Sustainability as a Signaling Mechanism: The Role of Audit Committee Characteristics in Shaping Environmental and ESG Transparency

Abstract

The growing demand for sustainable corporate governance has strengthened the role of audit committees in linking environmental transparency with firm value, especially in high-risk industries. Yet, the mechanisms through which audit committee characteristics contribute to value creation through sustainability disclosures remain insufficiently explored in emerging markets. This study investigates whether Environmental Accounting Disclosure (EAD) and Environmental, Social, and Governance (ESG) disclosure act as mediators in the relationship between audit committee attributes and firm value in Indonesia’s energy sector. Using panel data from 34 listed energy firms comprising 134 firm-years between 2020 and 2023, the research employs Partial Least Squares Structural Equation Modeling (PLS-SEM) to analyze direct and indirect effects. The results indicate that audit committee size significantly enhances firm value but does not affect EAD or ESG disclosure. Independence increases ESG disclosure and firm value, while higher meeting frequency improves both EAD and ESG disclosure but negatively affects firm value directly. The mediation analysis confirms that ESG disclosure mediates the effects of independence and meeting frequency, whereas EAD mediates only meeting frequency. These findings reveal a meeting frequency paradox where more intensive meetings indirectly raise firm value through enhanced disclosure quality despite reducing it directly. The study contributes to governance and sustainability literature by distinguishing structural from process-based governance quality and providing practical implications for regulators, boards, and investors to strengthen ESG-oriented oversight and promote sustainable corporate value in emerging markets.