The Impact of Leverage, Financial Performance, and Social Performance on Firm Value
Abstract
This study investigates the effects of leverage, financial performance, and social performance on firm value among companies included in the ESG Leader Index on the Indonesia Stock Exchange during 2020–2024. While previous studies have extensively examined the determinants of firm value, their findings remain inconsistent and predominantly focus on conventional listed companies, offering limited theoretical explanation of how sustainability-oriented firms differ in responding to financial and non-financial information. This study addresses this gap by examining whether ESG Leader companies exhibit different market responses to leverage, financial performance, and social performance, thereby extending the application of Signaling Theory within the context of sustainability-oriented firms. Using a quantitative research design and purposive sampling, 63 firm-year observations were obtained after outlier screening and analyzed using multiple linear regression. The results indicate that financial performance positively and significantly influences firm value, whereas leverage and social performance do not exhibit significant effects. These findings suggest that, despite the growing emphasis on Environmental, Social, and Governance (ESG) practices, investors in the Indonesian capital market continue to rely primarily on financial profitability when assessing firm value. This study contributes to the literature by providing empirical evidence on the relevance of financial and non-financial signals within ESG Leader companies and offers practical implications for corporate managers to balance financial performance with credible sustainability initiatives in order to enhance long-term firm value.
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References
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