Factors Affecting Firm Performance: Does Corporate Governance Implementation Matter?
Keywords:Corporate Governance, Board Meeting, Board Size, Firm Performance, Non-Financial Sectors
Purpose – This study aims to investigate the impact of corporate governance implementation on the dynamics of firm performance in the non-financial sector firms listed on the Indonesia Stock Exchange (IDX).
Methodology/approach – This study uses secondary data from the financial statements of non-financial sector firms, between 2010 and 2018. The number of samples that met the established criteria was 88 firms, which were further analyzed using panel regression analysis common effect model.
Findings – This study concludes that the implementation of corporate governance (board meeting and board size) in the non-financial sector, has a positive impact on firm performance. Low frequency of board meetings will worsen firm performance, whereas a high frequency of board meetings can improve company performance. In addition, financial information (i.e., leverage, sales growth, and asset turnover), and firm size has a significant impact on firm performance.
Novelty/value – This study contributes to providing more general and robust conclusion regarding the effect of implementing corporate governance mechanisms on firm performance listed on IDX, especially in non-financial sector.
Abu-Abbas, B. M., Alhmoud, T., & Algazo, F. A. (2019). Financial leverage and firm performance evidence from amman stock exchange. European Journal of Comparative Economics, 16(2), 207–237. https://doi.org/10.25428/1824-2979/201902-207-237
Adam, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291–309. https://doi.org/10.1016/j.jfineco.2008.10.007
Agustiningsih, S. W., Sulistyaningsih, C. R., & Purwanto, P. (2016). Pengaruh penerapan corporate governance terhadap kinerja keuangan perusahaan di Indonesia. Jurnal Akuntansi Dan Bisnis, 16(1), 27–36. https://doi.org/10.20961/jab.v16i1.188
Alarussi, A. S. A., & Alhaderi, S. M. (2018). Factors affecting profitability in Malaysia. Journal of Economic Studies, 45(3), 442–458. https://doi.org/10.1108/JES-05-2017-0124
Amran, A., Ishak, M. S., Zulkafli, A. H., & Nejati, M. (2010). Board structure and extent of corporate governance statement. International Journal of Managerial and Financial Accounting, 2(4), 383–400. https://doi.org/10.1504/IJMFA.2010.035639
Andreas, & Zarefar, A. (2022). Corporate Governance and Sustainability in Indonesia: The Moderating Role of Institutional Ownership. Jurnal Dinamika Akuntansi, 14(2), 98–109. https://doi.org/10.15294/jda.v14i2.37064
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), 1916–1971. https://doi.org/10.5539/ijef.v8n3p103
Batool, A., & Sahi, A. (2019). Determinants of Financial Performance of Insurance Companies of USA and UK during Global Financial Crisis (2007-2016). International Journal of Accounting Research, 07(01), 1–9. https://doi.org/10.35248/2472-114x.19.7.194
Bello, U., & Abu, M. M. (2021). Shareholder and Stakeholder Theories. Understanding Corporate Governance Practice. Nile Journal of Business and Economics, 7(17), 93–99. https://doi.org/10.20321/nilejbe.v7i17.05
Bhattacharya, R. R. B. S. (2015). Board structure and firm performance in Indian IT firms. Journal of Advances in Management Research, 12(3), 232–248. https://doi.org/10.1108/JAMR-07-2014-0042
Bolarinwa, S. T., Akinlo, A. E., & Onyekwelu, U. L. (2021). Determinants of firm profitability in Africa. Global Business Review. https://doi.org/10.1177/09721509211046336
Brick, I. E., & Chidambaran, N. (2010). Board meetings, committee structure, and firm value. Journal of Corporate Finance, 16(4), 533–553. https://doi.org/10.1016/j.jcorpfin.2010.06.003
Buachoom, W. (2018). How Do Board Structures of Thai Firms Influence on Different Quantile Levels of Firm Performance? Advances in Pacific Basin Business, Economics and Finance, 6, 157–189. https://doi.org/10.1108/S2514-465020180000006004
Bustani, B. (2020). The effect of return on asset (ROA), net profit margin (NPM), dividend payout ratio (DPR), and divident yield (DY) on stock prices in the sub-sector insurance company listed in Indonesia stock exchange period 2015-2018. Ilomata International Journal of Tax & Accounting, 1(3), 170–178.
