On the Value Relevance of Information on Environmental, Social, and Governance (Esg): An Evidence From Indonesia

This paper intends to extend prior developed market-based researches on the value relevance of non-financial information, which is reflected in Environmental, Social and Governance (ESG) disclosure, by examining the association between companies’ financial performances and their non-financial performances. We use 281 firm-year observations of 34 public-listed firms in Indonesia during the period of 2012 - 2018. As the majority of prior studies have focused on the use of price model, we employ regression of both price and return models to assess the value relevance. We also analyze the value relevance of ESG disclosure on both aggregate and singular aspects. We employ sensitivity analysis to assess any differences in the value relevance of both models. The findings show that environmental, social, and ESG disclosure have significant impacts on share prices and stock returns, therefore they have value relevance in both price model and return model. Only governance disclosure has no effect on both share prices and stock returns. Our paper addresses an additional approach in assessing the value relevance of non-financial information. By incorporating two models, we provide a better understanding of the value relevance of ESG information. Our empirical evidence supports the process of developing sustainability reporting regulation in Indonesia regarding the value relevance of non-financial information.