The role of Indonesian regulators on the effectiveness of ESG implementation in improving firms’ non-financial performance

Figures & data

Figure 1. The conceptual framework.

Table 1. Sample selection.

Descriptions	Number of Companies/ Observations
Companies listed in IDX (2022)	848
Companies with no ESG scores (2022)	770
Companies with ESG scores in consecutive year until 2022	78
Companies with data availability to compute TOBINS, ROA, SIZE, DAR, AGE, PBV and COE until the end of 2022	66
Research years (2016–2022)	7
Number of observations for Model 1 (unbalanced data)	338
Companies with data availability to compute ROA, SIZE, DAR, AGE until the end of 2022	61
Research years (2016–2021)	6
Number of observations for Model 2 (unbalanced data)	271
Companies with data availability of ESG_disc, CSR_Com and CGB_Com until the end of 2021	27
Research years (2016–2021)	6
Number of observations for Model 3 (unbalanced data)	133

Table 2. Sample distribution of companies with ESG by year and industry.

No	Industry Name		2016	2017	2018	2019	2020	2021	2022
1	Financial (Bank)		5	6	6	6	6	12	15
2	Sensitive		12	14	16	16	16	21	21
3	Communication Services		7	7	7	8	10	10	10
4	Consumer Discretionary		1	1	1	2	2	2	3
5	Consumer Staples		7	7	7	7	7	11	11
6	Real Estate		4	4	4	4	4	4	4
7	Information Technology		0	0	0	0	1	1	1
8	Health Care		1	1	1	1	1	1	1
Total			37	40	42	44	47	62	66
ESG		Mean	44.419	47.029	48.214	49.842	51.685	54.676	54.905
		Std. Dev	20.058	19.719	20.664	20.871	20.475	18.655	17.706
		N	37	40	42	44	47	62	66
ESG Disclosure		Mean	34.061	36.446	38.226	43.637	46.117	48.843	50.771
		Std. Dev	12.011	13.002	12.504	10.263	9.934	9.915	10.046
		N	27	27	27	27	27	27	27

Notes: Industry category is based on Global Industry Classification Standard (GICS) by Osiris.

Sensitive Industry includes Industrial, Utilities, Basic Material, and Oil and Gas, while Non-sensitive industry includes Consumer Services, Consumer Goods, Health Care, Technology, and Telecommunication (Loprevite et al., 2020)

Table 3. Definition of variables.

Variables	Acronym	Description	Source
Dependent Variables
Market Value	PBV	Price to book value per share	Osiris
Market Value	TOBINS	Market value of assets divided by the replacement cost of capital	Osiris
Cost of Equity	COE	The return a firm theoretically pays its equity investors. It is calculated by multiplying the equity risk premium of the market with the beta of the stock plus an inflation adjusted risk free rate. Equity risk premium is expected market return minus inflation adjusted risk free rate.	Refinitiv
Future Return on Asset	ROAt+1	Net Income at the year t + 1 divided by Total Aset at the year t + 1	Osiris
Future Return on Equity	ROEt+1	Net Income at the year t + 1 divided by Total Equity at the year t + 1	Osiris
ESG Disclosure	ESG_disc	Bloomberg focuses on collecting and analyzing ESG disclosure made by companies, gathering ESG-related information from a variety of sources, including company reports, regulatory filings, third-party providers, and new articles. The approach involves using natural language processing (NPL) and machine learning techniques to extract relevant information from textual sources and convert it into structured data. The ESG disclosure provides comprehensive coverage of ESG-related metrics and indicators for companies worldwide.	Bloomberg
Independent Variables
Environment, Social, and Governance Scores	ESG	Measure ESG performance based on a variety of criteria, using a combination of company-reported data, public information, and third-party sources to evaluate ESG factors. The scores are based on a broad set of indicators across multiple dimensions, and used by investors and other stakeholders to evaluate companies’ ESG performance.	Refinitiv
Environment score	E	Environmental pillar comprised of companies’ resource use, emissions, and innovations.	Refinitiv
Social Score	S	Social pillar comprised of companies’ workforce, human rights, and community services.	Refinitiv
Governance Score	G	Governance pillar comprised of companies’ management, shareholders, and CSR strategies.	Refinitiv
ESG-related Financial Performance	${\mathit{\text{PROA}}}_{i,t}^{\mathit{\text{ESG}}}$	Predicted value of ESG-related ROA at time t.	Estimated
E-related Financial Performance	${\mathit{\text{PROE}}}_{i,t}^E$	Predicted value of ESG-related ROE at time t	Estimated
Control Variables
Profitability	ROA	Return on Assets	Osiris
Company Size	SIZE	Ln (Total Assets)	Osiris
Leverage	DAR	Total Debt divided by Total Assets	Osiris
Company Age	AGE	Number of year since the company was founded	Osiris
Family Ownership	FAM_OWN	It represents the percentage of shares owned by controlling family and is measured as the number of shares of all classes held by the family divided by total shares outstanding.	Osiris
State Ownership	STATE_OWN	It represents the percentage of shares owned by public authority, state, government and is measured as the number of shares of all classes by total shares outstanding.	Osiris
CSR Sustainability Committee	CSR_Com	Board level or senior management committee responsible for decision making on CSR strategy	Refinitiv
Corporate Governance Board Committee	CGB_Com	Board structure defense is used as a proxy of Good Corporate Governance	Refinitiv

