Do ESG Narrative Disclosures Matter for Financial Analysts

Abstract

The aim of this research is to examine whether CSR narrative reporting has information content that is used by analysts to predict stock prices. Corporate Social Responsibility (CSR) is still interesting today. Standalone CSR report in Indonesia as a voluntary nature. In this study we measure CSR reports based on the Environment, Social and Governance disclosure score (ESG_score) and we examine the relationship between ESG Score and analyst forecast. Used 393 data from manufacturing companies that are listed in IDX, this study analyzed the association of ESG score and Analyst forecast. The results of this study show environmental, social and governance affect share price that predicted by the analyst, so we can say that the analyst used the CSR report. This paper tries to fill in a research gap about the relevance of the value of CSR narrative reports in the perspective of financial analysis. Financial analysts are those who have a significant influence on the capital market but mostly in Indonesia. This research is the first study that discusses the relevance of values based on the perspective of the analysis conducted with the Indonesian sample. The second contribution of this paper uses ESG scores as a proxy for CSR performance. The use of ESG scores as a measure of CSR results has never been done before in Indonesia, so this study is also the first study. The findings of this study are expected to stimulate the government, particularly the Indonesian Capital Market regulators (OJK and IDX), to be able to tighten policies regarding social responsibility reporting. It is hoped that with increasingly stringent policies, issuers will increasingly comply with these policies and more parties will benefit from the non-financial information disclosed by the company. The limitation of this study is that the sample was only conducted in the manufacturing industry, so it still requires testing in other industries to improve the external validity of the research results. These two studies do not separate positive and negative net income as control variables, so it cannot be seen in more detail whether this non-financial information will be consistent if carried out on companies with positive and negative earnings.