The Role of Good Corporate Governance in Improving Company Financial Performance

Wahyu Febri Ramadhan Sudirman; Muhamamd Syaipudin

doi:10.63453/general.v3i1.62

Authors

Wahyu Febri Ramadhan Sudirman Universitas Pahlawan Tuanku Tambusai
Muhamamd Syaipudin Universitas Pahlawan Tuanku Tambusai

DOI:

https://doi.org/10.63453/general.v3i1.62

Keywords:

good corporate governance, woman on board, board diversity, audit committee, firm value

Abstract

Introduction:

Good Corporate Governance (GCG) is considered a key factor in enhancing firm value and ensuring sustainable business performance, particularly for companies included in the LQ45 index. Effective governance mechanisms are expected to strengthen market confidence and improve financial outcomes. This study aims to examine the impact of GCG mechanisms on firm value proxied by Tobin’s Q.

Methods:

This research employs a quantitative approach with a causal design. The sample consists of 30 LQ45 companies listed on the Indonesia Stock Exchange during 2015–2019, resulting in 150 firm-year observations. The independent variables include Woman on Board (WD), Committee Audit (CA), Board of Directors size (BoD), Board of Commissioners size (BoC), and Board Diversity (BD), with Company Size (SZ) and Leverage (LV) as control variables. Secondary data were obtained from annual reports and analyzed using panel data regression at a 5% significance level.

Results:

The findings indicate that Woman on Board (WD) has a positive and significant effect on Tobin’s Q, suggesting that female representation enhances firm value. Committee Audit (CA) and Board Diversity (BD) show significant negative effects. Board Size (BoD) and Commissioner Size (BoC) do not significantly influence firm value. Company Size (SZ) has a positive and significant effect, while Leverage (LV) is not significant.

Conclusion and Suggestion:

The results imply that governance effectiveness depends on quality rather than structure alone. Firms should strengthen substantive governance practices. Future studies may include additional governance indicators and extended observation periods.

Downloads

Download data is not yet available.

References

Alqatamin, R. M. (2021). Audit committee effectiveness and firm performance: Evidence from emerging markets. Corporate Governance: The International Journal of Business in Society, 21(5), 901–918.

Baker, H. K., & Martin, G. S. (2022). Capital structure and corporate financing decisions (2nd ed.). Wiley.

Baltagi, B. H. (2021). Econometric Analysis of Panel Data (6th ed.). Springer.

Brigham, E. F., & Houston, J. F. (2022). Fundamentals of Financial Management (16th ed.). Cengage Learning.

Brahma, S., Nwafor, C., & Boateng, A. (2021). Board gender diversity and firm performance: The UK evidence. International Journal of Finance & Economics, 26(4), 5704–5721.

Brigham, E. F., & Houston, J. F. (2022). Fundamentals of Financial Management (16th ed.). Cengage Learning.

Buallay, A., Fadel, S. M., Alajmi, J., & Saudagaran, S. (2022). Sustainability reporting and corporate governance: The impact on financial performance. International Journal of Finance & Economics, 27(3), 1–18.

Claessens, S., & Yurtoglu, B. B. (2021). Corporate governance and development: An update. Global Finance Journal, 47, 100560.

Creswell, J. W., & Creswell, J. D. (2018). Research Design: Qualitative, Quantitative, and Mixed Methods Approaches (5th ed.). Sage.

Dang, C., Nguyen, Q., & Tran, D. (2021). Firm size and firm value in emerging markets. Journal of Risk and Financial Management, 14(6), 254.

Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Toward a stewardship theory of management. Academy of Management Review, 22(1), 20–47.

Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301–325.

Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Pitman.

Freeman, R. E., Phillips, R., & Sisodia, R. (2020). Tensions in stakeholder theory. Business & Society, 59(2), 213–231.

Gerged, A. M., Albitar, K., & Al-Haddad, L. (2021). Corporate governance and financial performance: Evidence from emerging markets. Journal of Accounting in Emerging Economies, 11(4), 1–20.

Gujarati, D. N., & Porter, D. C. (2009). Basic Econometrics (5th ed.). McGraw-Hill.

Hernandez, M. (2012). Toward an understanding of the psychology of stewardship. Academy of Management Review, 37(2), 172–193.

Husted, B. W., & Sousa-Filho, J. M. (2021). Board structure and corporate social performance: A meta-analysis. Business & Society, 60(2), 332–367.

Issa, A., & Fang, H. (2023). Board diversity and firm performance: International evidence. Corporate Governance: An International Review, 31(2), 1–18.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.

KNKG. (2021). Pedoman Umum Good Corporate Governance Indonesia. Komite Nasional Kebijakan Governance.

Kumar, N., & Singh, J. P. (2021). Board size and firm value: Evidence from emerging economies. Asia-Pacific Journal of Business Administration, 13(3), 345–360.

Nguyen, T. T., Locke, S., & Reddy, K. (2020). Does boardroom gender diversity matter? Evidence from a transitional economy. Economic Modelling, 89, 241–256.

OECD. (2023). G20/OECD Principles of Corporate Governance 2023. Paris: OECD Publishing.

Scott, W. R. (2015). Financial Accounting Theory (7th ed.). Pearson.

Sekaran, U., & Bougie, R. (2016). Research Methods for Business (7th ed.). Wiley.

Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737–783..

Terjesen, S., Couto, E. B., & Francisco, P. M. (2022). Does the presence of independent and female directors impact firm performance? A multi-country study. Journal of Management & Governance, 26(1), 1–29.

Velte, P. (2022). The link between audit committee characteristics and firm performance: A meta-analysis. Corporate Ownership & Control, 19(3), 8–27.