Gestão & Produção
https://www.gestaoeproducao.com/article/doi/10.1590/1806-9649-2022v29e7322
Gestão & Produção
Artigo Original

Do corporate governance drive firm performance? Evidence from Indonesia

Arumega Zarefar; I Made Narsa

Downloads: 3
Views: 520

Abstract

Abstract:: This study examines the effect of audit committee characteristics and board diversity on the performance of companies in Indonesia. In addition, this research also explores the effect of the audit committee's characteristics and the board's diversity on the company's performance in various age classifications. The study involves 170 samples of primary and secondary sector firms registered on the Indonesian Stock Exchange from 2014 to 2020, analyzed by data panel regression analysis. The study's main findings disclosed that the audit committee's size and the competence of the financial audit committee are positively influencing the market-based firm performance. However, it does not significantly affect the audit committee's meeting frequency regarding the market-based strong performance. Furthermore, the study discloses that foreign and board gender positively influences market-based firm performance. Such findings benefit policymakers in developing appropriate governance mechanisms in the Indonesian market as a developing country. To the best author's knowledge, this study is the first to comprehensively analyze the association between audit committee characteristics and board diversity on market-based firm performance. Furthermore, no previous study conducted additional analyzes based on firm age in the Indonesian context.

Keywords

Strategy and Organization, Firm performance, Audit committee, Quality Management, Good corporate governance

Referências

Abad, C., & Bravo, F. (2018). Audit committee accounting expertise and forward-looking disclosures. Management Research Review, 41(2), 166-185. http://dx.doi.org/10.1108/MRR-02-2017-0046.

Agyemang, O. S., Aboagye, E., & Frimpong, J. (2015). Left to their fate: rights of minority equity holders in Ghanaian firms. Society and Business Review, 10(1), 40-66. http://dx.doi.org/10.1108/SBR-08-2014-0040.

Agyemang-Mintah, P., & Schadewitz, H. (2018). Audit committee adoption and firm value: evidence from UK financial institutions. International Journal of Accounting & Information & Management, 26(1), 205-226. http://dx.doi.org/10.1108/IJAIM-04-2017-0048.

Agyemang-Mintah, P., & Schadewitz, H. (2019). Gender diversity and firm value: evidence from UK financial institutions. International Journal of Accounting & Information & Management, 27(1), 2-26. http://dx.doi.org/10.1108/IJAIM-06-2017-0073.

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. http://dx.doi.org/10.1108/PAR-10-2018-0079.

Al-ahdal, W. M., Alsamhi, M. H., Tabash, M. I., & Farhan, N. H. S. (2020). The impact of corporate governance on financial performance of Indian and GCC listed firms: an empirical investigation. Research in International Business and Finance, 51, 101083. http://dx.doi.org/10.1016/j.ribaf.2019.101083.

Alderman, J., & Jollineau, S. J. (2020). Can audit committee expertise increase external auditors’ litigation risk? The moderating effect of audit committee independence. Contemporary Accounting Research, 37(2), 717-740. http://dx.doi.org/10.1111/1911-3846.12549.

Aldhamari, R., Mohamad Nor, M. N., Boudiab, M., & Mas’ud, A. (2020). The impact of political connection and risk committee on corporate financial performance: evidence from financial firms in Malaysia. Corporate Governance (Bradford), 20(7), 1281-1305. http://dx.doi.org/10.1108/CG-04-2020-0122.

Al-Matari, Y. (2022). Audit committee chairman characteristics and corporate performance: empirical evidence from Saudi Arabia. Accounting, 8(1), 47-56. http://dx.doi.org/10.5267/j.ac.2021.6.007.

Al-Najjar, B., & Clark, E. (2017). Corporate governance and cash holdings in MENA: evidence from internal and external governance practices. Research in International Business and Finance, 39, 1-12. http://dx.doi.org/10.1016/j.ribaf.2016.07.030.

Al-Okaily, J., & Naueihed, S. (2019). Audit committee effectiveness and family firms: impact on performance. Management Decision, 58(6), 1021-1034. http://dx.doi.org/10.1108/MD-04-2018-0422.

Ararat, M., & Yurtoglu, B. B. (2021). Female directors, board committees, and firm performance: time-series evidence from Turkey. Emerging Markets Review, 48, 100768. http://dx.doi.org/10.1016/j.ememar.2020.100768.

Arora, A., & Sharma, C. (2016). Corporate governance and firm performance in developing countries: evidence from India. Corporate Governance (Bradford), 16(2), 420-436. http://dx.doi.org/10.1108/CG-01-2016-0018.

Ashari, S., & Krismiaji, K. (2020). Audit committee characteristics and financial performance: Indonesian evidence. Equity, 22(2), 139-152. http://dx.doi.org/10.34209/equ.v22i2.1326.

