Analysis of the Relationship Between ESG and Firm Value with the Moderating Role of Earnings Management

Abstract

Background: Environmental, Social, and Governance (ESG) has become an increasingly important non-financial factor in assessing corporate sustainability and long-term performance. Objective: This research seeks to analyze the impact of Environmental, Social, and Governance (ESG) factors on corporate value and to explore the role of earnings management as a moderating variable in the relationship between ESG and firm value. Methods: This research utilizes a quantitative methodology, drawing on panel data from consumer goods firms listed on the Indonesia Stock Exchange for the period spanning 2022 to 2025. The sample comprises 31 companies, yielding 124 firm-year observations, which were selected through purposive sampling. Environmental, Social, and Governance (ESG) performance is assessed via a disclosure index aligned with the Global Reporting Initiative (GRI) standards, while firm value is represented by Tobin’s Q. Results: This finding indicates that investors and consumers in the consumer goods sector continue to place greater emphasis on financial performance, product quality, price, and brand reputation than on sustainability-related information. Furthermore, earnings management is not proven to moderate the relationship between ESG and firm value. This study contributes to the literature by highlighting that the effectiveness of ESG in enhancing firm value depends not only on disclosure practices but also on market characteristics, investor perceptions, consumer behavior, and the firm's ability to integrate sustainability initiatives into business strategies that generate tangible economic benefits. Conclusion: The findings provide implications for managers and regulators in improving the quality of ESG implementation and ensuring that sustainability practices contribute to long-term value creation.