How Do Foreign Ownership, Financial Performance, and Green Innovation Relate to ESG Disclosure?

Abstract

ESG disclosure is increasingly gaining importance as a tool for informing stakeholders and assessing companies’ contributions to sustainable development. The level and quality of such disclosure can be influenced by factors ranging from ownership characteristics and financial performance to a company’s focus on implementing “green” innovations. This research investigates whether financial performance and foreign ownership influence ESG disclosure and evaluates the moderating role of green innovation. A total of 84 observations were analyzed, originating from companies in the ESG Leaders Index and SRIKEHATI Index categories between 2021 and 2024. The proposed relationships were estimated using multiple regression and moderated regression analysis. The findings reveal that financially stronger firms tend to provide broader ESG disclosure, whereas foreign ownership does not influence disclosure practices. Thus, the presence of overseas shareholders alone does not necessarily encourage firms to expand sustainability-related disclosures. Green innovation reinforces the positive association between financial performance and ESG disclosure but does not alter the relationship between foreign ownership and ESG reporting. Practically, the findings suggest that firms can strengthen ESG transparency by leveraging financial resources to support green innovation. At the same time, investors should remember that companies with healthy financial performance and strong green innovation programs tend to be more committed to implementing and disclosing ESG. These results emphasize that financial capability, supported by innovation, plays a more influential role in promoting ESG transparency than ownership structure does, while also providing evidence from an emerging market setting. Theoretically, this study contributes to the ESG disclosure literature by providing empirical evidence relevant to Agency, Stakeholder, and Legitimacy theories in explaining firms’ disclosure practices.