Table 4. Summary statistics.

Variables	N	Min	Max	Mean	Std. Dev
ESG	338	8.160	88.060	50.845	19.735
E	338	0.000	87.630	39.086	24.632
S	338	5.440	96.020	55.383	22.813
G	338	2.980	94.010	52.643	22.791
ESG_disc	133	22.140	73.870	42.051	11.130
PBV	338	0.170	82.440	3.700	8.378
TOBINS	338	0.040	22.560	1.552	2.625
COE	338	3.510	36.850	13.860	5.234
ROA	338	−28.060	55.210	7.308	9.470
ROE	338	−254.850	238.420	16.003	32.529
SIZE	338	20.990	28.320	24.732	1.375
DAR	338	0.010	1.360	0.514	0.231
AGE	338	7.000	90.000	43.059	17.753
FAM_OWN	338	0.000	70.750	3.889	13.292
STATE_OWN	338	0.000	72.420	7.675	19.527
CSR_Com	133	0.000	1.000	0.549	0.499
CGB_Com	133	0.000	1.000	0.293	0.457

Table 5. Correlation matrix.

Correlations
Pearson Correlation	ESG	E	S	G	TOBINS	PBV	COE	ROA	ROE	SIZE	DAR	AGE	FAM_ OWN	STATE_ OWN	ESG_ disc	CSR_ Com	CGB_ Com
ESG	1.000
E	0.792* *	1.000
S	0.912**	0.686**	1.000
G	0.789**	0.440**	0.564**	1.000
TOBINS	0.074	0.129*	0.057	0.013	1.000
PBV	0.139*	0.185**	0.116*	0.058	0.901**	1.000
COE	0.015	−0.087	0.051	0.028	−0.292**	−0.230**	1.000
ROA	0.081	0.164**	0.079	−0.006	0.707**	0.578**	−0.280**	1.000
ROE	0.104	0.139*	0.106	0.021	0.562**	0.631**	−0.150**	0.717**	1.000
SIZE	0.412**	0.279**	0.393**	0.274**	−0.302**	−0.192**	0.061	−0.270**	−0.086	1.000
DAR	0.21**	0.037	0.201**	0.235**	−0.150**	0.119*	0.095	−0.294**	0.054	0.456**	1.000
AGE	0.297**	0.271**	0.233**	0.277**	0.104	0.247**	0.111*	−0.037	0.131*	0.364**	0.310**	1.000
FAM_OWN	0.019	0.082	0.026	−0.055	0.053	−0.001	−0.071	0.164**	0.040	−0.065	−0.108*	−0.092	1.000
STATE_OWN	0.254**	0.033	0.314**	0.145**	−0.151**	−0.090	0.111*	−0.166**	−0.043	0.434**	0.316**	0.221**	−0.115*	1.000
ESG_disc	0.055	0.001	0.074	0.022	−0.047	−0.096	0.058	0.017	−0.050	0.094	−0.137	−0.081	−0.002	−0.043	1.000
CSR_Com	−0.124	−0.109	−0.132	−0.090	−0.046	−0.161	−0.044	0.085	−0.097	−0.045	−0.298**	−0.126	0.129	−0.107	0.461*	1.000
CGB_Com	0.108	0.054	0.153	0.047	−0.020	−0.071	−0.032	0.049	−0.003	0.136	−0.066	0.126	0.042	0.031	0.466**	0.252**	1.000

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

Table 6. The impact of ESG scores on market value.

