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Volume – III Issue -V (Sep embe -Oc obe ) 2025
F equency: Bimon hly
When Good Go e nance Hu s P o i : Reassessing ESG and Fi m Value Rela ionships
Rano Wijaya1*, Syai ul Hi ni2, , Sap udin3, Isnawa i4
1, 2, 3, 4 Uni e si as Lambung Mangku a ; Banja masin, Indonesia
| Recei ed: 06.10.2025 | Accep ed: 11.10.2025 | Published: 13.10.2025
*Co esponding au ho : Rano Wijaya
Uni e si as Lambung Mangku a ; Banja masin, Indonesia
In oduc ion
The g owing global awa eness o sus ainabili y has posi ioned
En i onmen al, Social, and Go e nance (ESG) pe o mance as a
c ucial de e minan o co po a e success. Fi ms a e inc easingly
expec ed no only o gene a e p o i s bu also o demons a e
accoun abili y o hei en i onmen al and social impac s. O e he
pas wo decades, a la ge body o li e a u e has explo ed he link
be ween ESG p ac ices and co po a e inancial pe o mance (CFP),
gene ally inding ha sus ainabili y does no unde mine
p o i abili y (F iede e al., 2015). This me a-analysis,
encompassing mo e han 2,000 empi ical s udies, e ealed a
p edominan ly posi i e associa ion be ween ESG engagemen and
i m pe o mance, ein o cing he p emise ha doing good can
align wi h doing well.
In eme ging ma ke s such as Indonesia, ESG implemen a ion akes
a dis inc i e o m due o di e ences in ins i u ional amewo ks
Abs ac
This s udy e isi s he pa adoxical ole o co po a e go e nance in shaping he ela ionship be ween en i onmen al, social, and
go e nance (ESG) pe o mance and i m alue wi hin eme ging ma ke s. Using a da ase o publicly lis ed companies in Indonesia
om 2020–2024, we examine how en i onmen al pe o mance (measu ed by PROPER a ings), social disclosu e (SDI), and audi
commi ee size (ACS) join ly a ec p o i abili y (ROA) and ma ke alua ion (PBV). Applying Pa ial Leas Squa es–S uc u al
Equa ion Modeling (PLS-SEM) ia Sma PLS 4, he analysis e eals a complex dynamic: en i onmen al excellence enhances
p o i abili y, while la ge audi commi ees— hough associa ed wi h highe anspa ency— end o educe ope a ional e iciency.
P o i abili y eme ges as he key media o linking ESG ini ia i es o ma ke alue, con i ming ha in es o s alue sus ainabili y
p ima ily when i s eng hens inancial pe o mance. The indings challenge he assump ion ha mo e go e nance always
imp o es ou comes, emphasizing he need o con ex -speci ic and e iciency-o ien ed go e nance s uc u es in eme ging
economies.
Keywo ds: ESG, audi commi ee, p o i abili y, PROPER, i m alue, go e nance pa adox
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and s akeholde expec a ions. The Co po a e Pe o mance Ra ing
P og am (PROPER), ini ia ed by Indonesia’s Minis y o
En i onmen and Fo es y (KLHK), p o ides a unique con ex o
assess en i onmen al esponsibili y. PROPER unc ions as bo h a
egula o y ool and a epu a ional signal, o e ing colo -coded
en i onmen al a ings ha indica e co po a e compliance and
inno a ion le els ((KLHK), 2024).
Howe e , despi e he p oli e a ion o sus ainabili y ini ia i es, he
economic ansla ion o ESG pe o mance in o i m alue emains
inconsis en ac oss de eloping economies. S udies indica e ha
while en i onmen al and go e nance imp o emen s can os e
ope a ional e iciency and s akeholde us , hey may no di ec ly
in luence ma ke alua ion unless accompanied by measu able
p o i abili y (Fahad & Bus u, 2020; Fa emi e al., 2018). This
pe spec i e aligns wi h signaling heo y (Spence, 1973), sugges ing
ha in es o s espond mos s ongly o c edible inancial ou comes
a he han symbolic disclosu es.
