IS ESG COMPANIES' PERFORMANCE INFLUENCED BY OWNERSHIP STRUCTURE? EVIDENCE IN ASEAN

ABSTRACT


INTRODUCTION
Sustainability is gradually accepted as a part of the company's existence purpose with related topics begin to be embedded in at least one of the company's mission statements (Zumente & Bistrova, 2021). According to sstudies on sustainability dimensionsenvironmental, social, and governance (ESG)companies that effectively address the stakeholders' ESG expectations are likely to outperform companies that poorly implement ESG principles (Li et al., 2021). Meta-studies of more than 1,000 research papers (2015)(2016)(2017)(2018)(2019)(2020) found a positive relationship between ESG and financial performance for 58% of corporate-focused studies and 33% of investment-focused studies (Whelan et al., 2020). Previously, the positive link between ESG and corporate financial performance was also found dominant in a second-level review study of 60 review studies   (Friede et al., 2015). However, there are significant percentage of studies which show mix or neutral link between ESG and financial performance (Friede et al., 2015;Whelan et al., 2020).
Besides accounting-based firm performance, there are also studies on relationship between ESG and market-based performance that reflect the firm value measurement, which often proxied using Tobin's Q variable. The ESG ratings was found to have a positive and significant relationship with the firm value in Aydoğmuş et al. (2022) study on 5000 public companies worldwide. Similar result also found in Suretno et al. (2022) on 27 public companies in Indonesia for the 2016-2020 data period. In contrast, research on 52 public companies in Indonesia for the 2015-2019 data period by Lubis and Rokhim (2021) shows a negative relationship between ESG ratings and firm value. However, some studies show mix result of ESG relationship to accounting-based and market-based firm performance such as Buallay et al. (2021) study that found a positive relationship between ESG-ROE and ESG-ROA, but a negative relationship between ESG-Tobin's Q.
The contradictory results regarding the relationship between ESG and firm value from the several studies that have been mentioned form the basis for considering other variables in the research model such as company ownership structure to moderate the effect of ESG on firm value. The ownership structure used by Wu et al. (2022) as moderating variables consists of four variables, namely institutional investor ownership, executive ownership, equity balance, and ownership concentration. The role of company ownership structure is the highlight in the agency theory suggested by Jensen and Meckling, 1976) where the separation of shareholder and managerial role may lead to principal-agent conflict. Firm focus in stakeholder management impacts the market performance as it signals the corporate social performance (Fu et al., 2022). The company ownership structure can leads to firm governance improvement as shareholders play monitoring role of decision control related to each stakeholders' interest (Huang et al., 2022). Ownership structure affects business activities through the perspectives of agency costs, operating costs and management efficiency, which, in turn, facilitate or hinder the role of ESG performance on corporate value (Liu et al., 2019).
Concentrated ownership has a positive effect on the performance of companies in Asia, where large shareholders can manage resources effectively to obtain maximum company performance results (Aboud & Diab, 2022;Heugens et al., 2009;Nguyen et al., 2015;Thomsen & Pedersen, 2000), include to influence policies regarding the application of ESG principles (Albitar et al., 2020). The dispersion of ownership in the presence of large and medium shareholders in addition to the main shareholders can be an internal control over company management (He et al., 2022). Therefore, the equity balance between 2 nd until 5 th largest shareholder to the main shareholder may also influence the ESG relation to company performance. Besides management, institutional investors are also recognized to play a role in monitoring performance and improving company performance (Afriyani, 2018;Cornett et al., 2007;Ha & Hiep, 2019;Lin & Fu, 2017;Malik et al., 2021). Institutional investors can encourage companies to apply sustainability principles to social and environmental aspects with the motivation of social concern and motivation of long-term returns (Dyck et al., 2017;Tao et al., 2020).
The relationship between ESG and firm value moderated by the companies' ownership structure in ASEAN makes this topic interesting to be studied. ASEAN firms' ownership are dominated by top first shareholder owner (Wu et al., 2022), different from the common US firm ownership that dominated by funds institutions. Besides, ESG adoption in Asia is more recent compared with ESG implemented in United States region (Korwatanasakul, 2020) which also shown in lesser studies about ESG in Asia compared to European countries or United States (Li et al., 2021). This research will provide information to investors in ASEAN public companies about their role in influencing the impact of ESG implementation on company performance. The company obtains information about the role effectivity of the composition of the company's ownership to ESG and company performance relationship. Scholars can use the results of this study as a reference for further researches in the future. The research hopefully can enlighten readers on ESG and its implementation in ASEAN, especially in Indonesia.

Research Framework and Hypothesis
The conceptual framework of this research study is shown in Figure 1.

