THE INFLUENCE OF ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) DISCLOSURE ON FIRM FINANCIAL PERFORMANCE (EVIDENCE FROM THE G7 LISTED REAL ESTATE COMPANIES 2014-2018)

• Main Author: Almeyda, Raisa
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/40800
• Institution: Institut Teknologi Bandung

The aim of this study is to analyze non-financial factors that affect the companies’ financial performance, focusing on the levels of companies’ ESG (Environment, Social, Governance) disclosure. Nowadays, investors not only analyze the financial information but also non-financial, such as ESG performance as a risk measurement. The environmental metrics capture how green a company is (e.g. acres of forest cut down as part of the production). The social criteria cover social issues (e.g. human rights, community relations). And the governance measures whether a company is well-managed. There have been lots of research based on the connection between the firm CSR/ESG disclosure and financial performance. However, these have found a mixed result that warranted further research. We conducted research on companies in the real estate sector since its long-term nature of investment is aligned with long-term ESG and CSR goals. Due to the high concern of disclosing CSR information in developed countries, the samples of companies were collected from seven countries with the strongest economy in the world, the G7 (Canada, France, Germany, Italy, Japan, United Kingdom, and the United States). The financial performance is measured by both in terms of the stock market as well as accounting, which are ROA, ROC, Stock Price, and P/E as the dependent variables. The independent variables are the ESG disclosure score as well as the ESG specific factors (I.e. Environmental, Social and Governance). The panel data was collected over five years (2014-2018), using STATA to run multivariate regressions to test for the correlation between dependent and independent variables. The results indicate that there is a statistically significant positive relationship between the ESG disclosure with firm’s ROA and ROC, but no significant relationship with Stock Price and P/E. Furthermore, we found that there is a statistically significant positive relationship between the Environmental factor towards the firm’s ROC and Stock Price. Meaning that more common stock investors take the firm’s Environmental concerns into consideration. Lastly, the study also reveals that there’s no significant influence of the Social and Governance factor on firm financial performance. As an addition, this study also reveals that among the G7 countries, the scores for Environmental and Social aspects spread out over a wide range of value except for the Governance disclosure. This could mean that the companies in real estate sectors in these countries have realized the importance of transparency related to governance aspects and thus such disclosure has been widely recognized by the market regulators. Therefore, the main recommendation is that the corporations, investors, and stakeholders need to consider ESG disclosure. For the common stockholders, they may also use this ESG disclosure measure as a positive indicator on firm performance return but still have to consider the effect on the market value. Lastly, for the regulators, there must be improvements related to reports guidelines to disclose CSR activities that will eventually help to facilitate the users with a clearer and more reliable CSR information.