This study examines the relationship between ESG performance, green\ninnovation, and firm value among Indonesian public companies. The\nprimary focus is on understanding how ESG performance can drive green\ninnovation and how such innovation affects firm value. In addition, the\nstudy tests the role of green innovation as a mediating variable in the\nrelationship between ESG performance and firm value. The research draws\non a combination of Resource-Based View (RBV), Stakeholder Theory, and\nLegitimacy Theory, which suggest that companies integrating\nsustainability into their business strategies gain competitive\nadvantage, social legitimacy, and stakeholder support.<\/p>\n
The research method uses data from companies listed on the Indonesia\nStock Exchange, totalling 384 firm observations. The analysis employs\nlinear regression in Stata 17, with mediation testing conducted using\nthe Hayes Process. ESG performance is measured using ESG scores, whilst\ngreen innovation is proxied by companies\u2019 green innovation indicators,\ncovering both product and process green innovation. The study also\nincorporates several control variables \u2014 institutional ownership, firm\nsize, firm age, leverage, and board size \u2014 to strengthen the validity of\nthe results. In addition, a series of robustness tests was carried out,\nincluding replacing the green innovation proxy with the logarithm of\nR&D expenditure and substituting ESG performance with Bloomberg\u2019s\nESG disclosure, to ensure consistency of the findings.<\/p>\n
The results show that ESG performance has a positive and significant\neffect on firm value, as well as a positive effect on green innovation.\nThese findings indicate that companies with better ESG performance tend\nto be more active in environmentally friendly innovation and receive\npositive market appreciation. However, the study uncovers an interesting\nresult: green innovation actually has a negative effect on firm value.\nThis suggests that the market still views green innovation investment as\na cost burden in the short term, so its economic benefits are not yet\nfully reflected in firm value.<\/p>\n
The study\u2019s main contribution lies in demonstrating that green\ninnovation serves as a significant mediator in the relationship between\nESG performance and firm value. The mediation analysis reveals a\nnegative and significant indirect effect, indicating that although ESG\nperformance directly enhances firm value, the implementation of green\ninnovation requires substantial investment and has yet to deliver\nimmediate financial benefits to investors. These findings enrich prior\nliterature, which has generally only tested the direct relationships\nbetween ESG, green innovation, and firm value without exploring the\nmediating mechanisms connecting the three variables, particularly in the\ncontext of developing countries such as Indonesia.<\/p>\n
The novelty of the research lies in its integration of sustainability\nand innovation perspectives by testing green innovation as a mediating\nmechanism between ESG performance and firm value, alongside the use of\nvarious robustness checks demonstrating consistent results. The finding\nthat green innovation reduces firm value in the short term \u2014 even after\ntesting with a time lag of up to two years \u2014 makes an important\ncontribution to the development of RBV, Stakeholder Theory, and\nLegitimacy Theory. The study offers guidance for company management that\ninvestment in green innovation should be viewed as a long-term strategy\nrequiring a maturation period before delivering optimal economic\nbenefits. For regulators and investors, the results highlight the\nimportance of building a market ecosystem that better appreciates\nsustainability investment, so that companies focus not only on\nshort-term profits but also on creating long-term sustainable value.<\/p>\n
Detailed information about this research can be found in our paper\nat: https:\/\/doi.org\/10.1108\/IJIS-04-2025-0190<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/esg-performance-and-firm-value-green-innovation-as-a-mediating-variable-evidence-from-indonesia-1783659017", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }