The Role of Corporate Governance in Encouraging Improved Performance of Manufacturing Companies in the Capital Market

Wahyu Febri Ramadhan Sudirman; Saru Reza; Bunga Andhini; Muhamamd Riski

doi:10.63453/general.v2i2.48

Authors

Wahyu Febri Ramadhan Sudirman Universitas Pahlawan Tuanku Tambusai
Saru Reza Universitas Pahlawan Tuanku Tambusai
Bunga Andhini Universitas Pahlawan Tuanku Tambusai
Muhamamd Riski Universitas Pahlawan Tuanku Tambusai

DOI:

https://doi.org/10.63453/general.v2i2.48

Keywords:

corporate governance, board diversity, leverage, financial performance, firm value.

Abstract

Introduction:

This study aims to analyze the influence of corporate governance and financial structure on the financial performance and value of manufacturing companies listed on the Indonesia Stock Exchange (IDX). Good corporate governance is believed to improve managerial efficiency and investor confidence, while an appropriate financial structure can support company stability and profitability.

Methods:

This study uses a quantitative approach with secondary data obtained from the financial statements of 45 manufacturing companies listed on the IDX from 2015-2019. Data analysis was conducted using multiple regression methods to determine the influence of each variable simultaneously and partially.

Results:

The results show that board diversity and the number of board directors have a positive and significant effect on all financial performance indicators and firm value. The board of commissioners has a positive effect on Tobin's Q but a negative effect on ROA and ROE. The audit committee does not significantly influence firm performance or value. Meanwhile, leverage is shown to have a negative effect on Tobin's Q and ROA, indicating that increasing debt can actually depress firm value and profitability.

Conclusion and Suggestion:

This study concludes that board diversity and effectiveness play a significant role in improving firm performance and value. Conversely, excessive use of debt can reduce a company's efficiency and competitiveness. Therefore, companies are advised to strengthen their governance structure by increasing board diversity and considering the debt ratio in their financial policies. Furthermore, future research is recommended to expand the sample to other sectors and add moderating variables such as institutional ownership to enrich the analysis of the relationship between governance and firm performance.

Downloads

Download data is not yet available.

Author Biographies

Saru Reza, Universitas Pahlawan Tuanku Tambusai

Bunga Andhini, Universitas Pahlawan Tuanku Tambusai

Muhamamd Riski, Universitas Pahlawan Tuanku Tambusai

References

Arikunto, S. (2014). Prosedur Penelitian Kuantitatif, Kualitatif, dan R&D. Alfabeta. http://r2kn.litbang.kemkes.go.id:8080/handle/123456789/62880

Asri, M. (2013). Keuangan Keprilakuan. (fist). BPFE.

Campbell JL. Why would corporations behave in socially responsible ways? An institutional theory of corporate social responsibility. Acad Manag Rev. 2007;32(3):946–67.

Carter DA, D’Souza F, Simkins BJ, Simpson WG. The gender and ethnic diversity of US boards and board committees and firm financial performance. Corp Gov An Int Rev. 2010;18(5):396–414.

Duru A, Iyengar RJ, Zampelli EM. The dynamic relationship between CEO duality and firm performance: The moderating role of board independence. J Bus Res [Internet]. 2016;69(10):4269–77. Available from: http://dx.doi.org/10.1016/j.jbusres.2016.04.001

Finegold D, Benson GS, Hecht D. Corporate boards and company performance: Review of research in light of recent reforms. Corp Gov An Int Rev. 2007;15(5):865–78.

Grinblatt M, Titman S. Financial Markets and Corporate Strategy [Internet]. United Kingdom: McGraw-Hill/Irwin; 2016. 912 p. Available from: http://strathprints.strath.ac.uk/28341

Gyapong E, Monem RM, Hu F. Do Women and Ethnic Minority Directors Influence Firm Value? Evidence from Post-Apartheid South Africa. J Bus Financ Account. 2016;43(3–4):370–413.

Hermalin BE, Weisbach MS. Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature. Econ Policy Rev 9(1), 7–26. 2003;9(1):7–26.