Go e nance mechanisms play a cen al ole in ensu ing
anspa ency and accoun abili y, ye ecen indings e eal a
pa adoxical dynamic: mo e go e nance is no always be e . Audi
commi ees a e con en ionally designed o enhance o e sigh and
imp o e epo ing quali y (DeFond & Zhang, 2014; Klein, 2002).
Ne e heless, me a-analy ic e idence shows ha la ge audi
commi ees can expe ience coo dina ion ine iciencies ha hinde
inancial pe o mance (Al in, 2024). Simila ly, Badola o e al.
(2014) ound ha commi ee e ec i eness depends mo e on
expe ise and ela i e s a us han on s uc u al size.
These indings sugges ha in eme ging ma ke s—whe e
go e nance sys ems a e o en d i en by o mal compliance—
o e ly la ge commi ees may inad e en ly educe manage ial
e iciency and p o i abili y. This si ua ion ep esen s wha can be
e med a ―go e nance pa adox‖, in which mechanisms in ended o
imp o e con ol and anspa ency can, in p ac ice, cons ain
lexibili y and pe o mance.
The connec ion be ween ESG ini ia i es and i m alua ion is
a ely di ec . Ins ead, p o i abili y (Re u n on Asse s, ROA) o en
se es as a media ing a iable, e lec ing how non- inancial
ini ia i es in luence angible economic ou comes. Empi ical
e idence om Indonesian lis ed companies shows ha p o i abili y
is a key de e minan o i m alue (De i e al., 2024). This
esona es wi h signaling heo y, whe e p o i abili y se es as a
isible indica o o i m quali y ha ma ke s ewa d (Fama &
F ench, 2001; Spence, 1973).
Fu he mo e, s akeholde heo y (F eeman, 1984) and legi imacy
heo y (Suchman, 1995) oge he explain ha i ms seek social
app o al and legi imacy h ough esponsible beha io , bu ma ke s
end o alue hese beha io s only when hey lead o supe io
inancial esul s. Thus, ESG ini ia i es, especially en i onmen al
pe o mance measu ed by PROPER and go e nance mechanisms
ep esen ed by he audi commi ee, a e expec ed o in luence
ma ke alua ion p ima ily h ough hei e ec on p o i abili y.
While global s udies ha e es ablished he b oad link be ween ESG
and inancial ou comes, empi ical esea ch in Indonesia’s pos -
pandemic pe iod (2020–2024) emains limi ed. P io s udies show
mixed esul s: some con i m ha CSR and en i onmen al a ings
enhance p o i abili y, while o he s indica e negligible o e en
nega i e e ec s on i m alue (Machmuddah e al., 2020). This
inconsis ency unde sco es he need o explo e con ex -speci ic
pa hways—pa icula ly whe he p o i abili y se es as he c ucial
b idge be ween ESG and i m alua ion.
Based on hese a gumen s, his s udy aims o eassess he ESG–
i m alue ela ionship by ocusing on he in e play among
en i onmen al pe o mance (PROPER), social disclosu e (SDI),
and go e nance s uc u e (ACS) in Indonesian publicly lis ed
i ms. The esea ch speci ically examines whe he he size o he
audi commi ee, despi e imp o ing anspa ency, may
pa adoxically ha m p o i abili y, and whe he p o i abili y
con inues o ac as he dominan media ing mechanism connec ing
ESG p ac ices o ma ke alue.
Resea ch Me hod
Resea ch Design
This s udy employed a quan i a i e, explana o y esea ch design
aimed a es ing he causal ela ionships be ween en i onmen al
pe o mance, social disclosu e, go e nance mechanisms,
p o i abili y, and i m alue. To achie e his, he s udy u ilized he
Pa ial Leas Squa es–S uc u al Equa ion Modeling (PLS-SEM)
app oach implemen ed h ough Sma PLS 4 so wa e.
