The Good Corporate Governance: Case Study in Indonesia and Philippines

Werner R. Murhadi, Anastasia Handoyo, Endang Ernawati

Abstract


Good corporate governance is critical in reducing conflict between agencies in the workplace. Corporate governance is crucial in developing nations with lax law enforcement. The impact of governance on corporate performance is investigated in this article. This study uses quantitative data from manufacturing companies registered on the Indonesian and Philippine stock exchanges. This study relied on 655 observations from Indonesia and 220 from the Philippines. Corporate governance is measured using independent commissioners, the number of board members, shareholder ownership, and the use of Big Four auditors. This study discovered that independent commissioners, the board size, and block-holders ownership significantly affected the return on assets. Tobin's Q analysis revealed that only Board Size had a significant effect. Unlike Indonesia, the results of this study in the Philippines showed that independent commissioners and block holder ownership significantly impacted the return on assets. On the other hand, this study using Tobin’s Q showed that all independent variables, such as independent commissioners, the board size, block-holders ownership, and big four accounting firms, had a significant effect. The practical implication of the study's findings is that management monitoring by independent commissioners and all commissioners is beneficial in avoiding managers' acts that harm the organization. On the one hand, the number of commissioners sends an excellent signal to the market. Block holder ownership and the usage of big four accounting firms can also strengthen monitoring, improving corporate performance. Companies should have a high proportion of independent commissioners, a modest board size, and use big four accounting firms. Companies can increase their performance and investor trust by applying the above governance components.


Keywords


Corporate Governance; Independent Commisioners; Board Size; Ownership; Financial Performance

Full Text:

PDF

References


Abor, J., & Biekpe, N. (2007). Corporate governance, ownership structure and performance of SMEs in Ghana: implications for financing opportunities. Corporate Governance: The International Journal of Business in Society, 7(3), 288–300. https://doi.org/10.1108/14720700710756562

Afza, T., & Sajid Nazir, M. (2014). Audit Quality and Firm Value: A Case of Pakistana. Research Journal of Applied Sciences, Engineering and Technology, 7(9), 1803–1810. https://doi.org/10.19026/rjaset.7.465

Ahmed, N., & Hadi, O. A. (2017). Impact of Ownership Structure on Firm Performance in the MENA Region: An Empirical Study. Accounting and Finance Research, 6(3), 105. https://doi.org/10.5430/afr.v6n3p105

Al Farooque, O., Buachoom, W., & Sun, L. (2019). Board, audit committee, ownership and financial performance – emerging trends from Thailand. Pacific Accounting Review, 32(1), 54–81. https://doi.org/10.1108/PAR-10-2018-0079

Allen, J. (2020). CG Watch2020: Future Promise Aligning Governance and ESG in Asia. https://www.acga-asia.org/cgwatch-detail.php?id=425

Benková, E., Gallo, P., Balogová, B., & Nemec, J. (2020). Factors Affecting the Use of Balanced Scorecard in Measuring Company Performance. Sustainability, 12(3), 1178. https://doi.org/10.3390/su12031178

Bennedsen, M., Kongsted, H. C., & Nielsen, K. M. (2008). The causal effect of board size in the performance of small and medium-sized firms. Journal of Banking & Finance, 32(6), 1098–1109. https://doi.org/10.1016/j.jbankfin.2007.09.016

Berglund, N. R., Eshleman, J. D., & Guo, P. (2018). Auditor Size and Going Concern Reporting. AUDITING: A Journal of Practice & Theory, 37(2), 1–25. https://doi.org/10.2308/ajpt-51786

Chen, Y. (2010). Agency issues and the effects of corporate governance mechanisms on agency costs in Chinese listed companies [Doctoral Dissertation, Cardiff University, Cardiff, United Kingdom]. https://www.proquest.com/openview/16844265bb8f91feb0815b66b77f74b4/1?cbl=2026366&pq-origsite=gscholar&parentSessionId=WWaoDQoA72dxd3YKPOKgB3QEGcGLVQZxYHMMguNeqxo%3D

Cho, D., & Kim, J. (2007). Outside Directors, Ownership Structure and Firm Profitability in Korea. Corporate Governance: An International Review, 15(2), 239–250. https://doi.org/10.1111/j.1467-8683.2007.00557.x