	(1)		(2)		(3)		(4)
	PBV		PBV		PBV		PBV
	Pooled OLS	CEM	Pooled OLS	REM	Pooled OLS	REM	Pooled OLS	REM
E	0.013***	0.103***
	(3.757)	(5.394)
S			0.021***	0.037**
			(5.694)	(1.881)
G					0.000	−0,008
					(0.098)	(-0.509)
ESG							0.022***	0,043*
							(4.800)	(1.739)
ROA	0.023***	0.533***	0.025***	0.268***	0.031***	0.273***	0.019**	0.274***
	(3.722)	(12.145)	(4.179)	(7.028)	(4.716)	(7.201)	(2.960)	(7.217)
SIZE	−0.376***	−0.915***	−0.386***	−0.777***	−0.296***	−0.674***	−0.398***	−0.767***
	(-6.705)	(-4.582)	(-7.262)	(-3.405)	(-5.448)	(-2.991)	(-7.263)	(-3.449)
DAR	0.491*	18.005***	0.441	9.957***	0.556*	9.415***	0.277	9.966***
	(1.675)	(8.988)	(1.528)	(3.463)	(1.755)	(3.299)	(0.944)	(3.511)
AGE	−0.005	0.182***	−0.002	0.236***	0.001	0.234***	−0.002	0.233***
	(-1.149)	(8.191)	(-0.553)	(4.402)	(0.228)	(4.361)	(-0.492)	(4.495)
FAM_OWN	0.010*	0.006	0.004	0.150	0.004	0.152	0.009	0.161
	(1.909)	(0.092)	(0.799)	(0.975)	(0.597)	(0.982)	(1.619)	(1.081)
STATE_OWN	0.009**	−0.041**	0.001	−0.047	0.005	−0.040	0.006	−0.041
	(2.095)	(-2.315)	(0.354)	(-1.091)	(1.130)	(-0.937)	(1.402)	(-1.019)
Constant	8.936***	4.618	8.811***	4.082	6.857***	4.008	8.917***	3.715
	(6.625)	(1.007)	(7.004)	(1.068)	(5.353)	(1.050)	(6.995)	(0.986)
Year-fixed	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Industry-fixed	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
No of Obs	338	338	338	338	338	338	338	338
R-squared	0.521	0.721	0.519	0.326	0.507	0.316	0.523	0.331

Notes: ***, **, * indicate statistical significance at the level α of 1%, 5%, and 10%, respectively.

Numbers in parenthesis are t-value.

One example of Model Specification Test: Model (4).

Table

Test	Selection Criteria	Chi-Squared	P-value	Model Choice
Chow	CEM vs FEM	447.909	0.000	FEM
Hausman	FEM vs REM	0.000	1.000	REM
Breusch Pagan Lagrange Multiplier	REM vs CEM	255.757	0.000	REM

CEM (Common Effect Model/Pooled GLS); FEM (Fixed Effect Model); REM (Random Effect Model).

Table 7. ESG predictability on financial performance.