Figure 1. Research Conceptual Framework
The following are the hypothesis used in this study. Hypothesis 1 (H1). ESG performance is positively related to firm performance. • H1a. ESG performance is positively related to Tobin's Q • H1b. ESG performance is positively related to ROE • H1c. ESG performance is positively related to ROA Hypothesis 2 (H2). Ownership concentration is positively moderating the ESG impact to firm performance. • H2a. Ownership concentration is positively moderating the ESG impact to Tobin's Q • H2b. Ownership concentration is positively moderating the ESG impact to ROE • H2c. Ownership concentration is positively moderating the ESG impact to ROA Hypothesis 3 (H3). Equity balance is positively moderating the ESG impact to firm performance. • H3a. Equity balance is positively moderating the ESG impact to Tobin's Q • H3b. Equity balance is positively moderating the ESG impact to ROE • H3c. Equity balance is positively moderating the ESG impact to ROA Hypothesis 4 (H4). Institutional investor ownership is positively moderating the ESG impact to firm performance. • H4a. Institutional investor ownership is positively moderating the ESG impact to Tobin's Q • H4b. Institutional investor ownership is positively moderating the ESG impact to ROE • H4c. Institutional investor ownership is positively moderating the ESG impact to ROA

METHOD
The researchers deployed quantitative approach. The initial population consists of 5,240 publicly listed companies in ASEAN countries' stock exchanges which actively posted annual report during 2017-2021 financial year data period. All necessary details of the companies are derived from Refinitiv Eikon database using Universitas Indonesia's access. The study eliminated companies without any ESG scores during the data period in the database as well as the outliers, reducing the list to 607 companies ( The dependent variables selected for this study are Tobin's Q, ROE, and ROA which reflects the company performance in different perspectives. Tobin's Q is a common market performance-based measurement. Tobin's Q equals to sum of market value of equities and book value of liabilities divided by book value of total asset (Cardao-Pito, 2022). The market value of equity is calculated as firm's stock price multiplied by number of shares outstanding (Chung & Pruitt, 1994). ROE and ROA are both accounting-based measurement where ROE is utilized to reflect financial performance while ROA reflects operational performance. ROE is measured by dividing firm's net income with total equities while ROA is measured by dividing firm's net income with total assets (Alareeni & Hamdan, 2020;Buallay, 2019).
In determining the impact of ESG performance to firm performance, the Refinitiv Eikon ESG combined score is chosen as the independent variable in this study (Aydoğmuş et al., 2022;Prabawati & Rahmawati, 2022;Velte, 2017;Wu et al., 2022). Refinitiv Eikon ESG has global coverage and applicable to all industries which is vital in a cross-countries study. The ESG combined score reflects the company's score on each dimensions of the ESG, namely environment, social, and governance using 630 measurements, following Refinitiv Eikon's provision (Refinitiv Eikon, 2022). The ESG score is ranged between 0 to 100 where 100 being the highest score that a company can achieved.
The moderating variables in this study follows Wu et al. (2022)'s definitions, which are ownership concentration, equity balance, and institutional ownership as the aspects of company ownership structure. The ownership concentration (Top) is defined as stock owned by the first-highest sharehoder from total stocks. The equity balance (Ebal) is calculated as sum of 2 nd until 5 th shareholders' ownership divided by the first-highest shareholder ownership. Lastly, the institutional ownership (IO) is calculated as stocks own by institutional investor from total stocks.
There are five control variables used in this study, which are firm size, financial leverage, asset growth, asset turnover, and GDP. The firm size, financial leverage, asset growth, and asset turnover are used as control variables in Alareeni & Hamdan (2020). Firm size and firm leverage are used as firm-specific control variables in various study related to firm performance (Aboud & Diab, 2022;Wu et al., 2022). Asset growth and asset turnover are used as control variables in Alareeni and Hamdan (2020). Macroeconomic variable such as growth domestic product (GDP) is taken into account for this cross-countries study (Buallay, 2019;Ma'in et al., 2022). Annual GDP data is derived from International Monetary Fund (IMF) website in the World Economic Outlook menu (International Monetary Fund, 2023). The description summary of all variables in this study can be seen in Table 3.
The first main model of this study is to determine the ESG impact to company performance without the moderating variable interaction to prove the first hypothesis. The models are written as below:  Table 3 shows the summary of the study models' variables definition and description.