Choi, J., Lim, H., & Mali, D. (2017). Mandatory Audit Firm Rotation and Big4 Effect on Audit Quality: Evidence from South Korea. Asian Academy of Management Journal of Accounting and Finance, 13(1), 1–40. https://doi.org/10.21315/aamjaf2017.13.1.1

Chu, W. (2011). Family ownership and firm performance: Influence of family management, family control, and firm size. Asia Pacific Journal of Management, 28(4), 833–851. https://doi.org/10.1007/s10490-009-9180-1

Dalton, D. R., Daily, C. M., Johnson, J. L., & Ellstrand, A. E. (1999). Number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42(6), 674–686. https://doi.org/10.2307/256988

Darko, J., Aribi, Z. A., & Uzonwanne, G. C. (2016). Corporate governance: the impact of director and board structure, ownership structure and corporate control on the performance of listed companies on the Ghana stock exchange. Corporate Governance, 16(2), 259–277. https://doi.org/10.1108/CG-11-2014-0133

DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183–199. https://doi.org/10.1016/0165-4101(81)90002-1

Elewa, M. M., & El-Haddad, R. (2019). The Effect of Audit Quality on Firm Performance: A Panel Data Approach. International Journal of Accounting and Financial Reporting, 9(1), 229. https://doi.org/10.5296/ijafr.v9i1.14163

Farooq, M. A., & Masood, A. (2016). Impact of Financial Leverage on Value of Firms: Evidence from Cement Sector of Pakistan. Research Journal of Finance and Accounting2, 7(9).

Fauzi, F., & Locke, S. (2012). Board Structure, Ownership Structure and Firm Performance: A Study of New Zealand Listed-Firms. Asian Academy of Management Journal of Accounting and Finance, 8(2), 43–67.

Fuzi, S. F. S., Halim, S. A. A., & Julizaerma, M. K. (2016). Board Independence and Firm Performance. Procedia Economics and Finance, 37, 460–465. https://doi.org/10.1016/S2212-5671(16)30152-6

García Martín, C. J., & Herrero, B. (2018). Boards of directors: composition and effects on the performance of the firm. Economic Research-Ekonomska Istraživanja, 31(1), 1015–1041. https://doi.org/10.1080/1331677X.2018.1436454

Gimbert, X., Bisbe, J., & Mendoza, X. (2010). The Role of Performance Measurement Systems in Strategy Formulation Processes. Long Range Planning, 43(4), 477–497. https://doi.org/10.1016/j.lrp.2010.01.001

Goodstein, J., Gautam, K., & Boeker, W. (1994). The effects of board size and diversity on strategic change. Strategic Management Journal, 15(3), 241–250. https://doi.org/10.1002/smj.4250150305

Guest, P. M. (2009). The impact of board size on firm performance: evidence from the UK. The European Journal of Finance, 15(4), 385–404. https://doi.org/10.1080/13518470802466121

Haniffa, R., & Hudaib, M. (2006). Corporate Governance Structure and Performance of Malaysian Listed Companies. Journal of Business Finance & Accounting, 33(7–8), 1034–1062. https://doi.org/10.1111/j.1468-5957.2006.00594.x

Hermalin, B. E., & Weisbach, M. S. (1991). The Effects of Board Composition and Direct Incentives on Firm Performance. Financial Management, 20(4), 101. http://doi.wiley.com/10.2307/3665716

Hermawan, B. W., Murhadi, W. R., & Ernawati, E. (2022). Does Corporate Governance Affect Dividends? Case Study in Indonesia Stock Exchange and Malaysia Stock Exchange. Journal of Entrepreneurship & Business, 3(1), 14–23. https://doi.org/10.24123/jeb.v3i1.4702

Hu, Y., & Izumida, S. (2008). Ownership Concentration and Corporate Performance: A Causal Analysis with Japanese Panel Data. Corporate Governance: An International Review, 16(4), 342–358. https://doi.org/10.1111/j.1467-8683.2008.00690.x

Ibrahimy, A. I., & Ahmad, R. (2020). Blockholder Ownership as Governance Mechanism on Firm Performance: Evidence From Malaysia. International Journal of Business Administration, 11(1), 27. https://doi.org/10.5430/ijba.v11n1p27

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. https://doi.org/10.1016/0304-405X(76)90026-X

