Evidence On ESG in Indonesia: The Role of Audit Quality, Earnings Quality, and Firm Size
Frengky Natalino Imanuel (a*), Agus Satrya Wibowo (b), Septa Soraida (c)

a), b), c) Faculty of Economics and Businesss, University of Palangka Raya, Jalan Hendrik Timang, Palangka Raya City 73111, Indonesia
*upruniversity2024[at]gmail.com

Abstract

This study proposes a framework to investigate the role of audit quality, earnings quality and firm size on every dimension of ESG within three modeling into one frame. This study used 32 companies from both energy and basic materials sectors based on IDX-IC Classification from 2020 - 2023. Analysis method uses panel data regression while considering the Ordinary Least Square Model, Fixed Effect Model and Random Influence Model with the chosen model, sensitivity test and classical assumption test also be used. In the first model we used environmental dimension as the dependent variable and found that earnings quality has a negative influence, firm size has a positive influence while audit quality has no influence. In the second model with social dimension as the dependent variable we found audit quality has negative influence, firm size has positive influence while earnings quality has no influence. In the third model with governance dimension as dependent variable, we found firm size has positive influence while audit quality and earnings quality have no influence. We highlight that better audit quality made companies disclose less information for their social aspect which is a suspicious activity. Companies with higher earnings quality drive the management prioritize financial gain instead of environmental aspects. The larger companies hold their reputation with ESG benchmarks as their sustainability strategy. We suggest future research consider the characteristic between sectoral and the Fed Rates since the model indicates no robustness with those conditions.

Keywords: Legitimacy Theory- ESG Performance- Audit Quality- Earnings Quality

Topic: Sustainability accounting