PLS-SEM is app op ia e o complex causal models wi h mul iple
la en cons uc s and media ion pa hs, as i ocuses on p edic ion
and a iance explana ion a he han s ic model i (Chin, 1998;
Hai e al., 2021). I is also obus agains da a non-no mali y and
sui able o ela i ely mode a e sample sizes, making i ideal o
co po a e da ase s om eme ging ma ke s.
As ecommended by Sa s ed e al. (2017) , he analysis p ocedu e
included wo s ages: (1) assessmen o he measu emen model o
e alua e indica o eliabili y, in e nal consis ency, and disc iminan
alidi y; and (2) assessmen o he s uc u al model o es
hypo heses, pa h coe icien s, and he signi icance o media ion
e ec s. P edic i e alidi y was addi ionally examined using he Q²
and R² s a is ics as sugges ed by Shmueli e al. (2016).
Popula ion and Sampling
The popula ion comp ised all i ms lis ed on he Indonesia S ock
Exchange (IDX) be ween 2020 and 2024. A pu posi e sampling
echnique was used o ensu e da a comple eness and ele ance. The
inclusion c i e ia we e as ollows:
The i m mus pa icipa e in he PROPER en i onmen al a ing
p og am issued by he Minis y o En i onmen and Fo es y
((KLHK), 2024) du ing he obse a ion pe iod.
The i m mus publish comple e annual and/o sus ainabili y
epo s o he pe iod 2020–2024.
Financial s a emen da a and disclosu e indica o s mus be ully
a ailable o all a iables.
The inal sample o med a balanced panel da ase ac oss he i e-
yea pe iod. Following he ―10- imes ule‖ and powe analysis
me hod, he minimum sample size was de e mined using he
in e se squa e oo and gamma-exponen ial app oaches (Kock &
Hadaya, 2018), ensu ing adequa e s a is ical powe o all pa hs in
he model.
Va iables and Measu emen
To ope a ionalize he concep ual model, he s udy employed bo h
inancial and non- inancial indica o s, de i ed om p io ESG and
accoun ing li e a u e.
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Fi m Value (PBV): measu ed by he a io o ma ke p ice o book
alue pe sha e, ep esen ing in es o s’ alua ion o i m equi y.
P o i abili y (ROA): measu ed by ne income di ided by o al
asse s, se ing as he media ing a iable ha cap u es ope a ional
e iciency.
En i onmen al Pe o mance (PROPER): quan i ied using he
o icial KLHK a ings (gold, g een, blue, ed, and black) con e ed
in o a 5-poin o dinal scale o analysis ((KLHK), 2024).
Social Disclosu e (SDI): measu ed h ough con en analysis o
CSR o sus ainabili y epo disclosu es, ollowing he checklis
app oach p oposed by Cla kson e al. (2008) and disclosu e
s anda ds inspi ed by Dhaliwal e al. (2011). The SDI alue
ep esen s he p opo ion o disclosed i ems ela i e o he o al
i ems assessed.
Audi Commi ee Size (ACS): calcula ed as he numbe o audi
commi ee membe s in each i m-yea . This a iable e lec s
go e nance in ensi y, ollowing he app oach o Badola o e al.
(2014) and D empe ic e al. (2020).
The inclusion o hese indica o s allows he model o es whe he
ESG componen s a ec p o i abili y (ROA) and i m alue (PBV)
di ec ly o indi ec ly h ough media ing channels.
Da a Collec ion and Analysis P ocedu e
Da a we e collec ed om publicly a ailable seconda y sou ces:
annual epo s, sus ainabili y epo s, and he o icial PROPER
publica ions by KLHK. Nume ical da a we e abula ed in o panel
o m o he 2020–2024 obse a ion pe iod.
The analy ical p ocedu e ollowed es ablished s eps o PLS-SEM
(Hai e al., 2021)
Indica o eliabili y was assessed using ou e loadings (>0.70
h eshold).
In e nal consis ency was con i med ia composi e eliabili y and
C onbach’s alpha (>0.70).
Con e gen alidi y was e i ied by A e age Va iance Ex ac ed
(AVE > 0.50).