Chang, X., Chen, Y., & Dasgupta, S. (2019). Macroeconomic conditions, financial constraints, and firms’ financing decisions. Journal of Banking & Finance, 101, 242 – 255. https://doi.org/10.1016/j.jbankfin.2018.10.016
Dawar, V. (2014). Agency theory, capital structure and firm performance: some Indian evidence. Managerial Finance, 40(12), 1190 – 1206. https://doi.org/10.1108/MF-10-2013-0275
Deitiana, T. (2011). The effect of financial ratios, sales growth and dividends is limited stock prices. Journal of Business and Accounting, 13(1), 57–65.
Doan, T.-T. T. (2020). Financing decision and firm performance: Evidence from an emerging country. Management Science Letters, 10, 849 – 854. https://doi.org/10.5267/j.msl.2019.10.012
Donaldson, T., & Preston, L. (1995). The stakeholder theory of the corporation: Concepts, evidence, and implications. The Academy of Management Review, 20(1), 65–91.
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). https://doi.org/10.1016/j.heliyon.2018.e00850
Etale, L. M., Ochuba, I. S., & Sawyerr, A. E. (2021). Social cost accounting and profitability of Glaxo Smith Kline Nigeria Plc. listed on the NSE. European Journal of Business and Innovation Research, 9(1), 31–52. https://ssrn.com/abstract=3781610
Evita, & Christina, S. (2019). Do corporate governance, firm characteristics, and financial ratio affect firm performance? Proceedings of the 5th Sebelas Maret International Conference on Business, Economics and Social Sciences, 117–123.
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301 – 325. https://doi.org/10.1086/467037
Foss, N., & Stea, D. (2014). Putting a realistic theory of Mind into agency theory: Implications for reward design and management in principal agent relations. European Management Review, 11(1), 101–116. https://doi.org/10.1111/emre.12026
Freudenreich, B., Lüdeke-Freund, F., & Schaltegger, S. (2020). A Stakeholder Theory Perspective on Business Models: Value Creation for Sustainability. Journal of Business Ethics, 166(1), 3–18. https://doi.org/10.1007/s10551-019-04112-z
García-Ramos, R., & García-Olalla, M. (2011). Board characteristics and firm performance in public founder- and nonfounder-led family businesses. Journal of Family Business Strategy, 2(4), 220–231. https://doi.org/10.1016/j.jfbs.2011.09.001
Grozdic, V., Marić, B., Radišić, M., Šebestová, J., & Lis, M. (2020). Capital Investments and Manufacturing Firms’ Performance: Panel-Data Analysis. Sustainability, 12(1689).
Halkos, G. E., & Tzeremes, N. G. (2007). Productivity efficiency and firm size: An empirical analysis of foreign owned companies. International Business Review, 16(6), 713–731. https://doi.org/10.1016/j.ibusrev.2007.06.002
Hamad, S., Draz, M. U., & Lai, F. W. (2020). The Impact of Corporate Governance and Sustainability Reporting on Integrated Reporting: A Conceptual Framework. SAGE Open, 10(2). https://doi.org/10.1177/2158244020927431
Handriani, E., & Robiyanto, R. (2019). Institutional ownership, independent board, the board size, and firm performance: Evidence from Indonesia. Contaduría y Administración, 64(3), 1 – 16. https://doi.org/10.22201/fca.24488410e.2018.1849
Hasan, M. S. A., Manurung, A. H. M., & Usman, B. (2020). Determinants of bank profitability with size as moderating variable. Journal of Applied Finance & Banking, 10(3), 153–166.
Hassan, Y. M., Naser, K., & Hijazi, R. H. (2016). The influence of corporate governance on corporate performance: evidence from Palestine. Afro-Asian Journal of Finance and Accounting, 6(3), 269–287. https://doi.org/10.1504/AAJFA.2016.079296
Herdjionob, I., & Sari, I. M. (2017). The effect of corporate governance on the performance of a company: some empirical findings from Indonesia. Journal of Management and Business Administration. Central Europe, 25(1), 33–52. https://doi.org/10.7206/jmba.ce.2450-7814.188
Hung, C. V., Vinh, T. P., & Thai, B. D. (2021). “The impact of firm size on the performance of Vietnamese private enterprises: A case study.” Problems and Perspectives in Management, 19(2), 243–250. https://doi.org/10.21511/ppm.19(2).2021.20
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency cost, and ownersip structure. Journal of Financial Economics, 3, 305–360.
