ESG AND GOOD CORPORATE GOVERNANCE AS DETERMINANTS OF STOCK RETURNS: THE MEDIATING ROLE OF PROFITABILITY IN IDX SUSTAINABILITY INDEX COMPANIES

Rahmad Hadi Rhendy Khurniawan

Abstract


This study examines the influence of Environmental, Social, and Governance (ESG) disclosure and internal Good Corporate Governance (GCG) mechanisms represented by independent commissioners, the board of directors, and the audit committee on stock return, with profitability (Return on Assets/ROA) tested as a mediating variable. The sample comprises 70 multi-sector companies listed in the IDX Sustainability index during 2021–2025, selected through purposive sampling, yielding 350 firm-year observations. Data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) in SmartPLS 4, including bootstrapping-based direct- and indirect-effect testing. Results show that only board size has a significant negative effect on profitability; ESG, independent commissioners, the audit committee, and profitability itself show no significant effect on stock return. Profitability also fails to mediate the relationship between any of the four independent variables and stock return. Firm size is the only control variable with a significant negative effect on both profitability and stock return. These findings suggest that, among IDX Sustainability constituents, ESG disclosure and internal governance structures have not yet translated into measurable financial or market performance gains, implying that sustainability-index membership alone is an insufficient basis for investment decisions in the Indonesian capital market.

Keywords: Environmental, Social, and Governance (ESG); Good Corporate Governance (GCG); Profitability; Stock Return; IDX Sustainability


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