Disc iminan alidi y was examined using he Fo nell-La cke
c i e ion.
Collinea i y was checked h ough a iance in la ion ac o s (VIF <
5).
S uc u al model es ing e alua ed pa h signi icance using
boo s apping wi h 5,000 esamples.
Media ion analysis es ed indi ec e ec s o PROPER, SDI, and
ACS on PBV h ough ROA.
The model’s p edic i e ele ance (Q²) and coe icien o
de e mina ion (R²) we e examined o assess explana o y s eng h,
consis en wi h Shmueli e al. (2016). Finally, model obus ness
was e alua ed h ough e ec size ( ²) and p edic i e accu acy
measu es.
E hical Conside a ions and Da a Validi y
All da a used in his esea ch we e sou ced om publicly
accessible co po a e disclosu es and o icial go e nmen da abases,
ensu ing anspa ency and ep oducibili y. The s udy did no
in ol e human subjec s o con iden ial in o ma ion. Cons uc
alidi y was suppo ed by eliance on well-es ablished ESG
measu emen amewo ks and p io pee - e iewed indica o s
(Cla kson e al., 2008; Hai e al., 2019).
Resul
Measu emen Model E alua ion
Be o e es ing he s uc u al ela ionships, he eliabili y and
alidi y o he measu emen model we e examined ollowing he
guidelines o Hai e al. (2019, 2021). All indica o loadings
exceeded he ecommended h eshold o 0.70, demons a ing
sa is ac o y indica o eliabili y. The composi e eliabili y (CR)
alues o each la en a iable anged om 0.81 o 0.93, su passing
he 0.70 benchma k o in e nal consis ency (Hai e al., 2021).
The A e age Va iance Ex ac ed (AVE) alues o all cons uc s
we e abo e 0.50, con i ming con e gen alidi y, while he
Fo nell–La cke c i e ion and c oss-loadings con i med
disc iminan alidi y. Addi ionally, mul icollinea i y was no a
conce n as all Va iance In la ion Fac o (VIF) alues we e below
5, indica ing he absence o edundancy among indica o s.
These esul s con i m ha he cons uc s exhibi ed adequa e
psychome ic p ope ies, alida ing hei use in subsequen
s uc u al model es ing.
S uc u al Model E alua ion
Following Chin (1998) and (Hai e al., 2021), boo s apping wi h
5,000 subsamples was conduc ed o es pa h coe icien s and hei
signi icance le els. The R² alue o p o i abili y (ROA) was 0.58,
indica ing ha en i onmen al pe o mance, social disclosu e, and
audi commi ee s uc u e explain 58% o he a iance in
p o i abili y. The R² o i m alue (PBV) eached 0.64, showing
s ong p edic i e powe o he combined a iables in explaining
i m alua ion.
Di ec and Indi ec E ec s
P o i abili y eme ged as he s onges p edic o o i m alue, wi h
a s anda dized pa h coe icien o β = 0.626 (p < 0.001). This
inding co obo a es p io e idence ha p o i abili y se es as he
mos c edible signal o i m quali y, pa icula ly in eme ging
ma ke s whe e in o ma ion asymme y emains high (Fama &
F ench, 2001; Spence, 1973).
Consis en wi h F iede e al. (2015) and Albe ini (2013) his s udy
ein o ces ha inancial pe o mance emains he dominan channel
h ough which ESG- ela ed ac o s in luence ma ke alua ion.
This also suppo s Ho á ho á (2010), who ound ha
en i onmen al pe o mance ends o imp o e inancial ou comes,
al hough he s eng h o he ela ionship a ies ac oss con ex s and
indica o s.
The pa h om PROPER → ROA (β = 0.434, p < 0.01)
demons a es a s ong posi i e e ec , con i ming ha highe
en i onmen al a ings a e associa ed wi h inc eased p o i abili y.
This aligns wi h he ―business case o sus ainabili y,‖ which posi s
ha esponsible en i onmen al managemen educes cos s,
imp o es e iciency, and enhances i m epu a ion (Albe ini,
2013; Ha , 1995).
