The Effect of Credit Risk, Profitability, and ESG Performance on Bond Ratings, with Company Size as a Moderating Variable: A Case Study of the Banking Subsector Listed on the Indonesia Stock Exchange for the Period 2019–2024

Abstract

Bond ratings are important indicators of corporate creditworthiness because they reflect investors’ perceptions of a company’s ability to fulfill debt obligations. In the banking sector, conventional financial indicators such as credit risk and profitability are not always sufficient to explain changes in bond ratings, while non-financial factors such as Environmental, Social, and Governance (ESG) performance have gained increasing attention in credit assessment. This study aims to examine the effects of credit risk, profitability, and ESG performance on bond ratings and to analyze the moderating role of company size in the relationship between these variables in banking subsector companies listed on the Indonesia Stock Exchange during 2019–2024. The study employed a quantitative causal research design using secondary panel data from 14 banking companies with 84 observations. Data analysis was conducted using panel data regression with the Fixed Effect Model and Moderated Regression Analysis (MRA). The results indicate that credit risk does not significantly affect bond ratings, while profitability has a significant negative effect and ESG performance has a significant positive effect on bond ratings. Company size does not have a direct significant effect and does not moderate the relationship between credit risk and bond ratings. However, company size strengthens the effect of profitability and weakens the effect of ESG performance on bond ratings. The findings highlight that bond rating assessments should consider both financial and sustainability-related factors, with ESG performance becoming an important determinant of credit quality in the banking sector.