The Effect of Environmental, Social, and Governance (ESG) Performance on Firm Value: The Moderating Role of Institutional Ownership (An Empirical Study of Companies Listed on the SRI-KEHATI Index)

Abstract

Background: The average market valuation of SRI-KEHATI firms declined during 2020–2024, raising questions about whether investors value environmental, social, and governance performance differently. Objective: This study examines the separate effects of environmental, social, and governance performance on firm value and whether institutional ownership moderates each of these relationships. Methods: A balanced panel of 15 SRI-KEHATI companies, comprising 75 firm-year observations from 2020 to 2024, was analyzed using fixed-effects regression with interaction terms. ESG scores were obtained from Refinitiv, while data for Tobin’s Q, institutional ownership, firm size, leverage, and return on assets were derived from annual reports, sustainability reports, and Indonesia Stock Exchange publications. White cross-section robust standard errors with a degrees-of-freedom correction were applied. Results: Environmental performance had no statistically significant effect on firm value (β = −0.000487; p = 0.9642), whereas social performance (β = 0.015321; p = 0.0360) and governance performance (β = 0.008767; p = 0.0342) had significant positive effects. Institutional ownership negatively moderated the relationship between environmental performance and firm value (β = −0.189269; p = 0.0009), while positively moderating the relationships involving social performance (β = 0.116430; p = 0.0171) and governance performance (β = 0.130764; p = 0.0014). Conclusion: The findings indicate that social and governance performance are more strongly associated with firm value than environmental performance among SRI-KEHATI companies, while institutional ownership has dimension-specific moderating effects.