	(1)		(2)		(3)		(4)
	ROAt + 1		ROAt + 1		ROAt + 1		ROAt + 1
	Pooled OLS	CEM	Pooled OLS	REM	Pooled OLS	REM	Pooled OLS	REM
E	0.118***	0.120***
	(4.729)	(5.357)
S			0.122***	0.048*
			(5.307)	(1.797)
G					0.092***	0.056**
					(3.752)	(2.333)
ESG							0.163***	0.071**
							(5.793)	(2.222)
SIZE	−1.993***	0.186*	−1.833***	0.214	−1.417**	0.164**	−1.766***	0.173
	(-3.537)	(1.950)	(-3.313)	(1.461)	(-2.495)	(1.064)	(-3.228)	(1.185)
DAR	−7.502**	−7.103***	−7.840**	−13.073***	−7.972**	−14.020***	−7.758**	−12.931***
	(-2.794)	(-2.927)	(-2.951)	(-3.945)	(-2.922)	(-4.147)	(-2.948)	(-3.985)
AGE	0.058**	0.039	0.074**	0.071*	0.069**	0.074*	0.066**	0.069*
	(2.137)	(1.620)	(2.825)	(1.775)	(2.536)	(1.785)	(2.532)	(1.767)
FAM_OWN	0.131***	0.123***	0.131***	0.140***	0.147***	0.144***	0.139***	0.140***
	(3.393)	(3.543)	(3.424)	(3.771)	(3.713)	(3.813)	(3.676)	(3.824)
STATE_OWN	0.003	−0.026	−0.030	−0.022	−0.004	−0.006	−0.020	−0.019
	(0.119)	(-1.105)	(-1.114)	(-0.550)	(-0.145)	(-0.139)	(-0.776)	(-0.511)
Constant	53.827***	0.242	45.944***	0.629	35.844**	0.737	42.723***	0.579
	(4.025)	(0.347)	(3.503)	(0.618)	(2.618)	(0.704)	(3.3287)	(0.586)
Year-fixed	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Industry-fixed	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
No of Obs	271	271	271	271	271	271	271	271
R-squared	0.323	0.378	0.337	0.289	0.302	0.292	0.350	0.293

Notes: ***, **, * indicate statistical significance at the level α of 1%, 5%, and 10%, respectively.

Numbers in parenthesis are t-value.

One example of Model Specification Test: Model (4).

Table

Test	Selection Criteria	Chi-Squared	P-value	Model Choice
Chow	CEM vs FEM	304.600	0.000	FEM
Hausman	FEM vs REM	24.986	0.070	REM
Breusch Pagan Lagrange Multiplier	REM vs CEM	159.487	0.000	REM

CEM (Common Effect Model/Pooled GLS); FEM (Fixed Effect Model); REM (Random Effect Model).

Table 8. The impact of ESG-related financial performance on non-financial performance.

	(1)		(2)		(3)		(4)
	ESG_disc		ESG_disc		ESG_disc		ESG_disc
	Pooled	REM	Pooled	REM	Pooled	REM	Pooled	REM
${\mathit{\text{PROA}}}_{i,t}^E$	1.112***	1.672***
	(5.687)	(13.274)
${\mathit{\text{PROA}}}_{i,t}^S$			1.095***	1.725***
			(5.589)	(13.471)
${\mathit{\text{PROA}}}_{i,t}^G$					0.287	1.510***
					(1.253)	(11.363)
${\mathit{\text{PROA}}}_{i,t}^{\mathit{\text{ESG}}}$							0.979***	1.698***
							(4.972)	(13.246)
CSR_Com	2.362*	2.560**	1.527	1.219	4.445**	3.687***	1.928	1.010
	(1.682)	(2.132)	(1.045)	(1.013)	(2.933)	(2.919)	(1.299)	(0.825)
CGB_Com	7.232***	6.768***	7.977***	7.287***	5.340**	3.378*	6.377***	5.569***
	(4.751)	(3.779)	(5.093)	(4.107)	(3.213)	(1.757)	(4.150)	(3.131)
Constant	26.940***	3.670***	27.891***	3.352***	35.529***	3.808***	29.231***	3.285**
	(9.986)	(2.935)	(10.712)	(2.688)	(11.748)	(2.683)	(11.219)	(2.584)
Year fixed	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Industry fixed	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
No of Obs	133	133	133	133	133	133	133	133
R-squared	0.698	0.890	0.696	0.891	0.622	0.879	0.682	0.890

Notes: ***, **, * indicate statistical significance at the level α of 1%, 5%, and 10%, respectively.

Numbers in parenthesis are t-value.

One example of Model Specification Test: Model (4).

Table

Test	Selection Criteria	Chi-Squared	P-value	Model Choice
Chow	CEM vs FEM	219.860	0.000	FEM
Hausman	FEM vs REM	0.000	1.000	REM
Breusch Pagan Lagrange Multiplier	REM vs CEM	134.198	0.000	REM

CEM (Common Effect Model/Pooled GLS); FEM (Fixed Effect Model); REM (Random Effect Model).

Table 9. The impact of ESG-related financial performance on non-financial performance before and after the POJK 51.

