Analysis of the Effect of ESG Implementation, Financial Performance, and GCG on Firm Value with Profitability as a Mediating Variable in the Indonesian Banking Sector

Abstract

Although the Indonesian banking industry has demonstrated relatively positive growth, several indicators, including credit expansion, the cost of funds, and credit risk, continue to present significant challenges. These conditions suggest that market participants remain cautious about the industry's future prospects. This study aimed to examine the effects of environmental, social, and governance (ESG) practices, financial performance, and good corporate governance (GCG) on firm value, with return on assets (ROA) serving as a mediating variable. The study employed a quantitative approach using panel data from 12 banking companies listed on the Indonesia Stock Exchange (IDX) during the 2021–2024 period, selected through purposive sampling. Data were analyzed using panel data regression and mediation analysis with EViews 14 software. The findings were categorized into direct and indirect effects. The results revealed that the nonperforming loan (NPL) ratio had a statistically significant negative effect on ROA, while the loan-to-deposit ratio (LDR) had a statistically significant negative effect on firm value. However, none of the independent variables demonstrated statistically significant indirect effects on firm value through ROA. These findings suggested that credit risk and liquidity management were important considerations in assessing banking performance and firm value, while profitability did not significantly mediate the relationships examined in this study.