THE INFLUENCE OF ESG RATING SCORE FOR COST OF DEBT OF FIRM’S FINANCING ACTIVITY AND STOCK RETURN IN ASEAN 5-COUNTRY THESIS In partial fulfilment of the requirements for the Degree of Master of Science in Management from Institut Teknologi Bandung By NUR RYSHALTI PRATAMA Student ID: 29022008 (Master Program of Science in Management) INSTITUT TEKNOLOGI BANDUNG 2024 ii iii ABSTRACT THE INFLUENCE OF ESG RATING SCORE FOR COST OF DEBT OF FIRM’S FINANCING ACTIVITY AND STOCK RETURN INVESTMENT IN ASEAN 5-COUNTRY By Nur Ryshalti Pratama Student ID: 29022008 (Master Program of Science in Management) We research to examine there is any influence of ESG rating score, develop by Refinitiv Thomson Reuters Eikons, to the cost of debt and stock return which divided of two returns were Raw and Abnormal of Return in ASEAN 5-countries whereas it is firms (in Indonesia, Malaysia, the Philippines, Singapore, and Thailand). There is a few of research to test the impact of ESG rating score to on the cost of debt, especially in Southeast Asia, and much of the prior literature still has conflicting results. This main of research aims were first to examine that possibly due to for debtholder only evaluation of creditworthiness by comprehensive of ESG practice or deeper dive to decomposition of ESG which were Environment, Social or Government rating score and second for investor to examine that total ESG rating score has any influence the return stock of investment. Our methodology research used panel data regression with Generalized Least Square Random Effect Model for the Cost of Debt and Fixed Effect Model for Raw Return and Abnormal Return. The sample of data are 1125 observation non-financial firms since 2017-2021 for Cost of Debt and 717 observation all-firms include financial firms since 2017-2019 for both of Raw Return and Abnormal Return. The result of sixth model of our development is accepted all null hypothesis from H1 to H6. The total ESG rating score and the decomposition of Env, Soc, Gov are negative and strong significant influence to Cost of Debt. Other side, the total ESG rating positive and significant influence to stock return both of Raw Return and Abnormal Return. Keywords: Abnormal Return, Cost of Debt, ESG Rating Score, and Raw Return. iv v ABSTRAK PENGARUH DARI PERINGKAT NILAI ESG TERHADAP BIAYA HUTANG DARI AKTIVITAS PEMBIAYAN PERUSAHAAN DAN IMBAL HASIL PENGEMBALIAN INVESTASI SAHAM DI 5 - NEGARA ASEAN Oleh Nur Ryshalti Pratama Student ID: 29022008 (Program Studi Magister Sains Manajemen) Kami melakukan penelitian untuk menguji apakah ada pengaruh peringkat nilai dari ESG yang dikembangkan oleh Refinitiv Thomson Reuters Eikons terhadap biaya hutang dan imbal hasi pegembalian investasi saham yang dibagi menjadi dua return yaitu Raw dan Abnormal of Return pada perusahaan-perusahaan ASEAN ke-5 negara (di Indonesia, Malaysia, Filipina, Singapura, dan Thailand). Terdapat beberapa penelitian yang menguji dampak peringkat nilai ESG terhadap biaya utang, khususnya di Asia Tenggara, dan banyak literatur sebelumnya masih memberikan hasil yang bertentangan. Tujuan utama dari penelitian ini adalah pertama untuk menguji kemungkinan bagi para kreditor apakah hanya evaluasi kelayakan kredit berdasarkan praktik ESG yang komprehensif atau menyelami lebih dalam terhadap dekomposisi dari ESG yang merupakan peringkat nilai Lingkungan, Sosial atau Tata Kelola dan kedua bagi investor untuk memeriksa total peringkat nilai ESG tersebut mempunyai pengaruh terhadap imbal hasil pengembalian investasi saham. Metodologi penelitian yang kami gunakan adalah regresi data panel dengan Generalized Least Square Model Efek Acak untuk Biaya Hutang dan Model Efek Tetap untuk Raw Return dan Abnormal Return. Sampel datanya adalah 1125 observasi perusahaan non-keuangan sejak 2017-2021 untuk Biaya Hutang dan 717 observasi semua perusahaan termasuk perusahaan keuangan sejak 2017-2019 untuk Raw Return dan Abnormal Return. Hasil pengembangan model keenam kami menerima semua hipotesis nol dari H1 hingga H6. Total peringkat nilai ESG dan dekomposisi peringkat nilai Lingkungan, Sosial, dan Tata Kelola berpengaruh negatif dan signifikan kuat terhadap Biaya Hutang. Sedangkan total peringkat nilai ESG berpengaruh positif dan signifikan terhadap imbal hasil pengembalian investasi saham baik imbal hasil Raw maupun imbal hasil Abnormal. Keywords: Biaya Hutang, Imbal hasil Abnormal, Imbal hasil Abnormal, dan Peringkat Nilai ESG vi vii THE INFLUENCE OF ESG RATING SCORE FOR COST OF DEBT OF FIRM’S FINANCING ACTIVITY AND STOCK RETURN INVESTMENT IN ASEAN 5-COUNTRY HALAMAN PENGESAHAN By Nur Ryshalti Pratama Student ID: 29022008 Master Program of Science in Management Institut Teknologi Bandung Approved Date ……………………… Supervisor ______________________ (Deddy Priatmodjo Koesrindartoto, Ph.D ) viii ix THE GUIDANCE FOR USING THE THESIS Unpublished masters’ thesis is registered and available in the Library of Bandung Institut of Technology, and is open for public, provided that the author owns the copyright in accordance with the intellectual property rights that are applicable in the Library of Institut Teknologi Bandung. Bibliographical references are allowed to be use in a limited manner; however, the citation and summarization can only be proceeded upon the author’s permission and must include the scientific norm of stating this thesis as the source. This thesis has to be cited as: Pratama, Nur Ryshalti. (2024): THE INFLUENCE OF ESG RATING SCORE FOR COST OF DEBT OF FIRM’S FINANCING ACTIVITY AND STOCK RETURN INVESTMENT IN ASEAN 5-COUNTRY, Masters’ Thesis, Institut Teknologi Bandung. Reproduction or publication of parts or whole of the thesis must be under the consent of the Head of Graduate School, Bandung Institute of Technology. x xi This thesis is dedicated to my beloved parents, my little brother, my brother in- laws and my friends who always supporting me. xii xiii STATEMENT OF AUTHORSHIP I hereby declare that I am the sole author of this thesis and to the best of my knowledge and belief, the thesis contains no material previously published or written by another person except where due reference is made. I further declare that this thesis has not been previously submitted to obtain a degree at this or any other higher education institution. Signature: Place, Date: Bandung, March 2024 xiv.