Explaining How ESG Disclosure Creates Firm Value: The Mediating Role of Effective Tax Rate in Indonesian Mining Companies
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Abstract
This study examines how Environmental, Social, and Governance (ESG) disclosure creates firm value through corporate tax behavior. The main issue addressed in this study is the limited understanding of the internal mechanism linking ESG disclosure to market valuation, particularly in Indonesia’s mining sector. Using a quantitative explanatory approach, this study analyzes 115 firm-year observations from mining companies listed on the Indonesia Stock Exchange during the 2020–2024 period. Firm value is measured using Price to Book Value (PBV), corporate tax behavior is proxied by the Effective Tax Rate (ETR), and firm size is included as a control variable. Data are analyzed using Partial Least Squares path analysis, with the assessment focused on the structural model. The findings show that ESG disclosure has a positive effect on both ETR and PBV, while ETR positively affects PBV. The mediation test confirms that ETR mediates the relationship between ESG disclosure and firm value. These results suggest that companies with higher ESG disclosure tend to exhibit more responsible tax behavior, which contributes to higher firm value. This study concludes that corporate tax behavior serves as an important mechanism through which ESG disclosure contributes to firm value creation. The findings provide practical implications for managers, investors, and policymakers in promoting credible ESG disclosure and responsible corporate tax behavior.
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