The influence of environmental, social, and governance disclosure on market reaction: evidence from emerging markets

This study examines the impact of Environmental, Social, and Governance (ESG) disclosures on market reactions within the context of Indonesian publicly traded companies. The sample includes 64 firms listed on the Indonesia Stock Exchange (IDX) from 2019 to 2022, all of which published annual and sustainability reports. Using panel data regression analysis, the study investigates the relationship between ESG disclosures and market reactions, as well as the influence of family and foreign ownership. The findings reveal that comprehensive ESG disclosures positively influence market reactions, with environmental, social, and governance factors each contributing significantly to investor sentiment. Moreover, family-owned and foreign-owned companies experience notably higher market reactions to ESG disclosures than non-family-owned and non-foreign-owned companies, suggesting that ownership type enhances investor confidence in ESG practices. These results underscore the value of ESG transparency in emerging markets, where investor expectations are evolving in response to heightened regulatory and societal pressures. This study contributes to the ESG literature by providing empirical insights into emerging economies, supporting Stakeholder Theory, Legitimacy Theory, and Signaling Theory as frameworks for understanding investor behavior in diverse contexts. The findings offer important implications for policymakers and companies, advocating for enhanced ESG regulatory standards and encouraging firms to adopt robust ESG practices to meet investor demands and improve market positioning.