The Effect of ESG Risk Ratings, Board Size and Gender Diversity on Financial Performance: Econometric Case Study Indonesia 90 Companies 2020-2023

Nabil Umar Bayu Wisanggeni

Management Study Program, Faculty of Economics and Business, Universitas Muhammadiyah Purwokerto, Indonesia.

Ika Yustina Rahmawati *

Management Study Program, Faculty of Economics and Business, Universitas Muhammadiyah Purwokerto, Indonesia.

*Author to whom correspondence should be addressed.


Abstract

Aims: This study examines the influence of ESG Risk Ratings and the size of corporate boards on financial results. Furthermore, It investigates the impact of gender diversity on ESG Risk Ratings, Board Size, and the subsequent impact on Financial Performance.

Study Design: In this case study, CFP is variable dependent, ESG and BS is variable independent, GD is the moderating variable, while Dar, LV, GR, and SZ are control variables.

Place and Duration of Study: This study employs panel data from enterprises that meet the purposive sample requirements for the period of 2020-2023.

Methodology: This study employs EViews 12 statistical software to conduct various tests, including the Descriptive Statistical Test, Model Selection Test, Multicollinearity and Heteroscedasticity Test, and Panel Data Regression Test. This study used purposive sampling method for sample selection. FP evaluated by the ratio of net income to total assets (ROA), ESG obtained from Morningstar Sustainalytics, BS determined by the total number of directors who serve on it, and GD is assessed by calculating the proportion of female board members.

Result: The results of this inquiry indicate that ESG does not have an impact on FP, as demonstrated by the β = 0.0031 and Prob. = 0.3189 value. A different one independent variable, BS, also has no effect on FP, as evidenced by the value of β = 0.0096 and Prob. = 0.2130. As we transition to the moderation variable, it is evident that the GD variable does not moderate the relationship between ESG and FP (β = -0.011, Prob. = 0.3555). Meanwhile, the relationship between BS and FP is weakened by GD (β = -0.058, Prob. = 0.026).

Conclusion: This study conclude that financial performance doesn’t influenced by ESG risk ratings and Board size. Beside, gender diversity weakens relationship between ESG and FP. The findings of this study have significant consequences for corporations, as they shed light on the elements that influence a company's financial performance, particularly with regard to sustainability standards. Further research can include variables such as comparison female directors and others.

Keywords: ESG risk ratings, board size, gender diversity, financial performance


How to Cite

Wisanggeni, Nabil Umar Bayu, and Ika Yustina Rahmawati. 2024. “The Effect of ESG Risk Ratings, Board Size and Gender Diversity on Financial Performance: Econometric Case Study Indonesia 90 Companies 2020-2023”. South Asian Journal of Social Studies and Economics 21 (7):129-45. https://doi.org/10.9734/sajsse/2024/v21i7850.

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