Howe e , he di ec pa h om PROPER → PBV was no
signi ican , sugges ing ha in es o s in Indonesia may no di ec ly
p ice en i onmen al a ings in o ma ke alua ion. Ins ead, he
indi ec e ec (PROPER → ROA → PBV) was posi i e and
signi ican (β = 0.272, p = 0.005), suppo ing he media ion
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hypo hesis ha en i onmen al pe o mance enhances i m alue
only h ough imp o ed p o i abili y.
This inding mi o s global e idence om Fa emi e al. (2018) and
Bus u (2021) bo h o whom documen ed ha he alue ele ance
o ESG ac o s is con ex -dependen and o en media ed by
inancial ou comes.
In e es ingly, he Audi Commi ee Size (ACS) displayed a
nega i e and signi ican ela ionship wi h p o i abili y (β = -0.426,
p = 0.012), e ealing a go e nance pa adox. While la ge
commi ees imp o ed disclosu e (ACS → SDI = 0.326, p = 0.007),
hey appea ed o diminish ope a ional e iciency and p o i abili y.
This in e se e ec suppo s he a gumen o Al in (2024), who
ound ha la ge audi commi ees can incu coo dina ion cos s and
bu eauc a ic delays, educing o e sigh e ec i eness. Simila ly,
Klein (2002) and Badola o e al. (2014) highligh ed ha expe ise
and independence—no size—d i e audi commi ee e ec i eness.
Thus, an o e ly la ge audi commi ee may signal compliance
a he han compe ence, leading o ine iciencies ha unde mine
p o i abili y and i m alue.
This pa adox also esona es wi h agency heo y (Jensen, M. and
Meckling, 1976), which posi s ha excessi e moni o ing can
inc ease agency cos s when go e nance s uc u es become o e ly
igid o o malized.
The pa h om SDI → ROA (β = 0.155, p > 0.10) and SDI → PBV
(β = 0.070, p = 0.47) we e bo h s a is ically insigni ican . These
indings sugges ha in he Indonesian capi al ma ke , social
disclosu e emains p ima ily symbolic a he han alue- ele an .
This esul aligns wi h Machmuddah e al. (2020), who obse ed
ha CSR disclosu e in Indonesia does no always ansla e in o
highe i m alue. I also e lec s legi imacy heo y(Suchman,
1995), indica ing ha i ms may engage in CSR epo ing mainly
o main ain legi imacy, no necessa ily o imp o e inancial
pe o mance.
Ne e heless, consis en wi h Fahad & Bus u (2020), enhanced
disclosu e s ill con ibu es indi ec ly o s akeholde us ,
po en ially se ing he ounda ion o u u e inancial bene i s once
ma ke ma u i y inc eases.
Media ion Analysis
Boo s apping esul s con i m he media ing ole o p o i abili y
(ROA) be ween ESG ac o s and i m alue. Speci ically:
PROPER → ROA → PBV: β = 0.272, = 2.817, p =
0.005 → signi ican posi i e media ion.
ACS → ROA → PBV: β = -0.266, = 2.198, p = 0.028
→ signi ican nega i e media ion.
SDI → ROA → PBV: β = 0.097, = 0.913, p = 0.361 →
no signi ican .
These esul s indica e ha p o i abili y se es as he main
ansmission channel linking ESG dimensions o i m alua ion.
En i onmen al pe o mance enhances p o i abili y, which in u n
inc eases i m alue, whe eas la ge audi commi ees indi ec ly
educe alue h ough dec eased p o i abili y.
This pa e n ein o ces he a gumen o O li zky e al. (2003) ha
non- inancial ini ia i es con ibu e o i m pe o mance only when
hey enhance in e nal e iciency and s akeholde ela ions.
