The Influence of Environmental, Social, and Governance on Company Value and Financial Distress in Textile and Garment Companies Listed on the Indonesia Stock Exchange

Authors

  • Wisnu Mahendri Universitas KH. A. Wahab Hasbullah
  • Luthfi Adinda Badi’ah Universitas KH. A. Wahab Hasbullah

DOI:

https://doi.org/10.26905/bismar.v5i2.17323

Keywords:

Environmental, Social, and Governance (ESG), Firm Value, Financial Distress, Textile and Garment Industry

Abstract

Environmental, Social, and Governance (ESG) implementation has become increasingly important for corporate sustainability, yet empirical evidence regarding its impact on firm value and financial distress remains inconsistent, particularly in emerging markets. This study examines the influence of ESG practices on firm value and financial distress among textile and garment companies listed on the Indonesia Stock Exchange (IDX) during 2022-2024. Using purposive sampling, five companies were selected based on data completeness and listing status criteria, yielding 15 observations. The study employed Structural Equation Modeling-Partial Least Squares (SEM-PLS) to test direct relationships between three ESG dimensions (environmental, social, and governance) and two outcome variables (firm value measured by Tobin's Q and financial distress measured by Springrate model). Contrary to signaling theory expectations, results reveal that ESG implementation has limited explanatory power for firm value (R² = 0.411) and minimal influence on financial distress (R² = 0.153). Notably, governance disclosure exhibits a significant negative relationship with firm value (β = -1.052, p = 0.032), suggesting that governance compliance costs may outweigh market valuation benefits in this context. These findings highlight the complexity of ESG-firm performance relationships in developing markets and underscore the need for deeper investigation into sector- specific and temporal factors. The study contributes to the growing literature on ESG effectiveness and offers insights for policymakers, investors, and corporate managers regarding sustainable business implementation.

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Published

2026-11-09

How to Cite

Mahendri, W., & Badi’ah, L. A. (2026). The Influence of Environmental, Social, and Governance on Company Value and Financial Distress in Textile and Garment Companies Listed on the Indonesia Stock Exchange. Business Management Research, 5(2), 97–117. https://doi.org/10.26905/bismar.v5i2.17323

Issue

Vol. 5 No. 2 (2026): July 2026

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