THE VALUE RELEVANCE OF SUSTAINABILITY REPUTATION: EVIDENCE FROM INDONESIA

Abstract

This research aims to investigate whether the value relevance of firms with good sustainability reputation is higher than firms without such reputation. An empirical analysis performed within the period of 2011 to 2015 on a total sample of 99 firms. Ohlson price model and assisted by multiple regression to solve the research question. We use two models to answer the hypothesis. First model, we focus on the coefficients of BV and NI to determine whether the firm has sustainability reputation or not. Later, the two groups of firms will be set into two separate regressions to minimize the bias. Then, adjusted R2 as the explanatory power of independent variables from two separate regressions will be compared to determine whether the reputation of the corporate sustainability can improve the value relevance of the company. Results affirm that the value relevance on earnings and book value of firms with sustainability reputation is higher than firms without such reputation. With the findings of this study may draw the attention of regulators and the Indonesia Stock Exchange, for deliberating whether CSR should be mandated.