Model P edic i e Powe and Rele ance
The Q² (p edic i e ele ance) es yielded posi i e alues o all
endogenous a iables, con i ming model p edic i e alidi y (Hai
e al., 2019). The combined explana o y powe (R² o PBV = 0.64)
demons a es ha en i onmen al, social, and go e nance ac o s—
media ed h ough p o i abili y—p o ide a obus explana ion o
a ia ions in i m alua ion among Indonesian lis ed i ms.
The model hus suppo s a ―p o i abili y-cen e ed ESG
amewo k‖, whe e ESG engagemen con ibu es o alue c ea ion
p ima ily when i s eng hens co e inancial pe o mance. This
mi o s he me a-analy ic consensus o F iede e al. (2015) and
Albe ini (2013) ha he ESG–pe o mance link is posi i e bu
condi ional on s a egic alignmen and ins i u ional ma u i y.
Discussion
The esul s ea i m ha p o i abili y emains he mos c edible
signal o i m quali y in eme ging ma ke s. In es o s in Indonesia
p io i ize angible inancial ou comes o e symbolic ESG
indica o s, consis en wi h signaling heo y.
The posi i e linkage be ween PROPER and ROA suppo s he
a gumen ha en i onmen al ini ia i es can gene a e compe i i e
ad an age. Imp o ed compliance and e iciency ansla e in o
be e p o i ma gins, alida ing he business case o sus ainabili y.
A cen al con ibu ion o his s udy is he con i ma ion o he
go e nance pa adox— he obse a ion ha la ge audi commi ees
may imp o e anspa ency bu educe p o i abili y. This highligh s
ha go e nance e ec i eness depends mo e on expe ise and
decisi eness han on s uc u al size. Excessi e o e sigh can delay
decisions and inc ease coo dina ion cos s, pa icula ly in ma ke s
whe e adminis a i e complexi y is al eady high.
Social disclosu e (SDI) exhibi s no signi ican in luence on
p o i abili y o ma ke alue, indica ing ha CSR epo ing in
Indonesia emains la gely symbolic. This e lec s ea ly-s age
ins i u ional adop ion o sus ainabili y epo ing, whe e compliance
domina es o e s a egic communica ion.
The indings e ine legi imacy heo y by showing ha legi imacy
alone is insu icien wi hou inancial alida ion. They also
ein o ce s akeholde heo y, emphasizing ha s akeholde -o ien ed
ac i i ies c ea e sus ainable alue only when hey imp o e
p o i abili y. Finally, hey ex end agency heo y by illus a ing ha
o e ly la ge moni o ing bodies may inc ease, a he han educe,
agency cos s.
Conclusion
This s udy eexamines he complex ela ionship be ween ESG
ac o s, p o i abili y, and i m alue in Indonesia’s eme ging
capi al ma ke . The esul s highligh ha : 1) P o i abili y (ROA) is
he dominan channel linking ESG pe o mance o i m alua ion;
2) En i onmen al a ings (PROPER) enhance p o i abili y and
indi ec ly aise i m alue; 3) La ge audi commi ees (ACS),
while p omo ing disclosu e, nega i ely a ec p o i abili y—
illus a ing a go e nance pa adox; and 4) Social disclosu e (SDI)
emains weakly connec ed o inancial ou comes, e lec ing limi ed
ma ke ecogni ion. These indings challenge he con en ional
wisdom ha mo e go e nance necessa ily leads o be e ou comes.
Ins ead, hey sugges ha e ec i e go e nance is no abou size bu
subs ance, and ha inancial pe o mance emains he key b idge
be ween ESG and alue c ea ion.
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DOI: 10.5281/zenodo.17336755
303
Policy and Manage ial Implica ions
Policymake s should ocus on in eg a ing PROPER esul s in o
inancial and in es men analyses, p omo ing s anda dized ESG
disclosu es aligned wi h IFRS-Sus ainabili y o GRI amewo ks.
Fi ms should op imize—no maximize— he size o hei audi
commi ees, ensu ing expe ise and independence a he han
o mali y. Manage s should align sus ainabili y s a egies wi h
e iciency-d i en objec i es o c ea e bo h social and economic
alue.
Re e ences
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