ESG DISCLOSURE AND FIRM VALUE: THE MODERATING ROLE OF INSTITUTIONAL OWNERSHIP

Abstract

This paper examines the effect of ESG disclosure on firm value and the moderating role of institutional ownership in this relationship among publicly listed non-financial firms on the IDX over 2017–2023. Using pooled OLS regression on a sample of 675 observations, this study finds that ESG disclosure exerts a positive and significant effect on firm value, supporting the stakeholder and signaling theory predictions. Furthermore, institutional ownership positively moderates this relationship, such that the value-enhancing effect of ESG disclosure is amplified in firms with higher institutional shareholding. These findings are grounded in stakeholder theory and signaling theory, contribute to the ESG literature by establishing institutional ownership as an active governance mechanism that conditions the market’s recognition of sustainability disclosure quality in an emerging market context. Theoretically, this study extends the ESG-firm value literature to an emerging market setting by establishing institutional ownership as an active governance moderator. Practically, the findings offer directional guidance for policymakers, corporate managers, and institutional investors on strengthening the credibility and market recognition of sustainability disclosures.