Corporate governance and investment efficiency in Indonesia: the moderating role of industry competition

Abstract

Purpose This study aims to analyse the effect of corporate governance on investment efficiency and the moderating impact of industry competition on the relationship between corporate governance and investment efficiency. Design/methodology/approach The research sample includes a total of 36 publicly listed companies assessed by the Indonesian Institute for Corporate Directorship from 2012 to 2018. Testing is performed on full sample and overinvestment and underinvestment subsamples. Additional testing is further carried out using the generalized method of moments to address endogeneity problems and a robustness test is performed to assess the estimated investment efficiency. Findings Corporate governance can increase investment efficiency and the effectiveness of corporate governance is found to drop when the level of industry competition is higher. Practical implications The results of the present study corroborate the suggestion that companies need to implement corporate governance mechanisms. Furthermore, designing a corporate governance mechanism requires the scrutiny of the external environment, including industry competition. Originality/value The present study adds the profitability factor in the calculation of investment efficiency levels. This study also considers external factors that can influence the effectiveness of corporate governance in determining investment efficiency.

The impact of corporate governance performance on the association between information asymmetry and opportunities' optimal levels: evidence from developed markets

“…The equation based on Model (2) shows that corporate governance with the coefficient of 0.0016 (p < 0.05) increases investment efficiency. This finding supports the second hypothesis and is congruent with Chen et al (2017a, b), Lei and Chen (2019) and Bimo et al (2021). Including simultaneously information asymmetry and corporate governance, the equation based on Model (3) confirms the results obtained from the above equations.…”

“…Using a comparable setting -Chinese listed firms, Chen et al (2017a) and Lei and Chen (2019) corroborate this positive link and confirm that corporate governance mechanisms bring about greater monitoring effects on investment efficiency, resulting in the mitigation of investment inefficiency problems. In line with this stream of studies, Bimo et al (2021) use a sample of firms from Indonesia and reconfirm the positive impact of corporate governance on investment efficiency. Observing the influence of corporate governance from a different perspective and using an international setting consisting of 64 countries, Chen et al (2017b) postulate that foreign ownership can enhance the monitoring effects and also can implement stronger corporate governance which in turn can lead to investment efficiency.…”

“…Perusing the previous literature, we identified that this role of corporate governance was almost ignored. For instance, Chen et al (2017a), Lei and Chen (2019) and Bimo et al (2021) primarily focus on the direct link between corporate governance and investment efficiency and did not consider the role corporate governance acts in the connection between the main determinant of JEAS 39,4 investment efficiency (information asymmetry) and investment efficiency. Thus, this paper fills the gap in the literature by investigating the moderating role of corporate governance in the negative association between information asymmetry and investment efficiency.…”

A study of the impact of staggered boards on corporate financialization: from the perspective of board governance

“…On the other hand, intense industry rivalry tends to diminish profit margins for enterprises’ sold products. Moreover, given that management compensation is linked to profits, it may incentivize managers to invest in financial assets for short-term performance improvement ( Bimo et al, 2022 ), thereby increasing the level of corporate financialization.…”

Investment efficiency and environmental, social, and governance reporting: Perspective from corporate integration management

“…Thus, to maximize the monitoring process, which in the end, boosts INVEFF level, we believe that harmonizing the relationship between these functions is essential. Mounting studies document a positive relationship between the integration of corporate governance mechanisms and INVEFF (Bimo et al, 2021; Jin & Yu, 2018; Lei & Chen, 2019).…”