Aslam, E., & Haron, R. (2020). Does corporate governance affect the performance of Islamic banks? New insight into Islamic countries. Corporate Governance (Bradford), 20(6), 1073-1090. http://dx.doi.org/10.1108/CG-11-2019-0350.

Assenga, M. P., Aly, D., & Hussainey, K. (2018). The impact of board characteristics on the financial performance of Tanzanian firms. Corporate Governance (Bradford), 18(6), 1089-1106. http://dx.doi.org/10.1108/CG-09-2016-0174.

Bajra, U., & Čadež, S. (2018). Audit committees and financial reporting quality: The 8th EU Company Law Directive perspective. Economic Systems, 42(1), 151-163. http://dx.doi.org/10.1016/j.ecosys.2017.03.002.

Bansal, N., & Sharma, A. K. (2016). Audit Committee, corporate governance and firm performance: empirical evidence from India. International Journal of Economics and Finance, 8(3), 103. http://dx.doi.org/10.5539/ijef.v8n3p103.

Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of Corporate Finance, 14(3), 257-273. http://dx.doi.org/10.1016/j.jcorpfin.2008.03.006.

Bishop, C. C., DeZoort, F. T., & Hermanson, D. R. (2016). The effect of CEO social influence pressure and CFO accounting experience on CFO financial reporting decisions. Auditing: A Journal of Practice & Theory, 36(1), 21-41. http://dx.doi.org/10.2308/ajpt-51507.

Borlea, S. N., Achim, M. V., & Mare, C. (2017). Board characteristics and firm performances in emerging economies. Lessons from Romania. Ekonomska Istrazivanja, 30(1), 55-75. http://dx.doi.org/10.1080/1331677X.2017.1291359.

Chakroun, S., Salhi, B., Ben Amar, A., & Jarboui, A. (2020). The impact of ISO 26000 social responsibility standard adoption on firm financial performance: evidence from France. Management Research Review, 43(5), 545-571. http://dx.doi.org/10.1108/MRR-02-2019-0054.

Chiu, J., Chung, H., & Hung, S. C. (2021). Voluntary adoption of audit committees, ownership structure and firm performance: evidence from Taiwan. Emerging Markets Finance & Trade, 57(5), 1514-1542. http://dx.doi.org/10.1080/1540496X.2019.1635449.

Coleman, M., & Wu, M. (2020). Corporate governance mechanisms and corporate performance of firms in Nigeria and Ghana. International Journal of Productivity and Performance Management, 70(8), 2319-2351. http://dx.doi.org/10.1108/IJPPM-01-2020-0020.

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 (Bradford), 16(2), 259-277. http://dx.doi.org/10.1108/CG-11-2014-0133.

Detthamrong, U., Chancharat, N., & Vithessonthi, C. (2017). Corporate governance, capital structure and firm performance: evidence from Thailand. Research in International Business and Finance, 42, 689-709. http://dx.doi.org/10.1016/j.ribaf.2017.07.011.

El Diri, M., Lambrinoudakis, C., & Alhadab, M. (2020). Corporate governance and earnings management in concentrated markets. Journal of Business Research, 108, 291-306. http://dx.doi.org/10.1016/j.jbusres.2019.11.013.

Eluyela, D. F., Akintimehin, O. O., Okere, W., Ozordi, E., Osuma, G. O., Ilogho, S. O., & Oladipo, O. A. (2018). Board meeting frequency and firm performance: examining the nexus in Nigerian deposit money banks. Heliyon, 4(10), e00850. http://dx.doi.org/10.1016/j.heliyon.2018.e00850.

Farber, D. B., Huang, S. X., & Mauldin, E. (2016). Audit Committee Accounting Expertise, analyst following, and market liquidity. Journal of Accounting, Auditing & Finance, 33(2), 174-199. http://dx.doi.org/10.1177/0148558X16663090.

Fauzi, F., Basyith, A., & Foo, D. (2017). Committee on board: does it matter? A study of Indonesian Sharia-listed firms. Cogent Economics & Finance, 5(1), 1. http://dx.doi.org/10.1080/23322039.2017.1316547.

Harkin, S. M., Mare, D. S., & Crook, J. N. (2020). Independence in bank governance structure: empirical evidence of effects on bank risk and performance. Research in International Business and Finance, 52, 101177. http://dx.doi.org/10.1016/j.ribaf.2019.101177.

Harun, M. S., Hussainey, K., Mohd Kharuddin, K. A., & Farooque, O. A. (2020). CSR disclosure, corporate governance and firm value: a study on GCC Islamic Banks. International Journal of Accounting and Information & Management, 28(4), 607-638. http://dx.doi.org/10.1108/IJAIM-08-2019-0103.

