digital transformation and firm value by incorporating environmental, social, and governance (ESG) performance as a mediating variable and corporate innovation as a moderating variable. Using 748 firm-year observations from 84 Indonesian listed firms during 2014–2023, the study employs ordinary least squares regression with firm and year fixed effects, complemented by mediation analysis using structural equation modeling. The results show that digital transformation negatively affects ESG performance, which subsequently reduces firm value. However, digital transformation has no significant direct effect on firm value. Its influence operates entirely through a negative indirect pathway via ESG performance, confirming a full mediation effect. Furthermore, corporate innovation does not significantly moderate the relationship between digital transformation and firm value. These findings highlight the need for firms to align digital transformation initiatives with ESG objectives and effectively communicate their financial implications to investors. Policymakers may also strengthen digital and ESG frameworks to better meet market expectations. This study contributes to the literature by providing evidence on the interplay among digital transformation, ESG performance, corporate innovation, and firm value in the Indonesian context.
Candy et al. (Tue,) studied this question.
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