The Effect of Environmental, Social, and Governance (ESG) Disclosure on the Earnings Response Coefficient (ERC) with Firm Size as a Moderating Variable
Puspita Ayu Lestari *
Accounting Department, University of Lampung, Lampung, Indonesia.
Tri Joko Prasetyo
Accounting Department, University of Lampung, Lampung, Indonesia.
Liza Alvia
Accounting Department, University of Lampung, Lampung, Indonesia.
*Author to whom correspondence should be addressed.
Abstract
Background: The Earnings Response Coefficient (ERC) measures how strongly investors react to earnings information and reflects the value relevance of accounting disclosures in capital markets. In recent years, ESG disclosure has gained increasing importance as investors incorporate non-financial information into their decision-making processes.In Indonesia’s banking sector, growing sustainability reporting practices suggest that ESG information may influence investor perceptions of earnings quality, while firm size may shape the extent to which such disclosures are valued by the market.
Aims: This study aims to examine the effect of Environmental, Social, and Governance (ESG) disclosure on the Earnings Response Coefficient (ERC), and to investigate whether firm size moderates that relationship among banking sector companies listed on the Indonesia Stock Exchange.
Study Design: Quantitative research with a moderated regression analysis approach.
Place and Duration of Study: Banking sector companies listed on the Indonesia Stock Exchange (IDX), Indonesia, covering the period from 2020 to 2024.
Methodology: The sample was selected using purposive sampling, resulting in 20 banking companies and 96 firm-year observations after removing outliers. Secondary data were obtained from audited annual reports and sustainability reports. Data were analyzed using hierarchical moderated regression analysis with IBM SPSS 30.0, preceded by classical assumption tests.
Results: The results show that environmental disclosure (β = −0.121; p = 0.038) and social disclosure (β = −0.122; p = 0.013) have a significant negative effect on ERC, while governance disclosure (β = −0.020; p = 0.719) has no significant effect. Firm size significantly and positively moderates the effect of environmental disclosure (β = 0.274; p = 0.002) and social disclosure (β = 0.182; p = 0.014) on ERC, but does not significantly moderate the effect of governance disclosure (β = −0.011; p = 0.903). The overall model is statistically significant (F = 2.596; p = 0.007), with R² = 0.254 and Adjusted R² = 0.156.
Conclusion: ESG disclosure alone does not consistently strengthen market reactions to earnings information; however, firm size plays a significant amplifying role in the relationship between environmental and social disclosure and ERC. Larger banking firms produce more credible and visible ESG signals, enhancing investor sensitivity to earnings. Governance disclosure, being largely standardized across Indonesian banks, does not serve as a differentiating signal for investors.
Limitations: This study is limited to banking sector companies listed on the Indonesia Stock Exchange during the 2020–2024 period, which may restrict the generalizability of the findings to other industries and time horizons.
Keywords: ESG disclosure, Earnings Response Coefficient (ERC), firm size, banking sector, Indonesia Stock Exchange