Do Financial Performance and Sustainability Activities Matter for the Stock Performance? Investigating Non-Primary Consumer Goods in Indonesia

Abstract

Purpose: This study seeks to investigate the impact of sustainability reporting index, particularly focusing on non-primary consumer goods, on stock returns during the period of 2018 to 2022, with a specific emphasis on the COVID-19 pandemic period. By analyzing the relationship between sustainability reporting and stock returns, the research aims to provide insights into the resilience and stability of companies in the face of market volatility induced by the COVID-19 crisis, particularly in the Indonesian stock market.   Methods: The research methodology involves the application of multiple linear regression, incorporating dummy variables to empirically test the influence of sustainability reporting index on company stock returns during the COVID-19 event. Data collection entails gathering sustainability report data from each company within the non-primary consumer goods sector. Statistical analysis techniques are used to assess the impact of sustainability performance on stock return volatility and stability during the specified time period.   Results and Discussion: The findings of the study reveal that firms within the non-primary consumer goods sector experienced substantial impacts on their leverage and profitability during the COVID-19 pandemic, significantly influencing stock returns. Notably, companies with strong performance in ESG (Environment, Social, and Governance) aspects demonstrate relatively stable stock prices amidst the epidemic. However, the analysis indicates that social reporting index performance exhibits higher volatility in stock prices compared to other ESG components. Moreover, the study observes a minimal increase in stock return volatility for companies with good ESG performance.   Implications of the Research: The research outcomes have important implications for investors, policymakers, and corporate stakeholders, particularly in understanding the role of sustainability reporting in mitigating stock return volatility during times of crisis. The study underscores the significance of integrating ESG considerations into investment decisions and corporate strategies to enhance resilience and stability in the face of market disruptions such as the COVID-19 pandemic. Additionally, the research provides policy recommendations for government intervention through fiscal incentives to promote ESG investment and sustainable corporate practices. Originality/Value: This study contributes to the literature by examining the impact of sustainability reporting index on stock returns within the context of the COVID-19 pandemic, particularly focusing on the non-primary consumer goods sector in Indonesia. By providing empirical evidence of the relationship between ESG performance and stock return volatility during a period of crisis, the research offers valuable insights into the role of sustainability reporting in driving investor confidence and market stability. The findings highlight the importance of sustainable investment practices and provide actionable recommendations for policymakers and corporate decision-makers alike.