Environmental, social, and governance disclosure and financial performance: Does board of commissioners size matter?

Abstract

This study aims to examine the effect of Environmental, Social, and Governance (ESG) disclosure on the financial performance of non-financial companies in Indonesia, with the board of commissioners size serving as a moderating variable. The study is grounded in agency theory, which conceptualizes the board of commissioners as a monitoring mechanism to mitigate conflicts of interest between management and shareholders. The sample was selected using purposive sampling and consisted of 51 non-financial companies listed on the Indonesia Stock Exchange during the 2020–2024 period, resulting in 255 firm-year observations after outlier elimination. The study employed panel data regression using the Random Effect Model (REM). The findings reveal that Environmental, Social, and Governance disclosure does not significantly affect return on assets (ROA), suggesting that ESG implementation among Indonesian non-financial firms remains predominantly compliance-oriented and has yet to generate a direct impact on short-term profitability. Furthermore, the board of commissioners' size is not found to moderate the relationship between Environmental and Social disclosure and ROA. However, board size significantly moderates the relationship between Governance disclosure and ROA through a non-linear U-shaped relationship, with an estimated turning point occurring at approximately five to six board members.