Sustainability Signals and Market Valuation: An Empirical Study of ESG Disclosure, Profitability, and Green Innovation in Indonesia’s Energy and Manufacturing Sectors

Abstract

Abstract - This study examines the influence of Environmental, Social, and Governance (ESG) disclosure, profitability, and green innovation on firm value, focusing on companies in the energy and manufacturing sectors listed on the Indonesia Stock Exchange during 2021–2023. Using 102 firm-year observations, multiple linear regression analysis reveals that profitability, measured by return on assets (ROA), has a significant positive impact on firm value, supporting the signaling and resource-based theories. However, ESG disclosure and green innovation do not exhibit significant effects, suggesting that sustainability practices in emerging markets are not yet fully reflected in investor valuation. The findings also indicate that all three variables, when assessed simultaneously, have a significant joint effect, explaining 14.6% of the variation in firm value (measured by price-to-book value). This research highlights the importance of profitability in determining firm valuation in developing markets while advocating for improved ESG reporting standards and investor awareness to enhance the role of sustainability in market-based valuation. Implications are discussed for companies, investors, regulators, and future researchers.

Keywords - ESG disclosure, profitability, green innovation, firm value, sustainability