Regression Method Selection
The Chow test is the first stage carried out to test panel data estimation. This test is used to determine whether the common effect model is appropriate for the available panel data regression (Glorynta & Hidayah, 2022;Lativa & Susilastuti, 2021). The Chow test result display probability F-statistic and Chi-square < α, with α = 5%. The result indicates that null hypothesis is rejected, therefore common effect regression model is not suitable for the available panel data. Model needs further assessment using Hausman test to determine whether fixed effect or random effect model is more suitable to be used as the estimation model (Glorynta & Hidayah, 2022;Lativa & Susilastuti, 2021). The Hausman test result shows that null hypothesis is rejected for all models as the Chi-square < α, with α = 5%. Based on both tests performed, the fixed effect model is chosen for estimating all the models in this study. The test of heteroscedasticity using Breusch-Pagan-Godfrey method shows that characteristics of heteroscedasticity was found in the data. Therefore, the selected FEM regression model will use White period (cross-section clustering) with no degree of freedom correction for the covariance coefficient calculation method in order to get robust standard errors to overcome previously found heteroscedasticity (IHS Global Inc., 2020).

RESULTS AND DISCUSSION Descriptive Statistics
Sample consists of 607 stock list with total of 1,390 data observations (n) with descriptive statistics detail as shown in Table 4.

Multicollinearity Test
Multicollinearity is defined as a perfect or near perfect linear relationship between the variables in the model. If there is a correlation between the independent variables, then the model error will be even greater because the regression coefficient cannot be determined accurately (Gujarati & Porter, 2009). The multicollinearity test carried out using the Pearson correlation matrix (Aydoğmuş et al., 2022) shows no correlation between dependent and independent variables that is greater than or equal to 0.8 (Table 5). The highest correlation found in the moderating variables, which are relations between Top and ESG*Top, Ebal and ESG*Ebal, and lastly IO and ESG*IO.

Fixed Effect Model Regression Results
The regression result of three models without moderating variable interaction can be seen at Table 6. ESG is found to be significant in the model without moderation, supporting the hypothesis that ESG has a significant influence on firm performance as depicted by Tobin's Q, ROE, and ROA. The ESG coefficient in all models is negative, indicating that ESG performance has a negative effect on company performance, thus rejecting hypothesis H1. ESG performance is not found to be a positive signal for investors to increase the market value of the company as in the study of Wu et al. (2022) or other previous studies (Alareeni & Hamdan, 2020;Aydoğmuş et al., 2022). ESG performance is also not shown to increase corporate net income. On the contrary, the costs incurred to obtain better ESG performance reduce corporate profits as reflected by the negative coefficient of ESG in the model with ROE and ROA as dependent variables. Level of significance (*p ≤ 0.1, **p ≤ 0.05, ***p ≤ 0.01) The negative relationship between the ESG combined score and Tobin's Q was also found in research on 184 companies in ASEAN (2010-2019) (Prabawati & Rahmawati, 2022), 386 companies in India (2007-2016 (Fahad & Busru, 2020), and 1,372 observations in China (2015-2019) (Ruan & Liu, 2021). The same thing was also stated by Lubis and Rokhim (2021) based on research on 52 public companies listed on the Indonesia Stock Exchange (2015-2019). Lubis and Rokhim (2021) argued that companies in Indonesia are required to follow regulations to implement sustainability principles without any incentives for companies. As a result, many investors consider ESG implementation obligations as an additional burden so that the greater the effort to improve ESG performance, the greater the cost or burden incurred by the company and the impact on reducing shareholder welfare (Lubis & Rokhim, 2021;Radhouane et al., 2020;Ruan & Liu, 2021).
The Green Tax Tracker report issued by Ernst and Young Global Limited (2023) on a review of 46 jurisdictions shows that policies related to sustainability topics in ASEAN countries are still in development. Based on the report, only two of the six countries in the research sample have carbon pricing policies, namely the implementation of carbon tax by Indonesia and Singapore. EY categorizes incentive policies for the implementation of sustainability principles into 14 categories where Indonesia only has incentive policies in 2 categories, the least compared to other ASEAN countries in the research sample. The Philippines has policies in 8 incentive categories. Thailand, Vietnam and Malaysia each have policies in 9 categories. Singapore has the most comprehensive incentive policy, with 10 categories. The report also shows that developed countries such as EU countries, Germany, Australia, Brazil, Canada, and Denmark already have policies in all categories (Ernst & Young Global Limited, 2023). Despite this development, the implementation of ESG strategies in ASEAN still needs to be improved by companies, policy makers, and governments (Korwatanasakul, 2020).
In the model with interaction, the concentration of ownership in one investor (Top) has no moderating effect on all research models (Table 7). The same result were found in Chinese manufacturing companies in Wu et al. (2022) regarding the impact of ownership concentration on Tobin's Q. The impact of ownership concentration on firm performance in Asian countries is known to decrease as the effectiveness of shareholder protection regulations increases, such as in markets in China, Malaysia, Singapore, and Thailand (Heugens et al., 2009). This result contradicts Puni and Anlesinya (2020) where ownership concentration has a positive effect on firm performance in Ghana because these investors have an incentive to perform a monitoring function to influence corporate decisions that are more favorable to them, namely in improving the welfare of major shareholders. The moderating role of the ESG*Top variable was not found in this study, as in the research of Wu et al. (2022). The lack of attention to ESG issues by investors in ASEAN firms may explain the results of the study that show no moderating role of ownership concentration to weaken or strengthen the impact of ESG on firm performance. Thus, hypothesis H2 is rejected because the interaction of ESG and ownership concentration has no moderating role on the impact of ESG on firm performance. The second corporate ownership structure variable is the equity balance. Based on the research results shown in Table 8, the equity balance has a significant effect on Tobin's Q as well as a moderating effect on the relationship between ESG and Tobin's Q. This result shows that investors with the second and fifth largest outstanding stock values use their voting rights to influence market value and include the influence of ESG issues on firm value. This result is inversely proportional to the research of Wu et al. (2022) where the equity balance has no significant effect on Tobin's Q as well as a moderating effect on the relationship between ESG and Tobin's Q. However, due to the lower percentage of ownership than the largest shareholder, the role of investors other than the largest shareholder in governance is limited so that they cannot play a significant role in increasing corporate profits. Therefore, the equity balance has no significant effect on ROE and ROA and has no significant moderating role on the relationship between ESG and ROE or ROA. The IO variable has a positive coefficient in the moderation model with Tobin's Q, ROE, and ROA (Table 9). However, the effect of IO is only significant on Tobin's Q at 1% significance level, while the IO variable can be said to have no impact on ROE and ROA. As moderating variable, institutional ownership has negative moderation on Tobin's Q with 1% significance and positive moderation on ROE with 10% significance. However, the moderation of institutional investor ownership on ROA based on regression results is not significant. Therefore, hypothesis H3 is partially rejected, i.e. the positive moderating role on ESG and ROE relationship is accepted while the hypothesis of moderating roles of ESG on Tobin's Q and ROA are rejected. Variables of significance (*p ≤ 0.1, **p ≤ 0.05, ***p ≤ 0.01) The negative role of institutional investor ownership contradicts research on companies in China (Chen & Xie, 2022;Tao et al., 2020;Wu et al., 2022). Increased ownership increases the motivation and authority of institutional investors to play a role in corporate governance to increase firm value proxied by the Tobin's Q variable (Chen & Xie, 2022;Wu et al., 2022). Based on the results of this study, institutional investors pay more attention to the impact of ESG on the company's return on equity as reflected in the ROE value, compared to the company's market value. This result is different from Tao et al. (2020) who state that institutional investors pay attention to ESG issues so that it has an impact on improving the company's ESG performance and company value. ASEAN companies' attention to ESG is still low so that the company's ESG performance is currently low. As a result, institutional investors prefer to pay attention to short-term interests rather than longterm interests of the company (Wu et al., 2022). Institutional investor moderation strengthens the negative relationship of ESG on Tobin's Q, but weakens the negative effect of ESG on ROE.