Ibrahim, A. H., & Hanefah, M. M. (2016). Board diversity and corporate social responsibility in Jordan. Journal of Financial Reporting and Accounting, 14(2), 279-298. http://dx.doi.org/10.1108/JFRA-06-2015-0065.

Imamah, N., Lin, T.-J., Suhadak, Handayani, S. R., & Hung, J.-H. (2019). Islamic law, corporate governance, growth opportunities and dividend policy in Indonesia stock market. Pacific-Basin Finance Journal, 55, 110-126. http://dx.doi.org/10.1016/j.pacfin.2019.03.008.

Inaam, Z., & Khamoussi, H. (2016). Audit committee effectiveness, audit quality and earnings management: a meta-analysis. International Journal of Law and Management, 58(2), 179-196. http://dx.doi.org/10.1108/IJLMA-01-2015-0006.

Johnson, S., Boone, P., Breach, A., & Friedman, E. (2000). Corporate governance in the Asian financial crisis. Journal of Financial Economics, 58(1-2), 141-186. http://dx.doi.org/10.1016/S0304-405X(00)00069-6.

Kao, M. F., Hodgkinson, L., & Jaafar, A. (2019). Ownership structure, board of directors and firm performance: evidence from Taiwan. Corporate Governance (Bradford), 19(1), 189-216. http://dx.doi.org/10.1108/CG-04-2018-0144.

Kim, H., Kwak, B., Lim, Y., & Yu, J. (2015). Audit committee accounting expertise, CEO power, and audit pricing. Asia-Pacific Journal of Accounting and Economics, 24(3-4), 421-439. http://dx.doi.org/10.1080/16081625.2015.1105753.

Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of Accounting and Economics, 33(3), 375-400. http://dx.doi.org/10.1016/S0165-4101(02)00059-9.

Kyere, M., & Ausloos, M. (2020). Corporate governance and firms financial performance in the United Kingdom. International Journal of Finance & Economics, 26(2), 1871-1885. http://dx.doi.org/10.1002/ijfe.1883.

La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and finance. Journal of Political Economy, 106(6), 1113-1155. http://dx.doi.org/10.1086/250042.

Liang, D., Tsai, C.-F., Lu, H.-Y., & Chang, L.-S. (2020). Combining corporate governance indicators with stacking ensembles for financial distress prediction. Journal of Business Research, 120, 137-146. http://dx.doi.org/10.1016/j.jbusres.2020.07.052.

Meah, M. R., Sen, K. K., & Ali, M. H. (2021). Audit characteristics, gender diversity and firm performance: evidence from a developing economy. Indian Journal of Corporate Governance, 14(1), 48-70. http://dx.doi.org/10.1177/09746862211007244.

Mi Choi, H., Sul, W., & Kee Min, S. (2012). Foreign board membership and firm value in Korea. Management Decision, 50(2), 207-233. http://dx.doi.org/10.1108/00251741211203533.

Miglani, S., Ahmed, K., & Henry, D. (2015). Voluntary corporate governance structure and financial distress: evidence from Australia. Journal of Contemporary Accounting & Economics, 11(1), 18-30. http://dx.doi.org/10.1016/j.jcae.2014.12.005.

Mishra, R., & Kapil, S. (2017). Effect of ownership structure and board structure on firm value: evidence from India. Corporate Governance (Bradford), 17(4), 700-726. http://dx.doi.org/10.1108/CG-03-2016-0059.

Mitton, T. (2002). A cross-firm analysis of the impact of corporate governance on the East Asian financial crisis. Journal of Financial Economics, 64(2), 215-241. http://dx.doi.org/10.1016/S0304-405X(02)00076-4.

Musallam, S. R. M. (2020). Effects of board characteristics, audit committee and risk management on corporate performance: evidence from Palestinian listed companies. International Journal of Islamic and Middle Eastern Finance and Management, 13(4), 691-706. http://dx.doi.org/10.1108/IMEFM-12-2017-0347.

Muttakin, M. B., Khan, A., & Subramaniam, N. (2015). Firm characteristics, board diversity and corporate social responsibility: evidence from Bangladesh. Pacific Accounting Review, 27(3), 353-372. http://dx.doi.org/10.1108/PAR-01-2013-0007.

Nawawi, A. H. T., Agustia, D., Lusnadi, G. M., & Fauzi, H. (2020). Disclosure of sustainability report mediating good corporate governance mechanism on stock performance. Journal of Security and Sustainability Issues, 9, 151-170. http://dx.doi.org/10.9770/jssi.2020.9.J(12).