Johl, S. K., Kaur, S., & Cooper, B. J. (2015). Board Characteristics and Firm Performance: Evidence from Malaysian Public Listed Firms. Journal of Economics, Business and Management, 3(2), 239–243. https://doi.org/10.7763/joebm.2015.v3.187
Kipesha, E. (2013). Impact of Size and Age on Firm Performance: Evidences from Microfinance Institutions in Tanzania. Research Journal of Finance and Accounting, 4(5), 105–116.
Komara, A., Hartoyo, S., & Andati, T. (2016). Analisis Pengaruh Struktur Modal Terhadap Kinerja Keuangan Perusahaan. Jurnal Keuangan Dan Perbankan, 20(1), 10–21. https://doi.org/10.26905/jkdp.v20i1.141
Kutum, I. (2015). Board characteristics and firm performance: evidence from Palestine. European Journal OfAccounting Auditing and Finance Research, 3(3), 32–47. https://ssrn.com/abstract=2575460
Le Thi Kim, N., Duvernay, D., & Le Thanh, H. (2021). Determinants of financial performance of listed firms manufacturing food products in Vietnam: regression analysis and Blinder–Oaxaca decomposition analysis. Journal of Economics and Development, 23(3), 267–283. https://doi.org/10.1108/jed-09-2020-0130
Littlewood, D. (2020). Corporate Responsibilities. In International Encyclopedia of Human Geography (Second Edi, pp. 403–410). Elsevier. https://doi.org/10.1016/B978-0-08-102295-5.10035-6
Liu, H. X., & Fong, M. W. L. (2010). Board Characteristics of Medium and Large Chinese Companies. Corporate Governance, 10, 163–175. https://doi.org/10.1108/14720701011035684
Makadok, R. (2011). The four theories of profit and their joint effects. Journal of Managemenet, 37(5), 1316–1334. https://doi.org/10.1177/0149206310385697
Mayasari, T., Yusuf, & Yulianto, A. (2018). Pengaruh return on equity, net profit margin dan ukuran perusahaan terhadap underpricing. Jurnal Kajian Akuntansi, 2(1), 41–53. https://doi.org/10.33603/jka.v2i1.1271
Murtadlo, A. A., Imam, Y., & Wahono, B. (2014). Effect of capital structure, wealth structure and asset turnover on financial performance (case study in real estate companies listed on the IDX). JEMA (Jurnal Ilmu Akuntansi Bidang Akuntansi Dan Manajemen), 12(1), 1–10.
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. https://doi.org/10.1108/IMEFM-12-2017-0347
Naciti, V. (2019). Corporate Governance and Board of Directors: The Effect of A Board Composition on Firm Sustainability Performance. Journal of Cleaner Production, 237. https://doi.org/10.1016/j.jclepro.2019.117727
Ntim, C. G., & Osei, K. A. (2011). The impact of corporate board meetings on corporate performance in South Africa. African Review of Economics and Finance, 2(2), 83–103.
Nurlaela, S., Mursito, B., Kustiyah, E., Istiqomah, I., & Hartono, S. (2019). Asset Turnover, Capital Structure and Financial Performance Consumption Industry Company in Indonesia Stock Exchange. International Journal of Economics and Financial Issues, 9(3), 297–301. https://doi.org/10.32479/ijefi.8185
Purnama, I., & Nurdiniah, D. (2019). Profitability, Firm Size, and Earnings Management: the Moderating Effect of Managerial Ownership. 5th Annual International Conference on Accounting Research (AICAR 2018), 73, 41–46. https://doi.org/10.2991/aicar-18.2019.10
Rajagukguk, J., & Siagian, H. (2021). The Effect of Liquidity and Total Asset Turnover on Profitability: Research Study n Pharmaceutical Companies in Indonesia Stock Exchange. Ekonomis: Journal of Economics and Business, 5(2), 444–448. https://doi.org/10.33087/ekonomis.v5i2.400
Rasheed, A. ., & Kim, K. (2013). Board Heterogeneity And Stability In Firm Performance: An Empirical Study Utilizing Multi-Theoretic Approach. Corporate Board: Role, Duties, & Compotition, 9(1), 26–39. https://doi.org/10.22495/cbv9i1art3
Salvatore, D. (2019). Managerial Economics in Global Economy (9th Editio). Oxford University Press.
