A cross-firm analysis of corporate governance compliance and performance in Indonesia

Abstract

Purpose The study aims to construct a cross-firm corporate governance index to predict firm performance. The index consists of 15 governance elements from a large sample of the Indonesian firms covering the period from 2003 to 2013. Design/methodology/approach This study presents robust results as the findings are tested by applying the generalized method of moments (GMM) estimator to eliminate endogeneity problems and unobservable heterogeneity posed by the relationship between performance and firm-level governance practices. Findings The results indicate that the corporate governance index is associated with enhanced corporate financial performance. Likewise, the findings reported under the pooled ordinary least squares and GMM also indicate corporate governance sub-indexes (elements), which have significant effects on performance: whistleblower mechanism, audit quality, board of director size and blockholders. Research limitations/implications In the emerging market context, this study supports the notion that active and self-regulated governance practices are appreciated by the market and, in the end, can have a positive impact on financial performance. The analysis adds to the empirical literature by providing insights into how governance provisions are being actively implemented in the micro level. With regard to weak governance practices, this study is consistent with previous studies, according to which, firms have the opportunity to use corporate governance as a way of differentiating themselves from other players in countries with poorly regulated investor protection and institutional settings. Originality/value This study makes a positive contribution, as it looks at the impact of Indonesia’s corporate governance compliance on the basis of a set of 15 unique governance provisions, including the findings of the positive influence of corporate governance in family business.

Can we expect contribution from environmental, social, governance performance to sustainable development?

“… Environmental: climate change and risks resources scarcity (Yusuf & Francisco, 2009), renewable energy development (Gulagi et al, 2017; Kennedy, 2018), pollution and natural disaster (Haibo et al, 2019), food sustainability (Hirabayashi et al, 2013); Social: health and safety standard in business (Pingle, 2012; Siriruttanapruk & Anantagulnathi, 2004) and consumer protection (Wang et al, 2008); Governance: poor corporate governance (Claessens & Yurtoglu, 2013; Tanjung, 2020), corruption (Olken & Pande, 2012; Power & Taylor, 2011), concentrated ownership structure (Young et al, 2008), poor transparency, and limited disclosures (Patel et al, 2002). …”

Time Lag Effects of IT Investment on Firm Performance: Evidence from Indonesia

“…In several past studies (Lee & Kim 2006;Brynjolfsson et al 1994;Shaft et al 2007), the research model was estimated through the use of dynamic ordinary least squares (DOLS). Such estimation approach used in the previous studies has the potential to produce biased and inconsistent results due to the problem of dynamic endogeneity of the dependent variable that is influenced by values in the preceding period (Schultz et al 2010;Wintoki et al 2012;Ullah et al 2018;Tanjung 2020). Third, the relative adjusted performance measures used in the same industry, adopted and modified in this study, established that abnormal firm performance in similar industries produced consistent performance results.…”

Pengaruh Pengungkapan Tanggung Jawab Sosial Perusahaan, Kepemilikan Keluarga, dan Tata Kelola Perusahaan Terhadap Penghindaran Pajak

“…Tata kelola perusahaan diukur dengan 15 item indikator dari Indonesia CG Index (ICGI) oleh Tanjung (2020) Dilihat dari apa yang terlampir dalam tabel di atas, jumlah data yang memenuhi syarat sebagai sampel adalah sebanyak 680 data observasi dan variabel pertama yaitu penghindaran pajak memiliki rasio paling kecil yakni 0,0005 menandakan tingginya upaya salah satu perusahaan sampel dalam melakukan penghindaran pajak sedangkan paling besar yakni 0,9621 menandakan salah satu sampel penelitian taat dan tidak melakukan penghindaran pajak. Nilai minimum dan maksimum tersebut diikuti nilai mean 0,2417 yang berarti rata-rata rasio penghindaran pajak perusahaan sampel sebesar 24,17%.…”