Kabir, M. H., Sharma, D., Islam, A., & Salat, A. (2011). Big 4 auditor affiliation and accruals quality in Bangladesh. Managerial Auditing Journal, 26(2), 161–181. https://doi.org/10.1108/02686901111095029

Kallamu, B. S. (2016). Ownership structure, independent directors and firm performance. E3 Journal of Business Management and Economics, 7(1), 019–028. https://doi.org/10.18685/EJBME(7)1_EJBME-15-012

Kalsie, A., & Shrivastav, S. M. (2016). Analysis of Board Size and Firm Performance: Evidence from NSE Companies Using Panel Data Approach. Indian Journal of Corporate Governance, 9(2), 148–172. https://doi.org/10.1177/0974686216666456

Kao, M.-F., Hodgkinson, L., & Jaafar, A. (2019). Ownership structure, board of directors and firm performance: evidence from Taiwan. Corporate Governance: The International Journal of Business in Society, 19(1), 189–216. https://doi.org/10.1108/CG-04-2018-0144

Kapopoulos, P., & Lazaretou, S. (2007). Corporate Ownership Structure and Firm Performance: evidence from Greek firms. Corporate Governance: An International Review, 15(2), 144–158. https://doi.org/10.1111/j.1467-8683.2007.00551.x

Khan, M. N., Parksh, R., Shamim, M., & Ali, S. (2021). Does Audit Quality Matter for Firm Performance? Empirical Evidence from Pakistani Public Listed Companies. Elementary Education Online, 20(5).

Lukito, E. N., Murhadi, W. R., & Wijaya, L. I. (2024). Good Corporate Governance In Non-Financial Sector Companies On The Indonesian Stock Exchange. JIAFE (Jurnal Ilmiah Akuntansi Fakultas Ekonomi), 10(1).

Mak, Y. T., & Kusnadi, Y. (2005). Size really matters: Further evidence on the negative relationship between board size and firm value. Pacific-Basin Finance Journal, 13(3), 301–318. https://doi.org/10.1016/j.pacfin.2004.09.002

Murhadi, W. R. (2021). The Effects of Corporate Governance on Company Performance and Dividends in Three Asean Countries. Media Ekonomi Dan Manajemen, 36(2), 230. https://doi.org/10.24856/mem.v36i2.2224

Murhadi, W. R., Azaria, D., & Silvia Sutedjo, B. (2021). Board Diversity and Financial Performance in Indonesia. Journal of Entrepreneurship & Business, 2(2), 86–95. https://doi.org/10.24123/jeb.v2i2.4537

Nam, S.-W., & Nam, I. C. (2004). Corporate governance in Asia: recent evidence from Indonesia, Republic of Korea, Malaysia, and Thailand. Asian Development Bank Institute. https://www.adb.org/sites/default/files/publication/159384/adbi-corp-gov-asia.pdf

Nguyen, T., Locke, S., & Reddy, K. (2014). A dynamic estimation of governance structures and financial performance for Singaporean companies. Economic Modelling, 40, 1–11. https://doi.org/10.1016/j.econmod.2014.03.013

Nindita, C., & Siregar, S. V. (2013). Analisis Pengaruh Ukuran Kantor Akuntan Publik Terhadap Kualitas Audit di Indonesia. Jurnal Akuntansi Dan Keuangan, 14(2). https://doi.org/10.9744/jak.14.2.91-104

Ntim, C. G., Opong, K. K., & Danbolt, J. (2015). Board size, corporate regulations and firm valuation in an emerging market: a simultaneous equation approach. International Review of Applied Economics, 29(2), 194–220. https://doi.org/10.1080/02692171.2014.983048

Octosiva, F., Theresia, M., & Hidayat, A. A. (2018). Pengaruh Independensi, Kompetensi, dan Partisipasi Dewan Komisaris terhadap Kinerja Keuangan Perusahaan. Studi Akuntansi Dan Keuangan Indonesia, 1(2), 158–203. https://doi.org/10.21632/saki.1.2.158-203

Perdana, R. S., & Rahardja, R. (2014). Analisis Pengaruh Corporate Governance terhadap Nilai Perusahaan. Diponegoro Journal of Accounting, 3(3).

