Signalling Theory: Relevance in Contemporary Accounting and ESG Disclosure in State-Owned Banks in the Green Economy Era

Abstract

This study aims to analyze the concept, assumptions, and relevance of Signalling Theory in accounting and modern capital market practices, particularly in the disclosure of financial and non financial information. The research employs a qualitative method with a literature review approach, examining and comparing theoretical and empirical perspectives from Spence (1973), Asquith (1986), Hughes (1986), John (1985), Morris (1987), and Berg (2014), along with recent studies from the past five years. The findings indicate that Signalling Theory plays a crucial role in explaining managerial behavior in conveying information signals to investors through financial reporting, dividend policy, capital structure, and environmental, social, and governance (ESG) disclosures. Credible signals effectively reduce information asymmetry and enhance market confidence in a firm’s performance. The application of this theory in Indonesia is reflected in increased corporate transparency and improved communication strategies among listed firms. The study concludes that the effectiveness of a signal depends on managerial consistency, honesty, and the clarity of information conveyed to the market.