The relationship between ESG, financial performance, and cost of debt: the role of independent assurance

This study aims to analyze the moderating model in the relationship between disclosure of environmental, social, and governance (ESG), financial performance, and cost of debt. This study contributes by adding independent assurance as a moderating variable in the research model to explain inconsistencies in previous research. Stakeholder trust in the quality of ESG information in sustainability accounting reports depends on whether there is independent assurance/audit regarding the report. This study also contributes to accounting research by testing the moderation model in the COVID-19 pandemic period where the empirical evidence from previous research has not been conclusive. The research sample consisted of 253 Indonesian firms-years listed in Indonesian Stock Exchange during the period 2020-2022. Hypothesis testing was carried out using partial least squares-structural equation modeling (PLS-SEM). The results show that the implementation of ESG, as disclosed in sustainability reporting, has a positive (negative) relationship with financial performance (cost of debt). The relationship between ESG and financial performance and cost of debt increases when there is an independent assurance/audit in sustainability reporting.