Sustainable Entrepreneurship and ESG Signaling: Impact on Venture Legitimacy and Investor Trust
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This study examines how sustainable entrepreneurship practices and Environmental, Social, and Governance (ESG) signaling mechanisms influence venture legitimacy and investor trust in emerging markets. Drawing on signaling theory, institutional theory, and stakeholder theory, we analyze survey data from 214 startup founders and 186 institutional investors across Indonesia. Structural equation modeling (SEM) reveals that proactive ESG disclosure and third-party ESG certification significantly enhance perceived venture legitimacy (β = 0.61, p < 0.001) and investor trust (β = 0.54, p < 0.001). The environmental pillar exerts the strongest direct effect on legitimacy, while the governance pillar is the dominant predictor of investor trust. Venture age and founder sustainability orientation moderate these relationships. The findings suggest that ESG signaling functions as a credibility amplifier for early-stage firms, bridging information asymmetry between entrepreneurs and capital providers. Practical implications underscore the need for startups to embed ESG frameworks early, particularly in contexts where regulatory enforcement remains nascent.
Keywords: ESG Signaling, Sustainable Entrepreneurship, Venture Legitimacy, Investor Trust, Signaling Theory
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