From Reputation to Value: The Strategic Role of CSR in Enhancing Firm Performance in Indonesia

Abstract

Aims: This study investigates whether corporate social responsibility (CSR) mediates the effect of firm reputation on firm value in publicly listed companies in Indonesia. Study Design: This study adopts a quantitative descriptive approach employing a panel data regression design to analyze the effect of firm reputation on firm value and to examine the mediating role of Corporate Social Responsibility (CSR) activities. Statistical analyses were conducted using secondary data derived from publicly available reports. This methodological approach was chosen to ensure a rigorous examination of causal relationships across firms and over time, enhancing both internal validity and generalizability. The sample was selected using a purposive sampling technique based on specific criteria: (1) companies that consistently published annual and sustainability reports (CSR disclosures) during the observation period; (2) firms providing complete data for the variables of firm reputation. Firm reputation is proxied by brand image (awards and recognition) and Big-4 auditor affiliation, while firm value is measured using Economic Value Added (EVA). CSR is measured using a CSR disclosure score, which represents an index calculated as the ratio between the number of items disclosed by the company and the total number of items required to be disclosed. Control variables include Return on Assets (ROA) and firm size. Applying these criteria resulted in a final sample of 51 companies, yielding 306 firm-year observations included in the empirical analysis. Place and Duration of Study: This study examines companies listed on the Indonesia Stock Exchange (IDX) over a six year period, spanning from 2017 to 2022. Methodology: This study employed a panel data regression approach using observations from 51 firms over six years. The analysis began with descriptive statistics to capture the general characteristics of all variables. Model selection was then conducted through the Chow, Hausman, and Lagrange Multiplier (LM) tests to determine the most suitable estimation model. Afterward, hypothesis testing was performed to evaluate the relationships among variables, followed by a Sobel test to examine the mediating role of Corporate Social Responsibility (CSR) in linking firm reputation and firm value. Results: Empirical findings indicate that corporate reputation has a positive and significant influence on firm value (EVA). Furthermore, corporate reputation exhibits a significant influence on the level of Corporate Social Responsibility (CSR) disclosure, while CSR itself significantly increases firm value. Mediation analysis using the Sobel test confirms that CSR acts as a statistically significant mediator in the relationship between corporate reputation and firm value. These findings suggest that CSR serves as a strategic translation mechanism through which reputation assets are converted into economic value, underscoring the important role of CSR in linking intangible reputation factors to tangible financial performance among public companies in Indonesia. Conclusion: Corporate reputation has a significant positive effect on corporate value, both directly and indirectly through disclosure of Corporate Social Responsibility (CSR) activities. Corporate reputation, reflected in external awards and auditor affiliations, contributes to increased transparency and credibility of CSR, ultimately increasing the company's economic value. CSR is not only a moral or legal obligation, but also a strategic tool to actualize the power of reputation into financial added value. The implications of this study emphasize the strategic importance of reputation management through the implementation of high-quality audit mechanisms and the company's active involvement in sustainable business practices. And capital market authorities are encouraged to improve the quality of supervision related to corporate reporting and to promote greater transparency through comprehensive information disclosure.