Does the Relationship between Financial Performance and Corporate Sustainability Get Affected by Agency Costs?

Dea Tiara Monalisa Butar-Butar; Yenni Tanisya; Iskandar Itan

doi:10.17977/jabe.v10i1.62868

Does the Relationship between Financial Performance and Corporate Sustainability Get Affected by Agency Costs?

Dea Tiara Monalisa Butar-Butar, Yenni Tanisya, Iskandar Itan

Abstract

This study examines the role of agency costs in moderating the sustainability performance of companies listed on the Indonesia Stock Exchange (IDX) in relation to their financial performance. Reporting combines financial and non-financial information to improve corporate transparency and accountability, especially in companies that adhere to environmental, social, and governance (ESG) principles. Based on stakeholder theory and legitimacy theory, this study employs a quantitative research design using panel data from companies listed on the Indonesia Stock Exchange (IDX) with ESG values from 2019 to 2023. The research findings reveal that ESG does not have a significant direct impact on ROA, indicating that corporate sustainability does not automatically impact financial performance without adequate internal conditions. However, when control variables are accounted for, the impact of ESG on ROA becomes significant. FCF has a positive impact on ROA but does not moderate the relationship between ESG and ROA. This suggests that excess cash does not automatically enhance the effectiveness of ESG. Conversely, ER is proven to be a significant moderator that strengthens the influence of ESG on ROA. This means that efficient companies are better able to translate ESG into competitive advantages that impact financial performance. This study contributes to the literature by offering a new perspective on how agency costs moderate the relationship between corporate sustainability and financial performance.

Keywords

Corporate sustainability performance; Financial performance; Agency costs

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References

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DOI: http://dx.doi.org/10.17977/jabe.v10i1.62868