Sharia Compliance, ESG Performance, and Digital Readiness: A Panel Data Analysis of Indonesian Islamic Capital Market

Abstract

This study examines the relationship between Sharia compliance, Environmental, Social, and Governance (ESG) performance, and digital transformation readiness among companies listed on the Indonesia Sharia Stock Index (ISSI) in 2011–2024. Using panel data from 907 companies (9,175 observations), it constructs a Sharia compliance index based on the debt-to-asset threshold (≤45%) and halal sector criteria, along with composite ESG and digital readiness indices derived from financial proxies. Fixed-effects regressions with robust standard errors show that Sharia-compliant companies achieve significantly higher ESG performance than conventional firms (β = 0.027, p < 0.05) and carry far lower debt ratios (17.45% vs. 237.80%). However, digital readiness does not differ significantly between the two groups, and the ESG–Sharia interaction is insignificant. The COVID-19 pandemic markedly altered the relationships among variables, raising model fit from 1.8% to 98.8%. Robustness checks confirm the findings: Sharia firms’ ESG advantage has not yet translated into digital readiness.