Raboshuk, A., Zakharov, D., Lehenchuk, S., Morgulets, O., & Hryhorevska, O. (2023). The relationship between corporate governance mechanisms and financial performance: The case of listed industrial companies in Oman. Investment Management and Financial Innovations, 20(2), 244–255. https://doi.org/10.21511/imfi.20(2).2023.21

Rashid, A. (2018). Board independence and firm performance: Evidence from Bangladesh. Future Business Journal, 4(1), 34–49. https://doi.org/10.1016/j.fbj.2017.11.003

Sattar, U., Javeed, S. A., & Latief, R. (2020). How Audit Quality Affects the Firm Performance with the Moderating Role of the Product Market Competition: Empirical Evidence from Pakistani Manufacturing Firms. Sustainability, 12(10), 4153. https://doi.org/10.3390/su12104153

Shome, D. K., & Singh, S. (1995). Firm Value and External Blockholdings. Financial Management, 24(4), 3. https://doi.org/10.2307/3665947

Taouab, O., & Issor, Z. (2019). Firm Performance: Definition and Measurement Models. European Scientific Journal ESJ, 15(1). https://doi.org/10.19044/esj.2019.v15n1p93

Taufiq, M., & Fadila, D. (2021). Analysis of Governance Diversity and Audit Characteristics on Profitability. Journal of Applied Accounting and Taxation, 6(1), 71–78. https://doi.org/10.30871/jaat.v6i1.2872

Thomsen, S., Pedersen, T., & Kvist, H. K. (2006). Blockholder ownership: Effects on firm value in market and control based governance systems. Journal of Corporate Finance, 12(2), 246–269. https://doi.org/10.1016/j.jcorpfin.2005.03.001

Vaidya, P. N. (2019). Board Size and Firm Performance: a Study on Bse 100 Companies. Journal of Management, 10(3). https://doi.org/10.34218/jom.6.3.2019.013

Vintila, G., & Gherghina, S. C. (2012). An Empirical Investigation of the Relationship between Corporate Governance Mechanisms, CEO Characteristics and Listed Companies’ Performance. International Business Research, 5(10). https://doi.org/10.5539/ibr.v5n10p175

Vo, X. V. (2019). Leverage and corporate investment – Evidence from Vietnam. Finance Research Letters, 28, 1–5. https://doi.org/10.1016/j.frl.2018.03.005

Waggoner, D. B., Neely, A. D., & P. Kennerley, M. (1999). The forces that shape organisational performance measurement systems: International Journal of Production Economics, 60–61, 53–60. https://doi.org/10.1016/S0925-5273(98)00201-1

Wirawardhana, I., & Sitardja, M. (2019). Analisis Pengaruh Kepemilikan Blockholder, Kepemilikan Manajerial, Kepemilikan Institusional, dan Komite Audit terhadap Nilai Perusahaan. Indonesian Journal of Accounting and Governance, 2(1), 96–121. https://doi.org/10.36766/ijag.v2i1.15

Wulandari, N. (2006). Pengaruh Indikator Mekanisme Corporate Governance terhadap Kinerja Perusahaan Publik di Indonesia. Fokus Ekonomi: Jurnal Ilmiah Ekonomi, 1(2).

Yuliani, Y., & Muizuddin, M. (2014). Kepemilikan Blockholder, Investment Opportunity Set, Rasio Likuiditas, Dan Nilai Perusahaan. Jurnal Keuangan Dan Perbankan, 18(2).

Zhuang, J. (1999). Some Conceptual Issues of Corporate Governance (Number 13; EDRC Briefing Notes Number 13). https://www.adb.org/sites/default/files/publication/28052/bn013.pdf




DOI: https://doi.org/10.18196/jbti.v15i1.19871

Refbacks

  • There are currently no refbacks.


JBTI : Jurnal Bisnis : Teori dan Implementasi terindex:
 
 

Lihat Statistik Jurnal View MyStat

 
Office:
Magister of Managemet Postgraduate Building 2nd Floor UMY
Jl. Brawijaya, Tamantirto, Kasihan, Bantul, Daerah Istimewa Yogyakarta, Indonesia
Phone: +62 274 387 656 Ext. 133
WA : +62 815-8758-702
E-mail: jbti@umy.university


This work is licensed under Attribution-NonCommercial-NoDerivatives 4.0 International