The The Effect of ESG Performance and Herding Behavior on Stock Returns: Evidence from Indonesia

Research Aims: This study aims to examine the effect of environmental, social, and governance (ESG) Performance and Herding behavior on stock market returns at Indonesian stock exchange from 2020 to 2024 while considering Market capitalization, PBV, ESG exposure and foreign ownership as control variables. Design/methodology/approach: A Quantitative method using random effects panel data regression model applied to 188 firm year observations from 47 listed firms on the Indonesia Stock Exchange. ESG measured based on IDX list of ESG score, while stock’s price based on yahoo finance and the financial data are from the firm’s annual report on the firm’s website. Research Findings: The analysist reveals that over ESG performance has significant negative effect on stock returns (β = –0.00057, p = 0.011), while ESG exposure (β = 0.00034, p = 0.014) and market capitalization (β = 0.00886, p = 0.009) have significant positive effects. PBV is not significant. Nevertheless, no evidence of herding behavior in the Indonesian market, nor any moderating effect of ESG performance or foreign ownership Theoretical Contribution/Originality: The results emphasize the importance of allocating resources to ESG initiatives and ensuring transparent reporting to attract patient capital and mitigate concerns of greenwashing. Research limitation and implication: This research is limited to the Indonesian market, thus limiting dynamic market reactions. Additionally, this study is limited to discussing ESG scores in its entirety, hence considering the separation of ESG dimensions in order to provide deeper understanding of investor behavior