			(All Sample)	(Financial)	(Non-Financial)
			ESG_disc	ESG_disc	ESG_disc
${\mathit{\text{PROA}}}_{i,t}^{\mathit{\text{ESG}}}$	before	Coefficient	1.080***	0.359	0.434*
	(2016–2019)	(T-value)	(5.141)	(1.358)	(1.698)
		(Std Err)	(0.210)	(0.264)	(0.256)
	after	Coefficient	0.832*	1.197**	0.470
	(2020–2021)	(T-value)	(1.945)	(2.474)	(1.456)
		(Std Err)	(0.428)	(0.484)	(0.323)
	Difference	Value	−0.248	0.838	0.036
		(P-Value)	(0.604)	(0.138)	(0.323)
CSR_Com	before	Coefficient	2.766*	−1.179	7.911**
		(T-value)	(1.707)	(-0.784)	(2.996)
	after	Coefficient	−1.694	−1.708	2.168
		(T-value)	(-0.535)	(-0.478)	(0.712)
CGB_Com	before	Coefficient	4.663**	−2.359	15.021***
		(T-value)	(2.635)	(-1.451)	(4.150)
	after	Coefficient	10.361***	2.074	19.437***
		(T-value)	(3.528)	(0.698)	(5.619)
Constant	before	Coefficient	29.179***	40.399***	25.202***
		(T-value)	(11.174)	(16.524)	(7.148)
	after	Coefficient	41.611***	46.342***	33.852***
		(T-value)	(12.722)	(21.136)	(9.216)
Year fixed effects			Yes	Yes	Yes
Industry fixed effects			Yes
No of Obs	before	firm-year	84	23	61
	after	firm-year	49	13	36
R-squared	before		0.763	0.551	0.469
	after		0.493	0.369	0.353
ESG_disc	before	Mean	39.162	43.080	37.684
	(2016–2019)	Std Dev	10.705	4.425	11.968
	after	Mean	47.005	50.908	45.595
	(2020–2021)	Std Dev	10.141	3.904	11.318
	Difference	Value	7.843	7.828	7.911
		(P-value)	(0.000)	(0.000)	(0.002)

Notes: ***, **, * indicate statistical significance at the level α of 1%, 5%, and 10%, respectively.

Numbers in parenthesis are t-value.

Table 10. The impact of ESG-related financial performance on non-financial performance before and after PROPER.

			(All Sample)	(Industry Sensitive)	(Non-Industry Sensitive)
			ESG_disc	ESG_disc	ESG_disc
${\mathit{\text{PROA}}}_{i,t}^E$	before	Coefficient	1.276***	2.231***	0.196
	(2016–2018)	(T-value)	(5.593)	(5.365)	(0.857)
		(Std Err)	(0.228)	(0.416)	(0.228)
	after	Coefficient	1.018**	0.919	0.069
	(2019–2021)	(T-value)	(3.245)	(1.575)	(0.276)
		(Std Err)	(0.314)	(0.584)	(0.249)
	Difference	Value	−0.258	−1.312*	−0.127
		(P-Value)	(0.507)	(0.074)	(0.708)
CSR_Com	Before	Coefficient	4.395**	5.637*	−1.054
		(T-value)	(2.636)	(1.800)	(-0.400)
	After	Coefficient	−1.141	−3.606	1.302
		(T-value)	(-0.492)	(-0.684)	(0.513)
CGB_Com	Before	Coefficient	3.548*	5.559*	9.894**
		(T-value)	(1.779)	(1.889)	(3.405)
	After	Coefficient	10.899***	16.277***	9.802**
		(T-value)	(4.826)	(4.856)	(2.817)
Constant	before	Coefficient	25.953***	14.871**	27.590***
		(T-value)	(8.888)	(3.391)	(8.608)
	after	Coefficient	41.780***	40.688***	35.741***
		(T-value)	(16.485)	(7.208)	(14.483)
Year fixed effects			Yes	Yes	Yes
Industry fixed effects			Yes
No of Obs	before	firm-year	62	21	41
	after	firm-year	71	26	45
R-squared	before		0.754	0.785	0.196
	after		0.599	0.467	0.304
ESG_disc	before	Mean	37.804	45.145	34.044
	(2016–2018)	Std Dev	(10.546)	(11.295)	(7.940)
	after	Mean	45.760	51.215	42.609
	(2019–2021)	Std Dev	(10.331)	(10.822)	(8.690)
	Difference	Value	7.956	6.069	8.565
		(P-value)	(0.000)	(0.067)	(0,000)

Notes: ***, **, * indicate statistical significance at the level α of 1%, 5%, and 10%, respectively.