Sanyal, R. (2019). Profit Theory. Amity University.
Seema, G., Jain, P. K., & Yadav, S. S. (2011). Impact of MoU on financial performance of public sector enterprises in India. Journal of Advances in Management Research, 8(2), 263–284. https://doi.org/10.1108/09727981111175984
Shafiq, A., Alim, W., Ali, A., & Shafiq Minhas, A. (2022). The Impact of Leverage on the Firm Performance: A Case of Fertilizers Sector of Pakistan (No. 114200).
Sheikh, N. A., & Wang, Z. (2013). The impact of capital structure on performance. International Journal of Commerce and Management, 23(4), 354 – 368. https://doi.org/10.1108/IJCoMA-11- 2011-0034
Singgih, M., Pricilia, V. P., & Lavista, E. (2018). Market to book value, firm size, and the underpricing of Indonesian initial public offerings. Review of Management and Entrepreneurship, 2(2), 75–90. https://doi.org/http://dx.doi.org/10.37715/rme.v2i2.964
Soesetio, Y., Adiningsih, G. S., & Rudiningtyas, D. A. (2022a). The Impact of Corporate Governance Implementation and Debt Financing on Manufacturer ’ s Firm Performance : Evidence from Emerging Country. Adpebi International Journal of Multidisciplinary Sciences, 1(1), 126–136. https://doi.org/10.54099/aijms.v1i1.232
Soesetio, Y., Siswanto, E., Istanti, L. N., & Subagyo. (2022b). Accrual-based vs cash-based accounting in affecting underpricing phenomenon: Evidence from emerging country. Jurnal Ekonomi Modernisasi, 18(2), 240–254.
Soesetio, Y., Waffiudin, Rudiningtyas, D. A., & Siswanto, E. (2022c). The Impact of Bank-Specific and Macro Economic Factors on Profitability in Small Banks. Jurnal Dinamika Akuntansi, 14(1), 1–16.
Sousa, J. (2012). Stakeholder analysis for housing. In International Encyclopedia of Housing and Home (Vol. 7). Elsevier Ltd. https://doi.org/10.1016/B978-0-08-047163-1.00684-6
Sugiarto, & Lestari, H. S. (2017). Faktor-Faktor Yang Mempengaruhi Profitabilitas Bank Pada Bank Konvensional Yang Terdaftar di Bursa Efek Indonesia. Jurnal Manajemen Dan Pemasaran Jasa, 10(2), 267–280. https://doi.org/10.25105/jmpj.v10i2.2510
Sunjoko, M, I., & Arilyn, E. J. (2016). Effects of inventory turnover, total asset turnover, fixed asset turnover, current ratio, and average collection period on profitability. Jurnal Bisnis Dan Akuntansi, 18(1), 79–83.
Tjahjadi, B., Soewarno, N., & Mustikaningtiyas, F. (2021). Good corporate governance and corporate sustainability performance in Indonesia: A triple bottom line approach. Heliyon, 7(3). https://doi.org/10.1016/j.heliyon.2021.e06453
Utama, C. A., & Utama, S. (2019). Board of commissioners in corporate governance, firm performance, and ownership structure. International Research Journal of Business Studies, 12(2), 111 – 136. https://doi.org/10.21632/irjbs.12.2.111-136
Vafeas, N. (1999). Board meeting frequency and firm performance. Journal of Financial Economics, 53(1), 113–142. https://doi.org/10.1016/S0304-405X(99)00018-5
Wahyudin, A., & Solikhah, B. (2017). Corporate Governance Implementation Rating in Indonesia and Its Effects on Financial Performance. Corporate Governance (Bingley), 17(2), 250–265. https://doi.org/10.1108/CG-02-2016-0034
Yang, C., & Chen, K. (2009). Are small firms less efficient? Small Business Economics, 32(4), 375–395. https://doi.org/10.1007/s11187-007-9082-x
Yazdanfar, D. (2013). Profitability determinants among micro firms: evidence from Swedish data. International Journal of Managerial Finance, 9(2), 150–160. https://doi.org/10.1108/17439131311307565
How to Cite
Copyright (c) 2023 Adpebi International Journal of Multidisciplinary Sciences
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.