The Effect of Environmental, Social, and Governance Disclosure on Firm Value with Earnings Management as a Moderating Variable: An Empirical Study of the ESG Quality of 45 IDX Kehati Companies on the Indonesian Stock Exchange (2019-2023)

Herna Herna*

Etty Gurendrawati

Agung Dharmawan Buchdadi

The growing emphasis on sustainable business practices has made Environmental, Social, and Governance (ESG) disclosure a strategic tool for shaping corporate legitimacy and market perception. This study examines the effect of ESG disclosure (aggregate and partial) on firm value and investigates earnings management as a moderator. Grounded in Legitimacy Theory and Agency Theory, this causal-quantitative research uses panel data regression. A purposive sample of non-financial firms consistently listed on the ESG Quality 45 IDX KEHATI index from 2019-2023 yielded 18 companies with 90 observations. Hypothesis testing employed the Fixed Effect Model after satisfying classical assumption tests. Results show that aggregate ESG disclosure and each pillar (environmental, social, governance) positively and significantly enhance firm value. Conversely, earnings management directly reduces firm value and significantly weakens ESG’s positive effect. These findings confirm an entrenchment strategy, where managers exploit high sustainability disclosure to conceal earnings manipulation. This information asymmetry fosters market skepticism, perceived as greenwashing, which destroys credibility and eliminates valuation premiums. Thus, companies and regulators must align sustainability transparency with earnings quality integrity.

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Vol. 2 No. 1 (2026): January

The Effect of Environmental, Social, and Governance Disclosure on Firm Value with Earnings Management as a Moderating Variable: An Empirical Study of the ESG Quality of 45 IDX Kehati Companies on the Indonesian Stock Exchange (2019-2023)