Enterprise risk management, ESG, and firm value: does profitability moderate the relationship?

Abstract

Purpose:  This study investigates the influence of Enterprise Risk Management (ERM), Environmental, Social, and Governance (ESG) disclosure, and profitability on firm value, as well as the moderating effect of profitability among companies included in the LQ45 Index listed on the Indonesia Stock Exchange during 2020–2024. Methodology/approach: Methodology/approach: This study adopts a quantitative approach using secondary data obtained from annual reports and sustainability reports. The sample consists of 100 firm-year observations selected through purposive sampling. Panel data regression and Moderated Regression Analysis (MRA) are employed to test the proposed relationships among the variables. Findings:  The results indicate that ERM, ESG, and profitability simultaneously affect firm value. Partially, ERM does not significantly affect firm value, ESG has a significant negative effect on firm value, and profitability has a significant positive effect on firm value. Furthermore, profitability does not moderate the relationship between ERM and firm value but weakens the relationship between ESG and firm value. Practical and Theoritical contribution/Originality: This study contributes to the literature by extending Signaling Theory and the Resource-Based View (RBV) through examining the moderating role of profitability in the relationships between ERM, ESG, and firm value in an emerging market context. Research Limitation:  This study is limited to LQ45 companies and a five-year observation period, which may not fully capture the long-term effects of ERM and ESG on firm value.