Digital Transformation and ESG in Enhancing Firm Performance: Empirical Evidence from the Indonesian Capital Market

Abstract

This study aims to examine the effect of digital transformation and Environmental, Social, and Governance (ESG) disclosure on the financial performance of companies listed on the Indonesia Stock Exchange, with firm size as a control variable. The increasing relevance of sustainability and digitalization strategies in enhancing corporate competitiveness in the digital economy era drives this research. While numerous studies have explored digital transformation and ESG independently, limited research has integrated both aspects within the context of emerging markets, particularly Indonesia.A quantitative research design was employed using secondary data obtained from annual reports, sustainability reports, and financial statements. Utilizing firm size as a control variable, this study attempts to investigate how the financial performance of companies listed on the Indonesia Stock Exchange is affected by digital transformation and Environmental, Social, and Governance (ESG) disclosure.  In the age of the digital economy, the growing importance of digitalization and sustainability tactics in raising corporate competitiveness is what motivates this study.  Few studies have combined digital transformation and ESG in the context of emerging markets, especially Indonesia, despite the fact that both topics have been the subject of numerous studies conducted separately. Secondary data from financial statements, sustainability reports, and annual reports was used in a quantitative study design. The results show that ESG disclosure and digital transformation both significantly and favorably affect business performance.  On the other hand, ROA is not significantly impacted by firm size, indicating that strategic digital and sustainability initiatives have a greater impact on profitability gains than does company size.  These findings demonstrate how strategically crucial it is to combine digital and ESG elements in order to increase firm value. By providing empirical data from the Indonesian capital market, where the relationship between sustainability and digital innovation is still poorly understood, the study adds to the body of existing literature.  The necessity for businesses to give clear ESG reporting and digital investments top priority as long-term value generators are examples of practical ramifications.  Furthermore, through market incentives and supportive policies, regulators are urged to promote ESG and digital adoption.