Numbers in parenthesis are t-value.

Table 11. The impact of ESG scores on other measures of market values.

	(1)		(2)		(3)		(4)
	TOBINS	COE	TOBINS	COE	TOBINS	COE	TOBINS	COE
E	0.009**	−0.052***
	(2.298)	(-3.985)
S			0.016***	−0.018
			(4.184)	(-1.394)
G					−0.006	−0.037**
					(-1.409)	(-2.993)
ESG							0.014**	−0.045**
							(2.914)	(-2.811)
ROA	0.014**	−0.049	0.016**	−0.072**	0.027***	−0.063**	0.012*	−0.054*
	(2.101)	(-1.608)	(2.432)	(-2.290)	(3.829)	(-2.085)	(1.812)	(-1.701)
SIZE	−0.288***	−0.220	−0.322***	−0.449*	−0.247***	−0.526**	−0.313***	−0.380
	(-5.055)	(-0.853)	(-5.994)	(-1.738)	(-4.603)	(-2.106)	(-5.588)	(-1.488)
DAR	−2.127***	−0.430	−2.245***	−0.656	−1.723***	−0.337	−2.348***	−0.419
	(-6.277)	(-0.334)	(-6.609)	(-0.498)	(-4.678)	(-0.258)	(-6.702)	(-0.321)
AGE	−0.003	0.013	0.001	0.010	0.003	0.014	0.001	0.011
	(-0.604)	(0.808)	(0.273)	(0.647)	(0.659)	(0.900)	(0.204)	(0.669)
FAM_OWN	0.015**	−0.032*	0.011*	−0.028	0.007	−0.035*	0.014**	−0.032*
	(2.732)	(-1.685)	(1.869)	(-1.446)	(1.131)	(-1.808)	(2.310)	(0.092)
STATE_OWN	−0.011**	0.020	−0.017***	0.029**	−0.018***	0.025*	−0.014***	0.029**
	(-2.642)	(1.511)	(-4.667)	(2.044)	(-4.386)	(1.826)	(-3.658)	(2.127)
Constant	7.220***	17.317**	7.668***	23.091***	6.218***	26.103***	7.395***	22.395***
	(5.280)	(2.790)	(6.032)	(3.760)	(4.938)	(4.311)	(5.689)	(3.691)
Year-fixed	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Industry-fixed	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
No of Obs	338	338	338	338	338	338	338	338
R-squared	0.683	0.364	0.680	0.336	0.655	0.350	0.683	0.348

Notes: ***, **, * indicate statistical significance at the level α of 1%, 5%, and 10%, respectively.

Numbers in parenthesis are t-value.

Table 12. The impact of ESG scores on financial performance and the impact of ESG-related financial performance on non-financial performance.

ROE as A Measure of Financial Performance
	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
	ROEt+1	ROEt+1	ROEt+1	ROEt+1	ESG_disc	ESG_disc	ESG_disc	ESG_disc
Et	0.302**
	(2.945)
St		0.298**
		(3.139)
Gt			0.189*
			(1.900)
ESGt				0.392***
				(3.353)
SIZEt	−5.105**	−4.669**	−3.719	−4.499**
	(-2.209)	(-2.041)	(-1.606)	(-1.976)
DARt	18.408*	17.573	17.398	17.778
	(1.672)	(1.600)	(1.564)	(1.623)
AGEt	0.332**	0.375***	0.366***	0.356***
	(3.007)	(3.455)	(3.313)	(3.275)
FAM_OWNt	0.311**	0.311**	0.343**	0.331**
	(1.966)	(1.967)	(2.127)	(2.098)
STATE_OWNt	0.024	−0.057	0.007	−0.033
	(0.223)	(-0.515)	(0.063)	(-0.304)
${\mathit{\text{PROE}}}_{i,t}^E$					0.256***
					(3.829)
${\mathit{\text{PROE}}}_{i,t}^S$						0.284***
						(3.941)
${\mathit{\text{PROE}}}_{i,t}^G$							0.037
							(0.470)
${\mathit{\text{PROE}}}_{i,t}^{\mathit{\text{ESG}}}$								0.163***
								(3.326)
CSR_Com					4.625**	4.132**	4.757**	5.602**
					(3.225)	(2.881)	(3.071)	(1.979)
CGB_Com					6.462***	7.111***	5.278**	11.252***
					(4.016)	(4.328)	(3.145)	(4.339)
Constant	108.430**	88.234	67.150	80.450	33.210***	33.126***	37.641***	33.730***
	(1.977)	(1.627)	(1.203)	(1.487)	(14.179)	(14.234)	(14.897)	(8.818)
Year fixed effects	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Industry fixed effects	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Observations	271	271	271	271	133	133	133	133
R-squared	0.168	0.171	0.171	0.176	0.659	0.661	0.617	0.617

