Non-Linear Effect of Environmental, Social, and Governance on Corporate Performance (Study in Non-financial Firms Listed on Indonesia Stock Exchange)
Non-Linear Effect of Environmental, Social, and Governance on Corporate Performance (Study in Non-financial Firms Listed on Indonesia Stock Exchange)

Summary/Abstract: Environmental, Social, and Governance (ESG) factors have become essential considerations for stakeholders. Balancing external and internal performance is crucial. However, there are some constraints to implementing ESG at the cor­porate level, especially in Indonesia. This study aims to test the effect of ESG on corporate performance. The non-financial firms listed on Indonesia Stock Ex­change from 2016–2020 were used as a sample. Empirical evidence found the U-shaped effect of ESG rating on corporate performance. Further, robustness tests are conducted by dividing the sample annually and removing the 2020 pe­riod to show more robust evidence. In contrast, the results showed no evidence of a U-shaped effect. The robustness test showed that the ESG rating positively affected corporate performance in 2016–2019 and turned negative in 2020, the first time COVID-19 happened in Indonesia. This result indicated that in a crisis time, implementing ESG will be costly and reflected in financial performance. In contrast, during a non-crisis time, ESG positively impacts financial performance.

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