Does Sustainability Pay? Evidence on the Profitability-Mediated Connection Between ESG Reporting, Audit Quality, and Market Value

Abstract

This research investigates the effects of corporate sustainability reporting and audit committee characteristics on company value, with the mediating variable being profitability. The research focuses on Indonesian listed companies to understand how sustainability practices and governance mechanisms influence firm valuation in an emerging market context. The research uses a quantitative methodology using panel data from 89 Indonesian publicly listed companies over the period 2021–2023, resulting in 267 firm-year observations. Corporate sustainability reporting is measured using a comprehensive Global Reporting Initiative (GRI)-based disclosure index, while audit committee effectiveness is assessed through independence, expertise, and activity frequency. Tobin’s Q ratio is used to calculate company value, and return on assets quantifies profitability. To test the direct and indirect connections, mediation analysis applies bias-corrected bootstrap procedures suitable for panel data. The results indicate a significant positive impact of sustainability reporting on firm value, with no significant mediation by profitability. Audit committee characteristics demonstrate a negative association with firm value and profitability, counter to established theory, suggesting contextual factors in the Indonesian market. Findings extend stakeholder and legitimacy theories, emphasizing value creation beyond immediate profitability.

Received: 18 August 2025 | Revised: 4 January 2026 | Accepted: 23 January 2026

Conflicts of Interest

The authors declare that they have no conflicts of interest to this work.

Data Availability Statement

Data are available on request from the corresponding author upon reasonable request.

Author Contribution Statement

Widaryanti Widaryanti: Conceptualization, Methodology, Validation, Formal analysis, Investigation, Resources, Data curation, Writing - original draft, Writing - review & editing, Visualization, Project administration. Luhgiatno Luhgiatno: Resources, Writing - review & editing, Supervision, Project administration. Riana Sitawati: Conceptualization, Methodology, Validation, Formal analysis, Investigation,  Writing - review & editing.