Ntim, C. G. (2013). Board diversity and organizational valuation: unravelling the effects of ethnicity and gender. The Journal of Management & Governance, 19(1), 167-195. http://dx.doi.org/10.1007/s10997-013-9283-4.

Oussii, A. A., Klibi, M. F., & Ouertani, I. (2019). Audit committee role: formal rituals or effective oversight process? Managerial Auditing Journal, 34(6), 673-695. http://dx.doi.org/10.1108/MAJ-11-2017-1708.

Puni, A., & Anlesinya, A. (2020). Corporate governance mechanisms and firm performance in a developing country. International Journal of Law and Management, 62(2), 147-169. http://dx.doi.org/10.1108/IJLMA-03-2019-0076.

Rodrigues, R., Samagaio, A., & Felício, T. (2020). Corporate governance and R&D investment by European listed companies. Journal of Business Research, 115, 289-295. http://dx.doi.org/10.1016/j.jbusres.2019.11.070.

Rosser, A. (2003). Coalitions, convergence and corporate governance reform in Indonesia. Third World Quarterly, 24(2), 319-337. http://dx.doi.org/10.1080/0143659032000074619.

Said, R., Joseph, C., & Mohd Sidek, N. Z. (2017). Corporate governance and corporate social responsibility (CSR) disclosure: the moderating role of cultural values. Developments in Corporate Governance and Responsibility, 12, 189-206. http://dx.doi.org/10.1108/S2043-052320170000012013.

Salehi, M., Tahervafaei, M., & Tarighi, H. (2018). The effect of characteristics of audit committee and board on corporate profitability in Iran. Journal of Economic and Administrative Sciences, 34(1), 71-88. http://dx.doi.org/10.1108/JEAS-04-2017-0017.

Salleh, Z., & Stewart, J. (2012). The impact of expertise on the mediating role of the audit committee. Managerial Auditing Journal, 27(4), 378-402. http://dx.doi.org/10.1108/02686901211217987.

Sarhan, A. A., Ntim, C. G., & Al‐Najjar, B. (2018). Board diversity, corporate governance, corporate performance, and executive pay. International Journal of Finance & Economics, 24(2), 761-786. http://dx.doi.org/10.1002/ijfe.1690.

Setyahadi, R. R., & Narsa, I. M. (2020). Corporate governance and sustainability in Indonesia. Corporate Governance and Sustainability in Indonesia., 7(12), 885-894. http://dx.doi.org/10.13106/jafeb.2020.vol7.no12.885.

Siagian, D., & Siregar, S. V. (2018). The effect of audit committee financial expertise and relative status on earnings management: case of Indonesia. Jurnal Akuntansi, 22(3), 321-336. http://dx.doi.org/10.24912/ja.v22i3.391.

Suhadak, S., Mangesti Rahayu, S., & Handayani, S. R. (2019). GCG, financial architecture on stock return, financial performance and corporate value. International Journal of Productivity and Performance Management, 69(9), 1813-1831. http://dx.doi.org/10.1108/IJPPM-09-2017-0224.

Tanjung, M. (2020). A cross-firm analysis of corporate governance compliance and performance in Indonesia. Managerial Auditing Journal, 35(5), 621-643. http://dx.doi.org/10.1108/MAJ-06-2019-2328.

Tjahjadi, B., Soewarno, N., & Mustikaningtiyas, F. (2021). Good corporate governance and corporate sustainability performance in Indonesia: a triple bottom line approach. Heliyon, 7(3), e06453. http://dx.doi.org/10.1016/j.heliyon.2021.e06453.

Utama, C. A., Utama, S., & Amarullah, F. (2017). Corporate governance and ownership structure: Indonesia evidence. Corporate Governance (Bradford), 17(2), 165-191. http://dx.doi.org/10.1108/CG-12-2015-0171.

Wahyudin, A., & Solikhah, B. (2017). Corporate governance implementation rating in Indonesia and its effects on financial performance. Corporate Governance (Bradford), 17(2), 250-265. http://dx.doi.org/10.1108/CG-02-2016-0034.

Worokinasih, S., & Zaini, M. (2020). The Mediating Role of Corporate Social Responsibility (CSR) disclosure on Good Corporate Governance (GCG) and firm value. A Technical Note. Australasian Accounting, Business and Finance Journal, 14(1), 88-96. http://dx.doi.org/10.14453/aabfj.v14i1.9.

Yasser, Q. R., Al Mamun, A., & Rodrigs, M. (2017). Impact of board structure on firm performance: evidence from an emerging economy. Journal of Asia Business Studies, 11(2), 210-228. http://dx.doi.org/10.1108/JABS-06-2015-0067.
 

642dcee4a95395763c13ac47 gp Articles

Gest. Prod.

Share this page
Page Sections