CONCLUSION
This study aims to determine the moderating role of company ownership structure in the impact of ESG on firm performance in ASEAN member countries. Based on the research results of the relationship between ESG performance and company performance moderated by corporate ownership structure. ESG performance was found significantly negatively affects firm performance both in models with Tobin's Q, ROE, and ROA as dependent variables. Ownership concentration variable is not found to have a significant moderating role on the effect of ESG performance on firm performances, both market-based (Tobin's Q) and accounting-based (ROA and ROE) performance. Equity balance variable has a significant moderating role on the effect of ESG performance on firm performance for the model with Tobin's Q as the dependent variable. However, there is no moderating role of equity balance variable in the effect of ESG on accounting-based firm performance (ROA and ROE). Research shows mixed results for the moderating role of institutional investor ownership variables on the relationship between ESG and firm performance. Institutional investor ownership negatively and significantly moderates the effect of ESG performance on Tobin's Q. On the contrary, it positively and significantly moderates the effect of ESG on accounting-based firm performance. In contrast, a positive and significant moderating role of institutional investor ownership has been seen in the model with ROE as the dependent variable. In the model with ROA as the dependent variable, there is no moderating role of institutional investor ownership.
The ASEAN publicly listed companies are lack of incentives to adopt ESG principles in their strategies and therefore the implementation of ESG is being seen as additional cost, reducing shareholders' welfare. Investors in ASEAN publicly listed companies do not see ESG implementation by companies as a positive signal. Therefore, the implication of this study is more focused on the government and policy makers to work on more supportive ecosystem to nurture a society with higher sustainability awareness. More detail of the ESG implementation progress should be planned carefully to achieve sustainability goals successfully.