Market conditions, firm size, and sustainability: An exploratory study of asset returns in Indonesia

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Type of the article: Research Article

Abstract
This study examines the associations of market conditions, firm size, and sustainability performance with asset returns in the Indonesian capital market. As investment activity has expanded in the post-COVID-19 period, identifying the factors associated with asset returns has become increasingly important for investors and corporate decision-makers. Using the Capital Asset Pricing Model (CAPM) as the theoretical foundation, this study incorporates firm-specific financial and sustainability characteristics into an integrated empirical framework to examine their associations with asset returns.
Using a balanced panel dataset of 108 firm-year observations, the study employs a panel regression model. Market conditions are represented by the market excess return, firm size by the natural logarithm of total assets, and sustainability performance by the LSEG ESG Score (formerly Refinitiv ESG Score).
The findings indicate that market excess return and sustainability performance are positively associated with asset returns, while firm size is not statistically significant. Additional analysis shows that when market excess return is excluded from the model, firm size remains statistically insignificant, whereas sustainability performance remains positively and statistically significantly associated with asset returns. Furthermore, the model’s explanatory power declines substantially when market excess return is excluded, indicating that market excess return provides considerable incremental explanatory information beyond firm-specific financial and sustainability characteristics. Overall, the findings suggest that market conditions are an important factor associated with variations in asset returns, while sustainability performance remains an important firm-specific characteristic associated with asset returns even when market excess return is excluded from the model.

Acknowledgment
We would like to express our deepest gratitude to Universitas Jenderal Achmad Yani (UNJANI), Indonesia, for funding this research in 2025. We also extend our sincere appreciation to the anonymous reviewers for their valuable suggestions and constructive feedback, which have made a significant contribution to improving the quality of this article.

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    • Table 1. Chow test results on market excess return, firm size, sustainability, and asset return
    • Table 2. Lagrange multiplier test results on market excess return, firm size, sustainability, and asset return
    • Table 3. Statistical test results on market excess return, firm size, sustainability, and asset return
    • Table 4. Chow test results on firm size, sustainability, and asset return
    • Table 5. Hausman test results on firm size, sustainability, and asset return
    • Table 6. Statistical test results on firm size, sustainability, and asset return
    • Table 7. Comparison of the full model and the model excluding market excess return
    • Conceptualization
      Ferikawita M. Sembiring, Frido S. Simatupang
    • Formal Analysis
      Ferikawita M. Sembiring, Frido S. Simatupang
    • Investigation
      Ferikawita M. Sembiring, Frido S. Simatupang
    • Methodology
      Ferikawita M. Sembiring
    • Resources
      Ferikawita M. Sembiring, Frido S. Simatupang
    • Software
      Ferikawita M. Sembiring, Frido S. Simatupang
    • Writing – original draft
      Ferikawita M. Sembiring
    • Writing – review & editing
      Ferikawita M. Sembiring, Frido S. Simatupang
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Investment Management and Financial Innovations