INSTITUTIONAL INVESTORS, POLITICAL CONNECTION, AND SUSTAINABILITY REPORTING QUALITY: EMPIRICAL EVIDENCE FROM INDONESIA

This study aims to show empirical evidence of the role of political connections in the relationship between institutional investors and sustainability reporting. With observational data of 2,425 firm years and data analysis using short-term dynamic panel data regression or GMM. This study results that political relations function as a moderating variable. In a sense, a political connection weakens the relationship between institutional investors and genuine sustainability reporting. These results indicate that although institutional investors push for the quality and consistency of sustainability reporting, political connections avoid quality sustainability reporting. The results of this study provide practical implications that allow regulators to evaluate the rules for presenting sustainability reporting information.

This study is motivated by the expectations of institutional investors for quality sustainability reporting. However, there is a phenomenon that the Indonesian political system could be more conducive to strong corporate governance and investor protection. Therefore this research aims to empirically prove the role of political connections in influencing the relationship between institutional investors and the quality of sustainability reporting.

METHOD
The observation period in this study was 2015-2019. The firms' data was obtained from the Indonesia Stock Exchange through www.idx.co.id and the OSIRIS database. The sample of this study is all firms listed on the Indonesian stock exchange in 2015-2019. The total number of firms listed on the Indonesia Stock Exchange is 539. Unavailable data according to the variables in this research model are 54 firms. So the total number of the firm sample is 485, and observation data during 2015-2019 are 2,425 firm years.
The variables of this study consist of institutional investors as the independent variable, political relations as a moderating variable, and sustainability reporting as the dependent variable. To increase the accuracy of the relationship between variables, this study includes firm age, firm size, sales growth, and ROE as control variables. The measurement of these variables is shown in Table 1.  (Bae et al., 2018) ;  Given a score of 1 if the company discloses performance indicators according to GRI G4 and 0 if the company does not disclose them. Sustainability Reporting Quality Calculation is: SRQ = Σ item disclosed 149 Institutional Investors (Jennings, 2005) Percentage of shares owned by institutional investors.
Political Connection (Faccio, 2006 ;Habib et al., 2017) A score of 1 is given if the company has a political connection and 0 if otherwise.
Firm Age (Fan & Wang, 2019) The age of the firm from its establishment until the year of observation. Firm Size (Hu & Sun, 2018) Ln Total Asset Growth Sales (Mulyati & Mulyana, 2021) Salest -Salest-1 Salest-1 Return on Equity (Bunea et al., 2019) Earning after tax Equity The sustainability report is obtained from the website of each company. Sustainability reporting quality is measured by calculating the GRI G4 index. There are 149 performance indicators, covering 58 general and 91 specific standards. Specific standard performance indicators include nine economic aspect indicators, 34 environmental aspects, 16 labor aspects, 12 human rights aspects, 11 community aspects, and 9 product aspects. Scoring1 if disclosed company performance indicators according to GRI G4, and a score of 0 if not disclosed. Then all items given a score are added up and divided by 149. The institutional investor variable is measured by calculating the proportion of shares owned by institutional investors (Jennings, 2005). Political connection is a dummy variable, given the number 1 if the company is politically connected and 0 otherwise. To identify political connections, we searched data from the DPR's website, namely http://www.dpr.go.id, and from the government's website, http://www.dpr.go.id. gksoft.com/gov/en/id.ht.
The measurement of political connection refers to (Habib et al., 2017), which has expanded the measurements from Faccio, Masulis, and McConnell (2006). The firm is defined as politically connected if at least one of its top officers is. The firm's chief executive, chairman of the board, president, vice president, secretary of the board, or a significant shareholder who controls at least 10% of the voting stock of the firm is the president, vice president, minister, chairman, or members of the People's Representative Council or party leaders and members. A score of 1 is given if the firm has political affiliation and 0 if otherwise. The control variables in this study are Firm Age, measured by the firm's age since it was founded. The natural logarithm of total assets measures Firm Size, and Growth sales are measured by changes in the level of sales in the year concerned minus the previous year divided by the previous year. ROE is measured by net income divided by equity.

Figure 1. Conceptual Framework
Based on the conceptual framework above, the research model is: Reporting, which has a Score of 1, is given if the company discloses performance indicators according to GRI G4 and a score of 0 if it does not disclose 0, = Constant. 1, 2, 3,4,5,167, = Regression coefficient.

INV-INSTit
= Institutional Investors' ownership shows the Percentage of share ownership by institutional investors of the firm i in year t POLCONit = The political connection, which has a score of 1, is given if the company has a political connection and 0 if otherwise.

