Cost of Equity Pre and During Covid-19 Outbreak: Environmental, Social, and Governance Performance in Indonesia

Abstract

This study examines the influence of Environmental, Social, and Governance (ESG) performance on the cost of equity (COE), prior to and during the COVID-19 period. This study analyses 65 Indonesian public companies in the non-banking and financial sectors that disclosed all ESG information in 2019 and 2020. 2019 is taken as the pre-COVID-19 period, while 2020 is the year during COVID-19. The results reveal that ESG performance is favorable in lowering the COE. However, the effect of ESG performance on COE decreased during COVID-19, such that it was ineffective in mitigating the negative impacts of COVID-19 on the COE. The disclosure of ESG includes the firm’s endeavors to be transparent to its stakeholders, thereby mitigating information asymmetry. The ability of companies to manage information asymmetry is substantial during high-uncertainty periods, such as the COVID-19 pandemic in 2020. However, this study is limited to Indonesian companies. As emerging markets, countries with characteristics similar to Indonesia may benefit from this study.