Hui, X. (2020). An Empirical Research on Top Management Team Size , Board Size and Corporate Performance Evidence from China’ s Listed Companies. Journal of Applied Finance & Banking, 10(3), 37–51.

Kaplan RS. Strategic performance measurement and management in nonprofit organizations. Nonprofit Manag Leadersh. 2001;11(3):353–70.

Krechovská M, Procházková PT. Sustainability and its integration into corporate governance focusing on corporate performance management and reporting. In: Procedia Engineering [Internet]. Elsevier B.V.; 2014. p. 1144–51. Available from: http://dx.doi.org/10.1016/j.proeng.2014.03.103

Kanakriyah R. The Impact of Board of Directors’ Characteristics on Firm Performance: A Case Study in Jordan. J Asian Financ Econ Bus. 2021;8(3):341–50.

Li Q, Zhou W, Zhou H, Chen J. Do Board Characteristics Matter for Growth Firms? Evidence from China. J Risk Financ Manag. 2021;14(8):380.

Mishra AK, Jain S, Manogna RL. Does corporate governance characteristics influence firm performance in India? Empirical evidence using dynamic panel data analysis. Int J Discl Gov [Internet]. 2021;18(1):71–82. Available from: https://doi.org/10.1057/s41310-020-00098-7

Modigliani, F., & Miller, M. H. M. (1963). American Economic Association Corporate Income Taxes and the Cost of Capital : A Correction. American Economic Review, 53(3), 433–443. http://books.google.com/books?hl=en&lr=&id=CIni3oHnprEC&oi=fnd&pg=PA73&dq=Corporate+income+taxes+and+the+cost+of+capital:+a+correction.&ots=yshEqnotBe&sig=1DqjIwN5BMLbgGr_hWfrrdWhKSA

Muslim, M. (2023). How Good Corporate Governance Influences Company Value through Financial Performance. Advances in Applied Accounting Research, 1(2), 124–130.

Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0

Noja, G. G., Thalassinos, E., Cristea, M., & Grecu, I. M. (2021). The Interplay between Board Characteristics , Financial Performance , and Risk Management Disclosure in the Financial Services Sector : New Empirical Evidence from Europe. Journal of Risk and Financial Management, 14(79), 1–20.

Smulowitz, S., Becerra, M., & Mayo, M. (2019). Racial diversity and its asymmetry within and across hierarchical levels: The effects on financial performance. Human Relations, 72(10), 1671–1696. https://doi.org/10.1177/0018726718812602

Sudirman, W. F. R., Pratiwi, A., & Adams, R. (2022). Effect of Board Characteristics, Capital Structure on Firm Performance and Value. MEC-J (Management and Economics Journal), 6(2), 91–108. https://doi.org/10.18860/mec-j.v6i2.11819

Ross, S. A. (1977). Determination of Financial Structure: the Incentive-Signalling Approach. Bell J Econ, 8(1), 23–40. https://doi.org/10.2307/3003485

Sugiyono. (2017). Metode penelitian bisnis: pendekatan kuantitatif, kualitatif, kombinasi, dan R&D. CV. Alfabeta.

Thaler RH. Advances in behavioral finance. In: Advances in Behavioral Finance. russell sage foundation new york: princeton university press princeton and oxford; 2005. p. 1–694.

Terjesen S, Aguilera R V., Lorenz R. Legislating a Woman’s Seat on the Board: Institutional Factors Driving Gender Quotas for Boards of Directors. J Bus Ethics. 2015;128(2):233–51.

Vinet, L., & Zhedanov, A. (2011). A “missing” family of classical orthogonal polynomials. In Journal of Physics A: Mathematical and Theoretical (14th ed., Vol. 44, Issue 8). Cengage Learning. https://doi.org/10.1088/1751-8113/44/8/085201

Zhou, G., Liu, L., & Luo, S. (2022). Sustainable development, ESG performance and company market value: Mediating effect of financial performance. Business Strategy and the Environment, 31(7), 3371–3387. https://doi.org/10.1002/bse.3089

Zona F, Boyd BK, Takacs Haynes K. Coordination, control, or charade? The role of board interlocks among business group members. Manag Decis. 2019;57(10):2630–52.