RESULT AND DISCUSSION
Descriptive statistics of each variable can be seen in table 2. Based on descriptive statistics, each of the variables can be explained that sustainability reporting has a minimum value of 0. This value is owned by PT Akasha Wira International, Tbk, in 2015 and PT Industri and Trade Bintraco Dharma, Tbk, in 2018. The maximum value of 1 occurred at PT Adaro Energy Indonesia, Tbk, in 2016. Among all sample companies, PT Adaro is one company that consistently reports all items related to sustainability reporting and meets the GRI G4 criteria.
Institutional investors have the lowest value of 0, which indicates that domestic investors own some companies. The maximum value of 100% foreign ownership was owned by PT Steady Safe, Tbk, in 2016, but the following year the ownership gradually decreased. It shows the entry of minority shareholders from within the country.
Based on the descriptive statistics in table 2, panel B shows that 728 of the observation data are politically connected companies, meaning that 30.02% of the total observation data are politically connected companies. Meanwhile, a total of 1,697 observations, or around 69.98%, are from companies that do not have political connections. It shows that Indonesia's number of politically connected companies is quite large. This condition is possible because of the company's dependence on preferential resources owned by the government. The minimum firm age value is three years. This condition shows that even though the company is only three years old, it commits to report sustainability reports, even though the reports are included in the annual report. Data analysis uses short-term dynamic panel data regression or GMM. The Hansen test is used for the robustness test. Test over-identification restrictions for onestep GMM are based on Hansen's statistical value of the estimated two-step GMM. The higher the probability value (p-value) from Hansen's statistics, the better. Next, test the Hansen difference also used to test the validity subsets of instrument variables so that these variables are exogenous. In addition, this test provides automated tests to perform variable value weighting and forward the transformation of orthogonal deviations. The estimation results are shown in Table 3. 1932 Description: * significant at 10% level ** significant at 5% level *** significant at 1% level Based on the estimation results using the GMM system, as shown in table 3, institutional investors significantly positively affect the quality of sustainability reporting. It means that increasing institutional investors will improve the quality of sustainability reporting. Institutional investors want sustainability, and this will be reflected in sustainability reports. Therefore, institutional investors will strive to achieve sustainable reporting quality, even though they face uncertainty and information asymmetry regarding their investment in the stock market. Sustainability reporting provides information on economic, environmental, and social performance while also describing the company's reputation so that sustainability reporting will be a good signal for investors. The company's good reputation will be reflected in the sustainability reporting quality. Good management of sustainability reports indicates good cost management because it will have an impact on reducing monitoring and coordination costs. Thus, the company's consistency in producing sustainability reporting quality will give a good signal so that institutional investors will be more interested in investing. Our study is in line with Lee et al. (2017), McGuinness et al. (2017), and Boubakri et al., 2016).
Based on estimation results, with a significance level of level 1%t. The results of this study indicate that political connection is not significant. However, interactions between political connections and institutional investors are a significant and negative sign. In this model, political connections have the nature of pure moderation. It means that political connection weakens institutional investors' influence on sustainability reporting quality. These results indicate that institutional investors expect companies to produce sustainable reporting quality. However, when firms are politically connected, they must be more assertive in pursuing sustainable reporting quality. If we pay attention to the phenomenon in Indonesia, currently, several companies whose CEO sided with a political party will try to maintain that political relationship. They may also spend more on lobbying and making political contributions. So, even though institutional investors expect sustainability reporting, if the firm has political connections, it will weaken management's efforts to produce sustainability reporting quality. It happens because there is a possibility that political elites and business people will continue to try to align their interests. It could be that management is not interested in investing in the social and environmental fields because these investments do not provide direct benefits, as stated by Chan et al. (2013) and Katmon et al. (2017). They are, therefore, more likely to secure political relations, which is considered more beneficial because politically connected firms will have access to government-owned preferential resources (Bertrand et al., 2018).
The results of this study contradict stakeholder theory (Clarkson, 1995;Roberts, 1992) which states that companies not only focus on increasing shareholder value but also require environmental and social (community) responsibility. In other words, the sustainability and success of the firms in the long term will be determined by the role of stakeholders. The company's long-term performance will be explained in the sustainability report. However, agency problems between institutional investors and political connections have undermined companies' efforts to produce sustainable reporting quality. Thus, in Indonesia, the results of this study can be explained more by agency theory (Jensen & Meckling, 1976;Fama & Jensen, 1983) which tends to be potentially counterproductive.
Sustainability reporting demonstrates the credibility and reliability of financial reports and company reputation. Institutional investors encourage the quality and consistency of sustainability reporting. Nevertheless, political connections cause conflicts of interest, so firms avoid sustainability reporting quality. This study is in line with Masud et al. (2019), who stated that politically connected companies avoid quality sustainability reporting for specific reasons. Politically connected companies tend to produce poor-quality sustainability reporting because they will be busier with political activities to maintain their image. This finding is in line with Cho et al. (2008), which reveals that companies with poor environmental performance tend to spend much time on political activities.
Control variables are used in this study to increase the accuracy of the interaction between variables, so these four control variables are not the main variables in this study. The estimation results of the four control variables show that firm age significantly negatively affects sustainability reporting. It indicates that the older the firms tend to act to reduce the sustainability reporting quality. Firm size has a significant positive effect on sustainability reporting. Companies that have a high number of assets tend to try to manage sustainability reporting quality well. It is done in order to maintain their reputation with shareholders. Growth sales have a negative effect on sustainability reporting. It indicates that if the company focuses more on increasing sales, it tends to forget or make less effort to manage sustainability reporting. Return on equity has a negative effect on sustainability reporting. It also indicates that if the company focuses on return on equity, it tends to manage sustainability reporting less well.

CONCLUSION
The results of this study indicate that political connections have proven to weaken the influence of institutional investors on the quality of sustainability reporting. The existence of political relations causes companies to make fewer efforts to achieve sustainable reporting quality. Companies will prefer activities to cover up their negative image. This study also shows that companies with poor environmental and social records tend to spend more on political activities because they are perceived to provide more direct benefits. Thus, even though institutional investors expect sustainability reporting, political connections will weaken management efforts to produce sustainability reporting quality.
The results of this study provide theoretical implications in the form of additional theoretical frameworks related to stakeholder and agency theories. Political connections are one of the factors that need attention because they have proven to weaken management efforts to produce quality sustainability reporting. The results of this study can also provide practical implications that allow regulators to evaluate the rules for presenting sustainability reporting information. This study has limitations, where institutional investors have not been separated from foreign and domestic institutional investors. Therefore, following studies on sustainability reporting quality and political connections are further suggested to separate foreign and domestic institutional investors.