Notes: ***, **, * indicate statistical significance at the level α of 1%, 5%, and 10%, respectively.

Numbers in parenthesis are t-value.

Table 13. Two-stage least squares.

	First Stage	Second Stage	First Stage	Second Stage
	(1)	(2)	(3)	(4)
	ESGt	PBV	ESGt	ROAt+1
Lagged ESG (ESGt-1)	0.879***		0.880***
	(-0.657)		(29.057)
ESGt		0.059***		0.158***
		(7.057)		(4.622)
Error term (stage 1)		−0.017		−0.097
		(-0.807)		(-1.219)
SIZE	0.585	−0.724***	0.317	−2.792***
	(1.252)	(-5.192)	(0.463)	(-4.115)
DAR	1.653	−0.424	0.269	−5.406**
	(0.778)	(-0.669)	(0.098)	(-1.981)
AGE	−0.019	0.051***	−0.025	0.065**
	(-0.712)	(6.453)	(-0.913)	(2.385)
FAM_OWN	0.046	0.035***	0.072	0.080
	(1.383)	(3.511)	(1.558)	(1.757)
STATE_OWN	−0.025	−0.006	−0.021	−0.013
	(-1.077)	(-0.937)	(-0.777)	(-0.471)
Constant	−7.409	14.817	−0.212	66.324
	(-0.657)	(4.414)	(-0.013)	(4.056)
Year fixed effects	Yes	Yes	Yes	Yes
Industry fixed effects	Yes	Yes	Yes	Yes
No of Obs	338	338	271	271

Notes: ***, **, * indicate statistical significance at the level of 1%, 5%, respectively.

Numbers in parenthesis are t-value.

Table 14. Multicollinearity test - VIF.

	Model 1				Model 2				Model 3
	PBV				ROAt+1				ESG_disc
E	2.944				1.845
S		2.062				1.448
G			2.317				1.458
ESG				2.632				1.608
ROA	1.795	1.746	2.151	2.001
SIZE	2.150	1.924	1.804	1.989	2.796	2.751	2.752	2.741
DAR	1.787	1.773	1.887	1.797	1.774	1.774	1.776	1.774
AGE	2.114	1.992	2.191	2.053	1.603	1.557	1.573	1.567
FAM_OWN	1.362	1.318	1.331	1.344	1.142	1.142	1.158	1.144
STATE_OWN	1.384	1.350	1.218	1.299	1.370	1.420	1.362	1.386
PROA^Et+1									3.848
PROA^St+1										4.049
PROA^Gt+1											3.933
PROA^ESGt+1												3.705
CSR_Com									1.739	1.868	1.613	1.845
CGB_Com									1.710	1.798	1.624	1.655
Year fixed	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Industry fixed	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Mean VIF	1.934	1.738	1.843	1.874	1.757	1.682	1.681	1.704	2.433	2.571	2.390	2.401

Loprevite, S.,Raucci, D., &Rupo, D. (2020). KPIs Reporting and Financial Performance in the Transition to Mandatory Disclosure: The Case of Italy. Sustainability, 12(12), 5195. https://doi.org/10.3390/su12125195

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Data availability statement

Data and materials supporting this study can be accessed from Osiris and Thomson Reuters database.