Corporate Governance and Profitability: The Role of Cost of Capital as Mediation

Eka Febiyanti, Hersugondo Hersugondo

Abstract


This study aims to analyze the effect of internal corporate governance mechanisms with the cost of capital as mediating variable and profitability as a dependent variable in companies listed on the Indonesia Stock Exchange during period 2015 to 2020. This study uses secondary data collected from Bloomberg's financial data and the company's annual report. A total of 807 companies as a population by sampling with purposive sampling method in order to obtain 300 companies from various sectors. The analysis method employs a structural equation model Structural Equation Modeling (SEM) based on the Partial Least Square (PLS). Based on hypothesis testing through the t-statistical test with a bootstrapping method, the results show that corporate governance has a positive relationship with profitability, and the cost of capital has a fully mediating role in the relationship between corporate governance and profitability.


Keywords


Corporate governance, profitability, cost of capital, growth

Full Text:

PDF

References


Ademola, O., Moses, O., & Ucheagwu, C. (2016). Corporate Governance and Financial Performance of Selected Manufacturing Companies In Nigeria. Corporate Responsibility International Journal of Advanced Academic Research |, 2(10), 29–43. http://www.crrconference.org/

Amran, N. A. (2011). Corporate Governance Mechanisms and Company Performance: Evidence from Malaysian Companies. International Review of Business Research Papers, 7(6), 101–114.

Ayem, S., & Nugroho, M. M. (2020). Pengaruh Pemahaman Akuntansi Koperasi Berdasarkan Standar Akuntansi Keuangan Entitas tanpa Akuntabilitas Publik, Tingkat Kompetensi, dan Sistem Pengendalian Intern terhadap Kualitas Laporan Keuangan pada Koperasi Pegawai Republik Indonesia. Permana : Jurnal Perpajakan, Manajemen, Dan Akuntansi, 12(1), 27–40. https://doi.org/10.24905/permana.v12i1.89

Botosan, C. A. (1997). Disclosure Level and the Cost of Equity Capital. The Accounting Review, 72(3), 323–349.

Botosan, C. A., & Plumlee, M. A. (2002). A Re-examination of Disclosure Level and the Expected Cost of Equity Capital. Journal of Accounting Research, 40(1), 21–40.

Chabachib, M., Irawan, B. P., Hersugondo, H., Hidayat, R., & Pamungkas, I. D. (2020). Corporate governance, finn performance and capital structure: Evidence from Indonesia. Research in World Economy, 11(1), 48–55. https://doi.org/10.5430/rwe.v11n1p48

Cormier, D., Ledoux, M. J., Magnan, M., & Aerts, W. (2010). Corporate governance and information asymmetry between managers and investors. Corporate Governance, 10(5), 574–589. https://doi.org/10.1108/14720701011085553

Dalton, D. R., Daily, C. M., Ellstrand, A. E., & Johnson, J. L. (1998). Meta-analytic reviews of board composition, leadership structure, and financial performance. Strategic Management Journal, 19(3), 269–290. https://doi.org/10.1002/(sici)1097-0266(199803)19:3<269::aid-smj950>3.0.co;2-k

Diamond, D. W., & Verrecchia, R. E. (1991). Disclosure , Liquidity , and the Cost of Capital. The Journal of Finance, 46(4), 1325–1359.

Emmanuel, A., & Riman, H. (2012). Does Corporate Governance affect Bank Profitability? Evidence from Nigeria. American International Journal of Contemporary Research, 2(7), 135–145. www.aijcrnet.com

Frumentius, N. A., & Christiawan, Y. J. (2020). Pengaruh Tata Kelola Perusahaan Terhadap Profitabilitas Perusahaan di Sektor Perbankan. Business Accounting REview, 8(1), 144–158.

Ghozali, I. (2014). Partial Least Squares: Konsep, Teknik, Dan Aplikasi Menggunakan Program SmartPLS 3.0. Universitas Diponegoro.

Habib, M. A. (2016). Relationship Between Corporate Governance and Firm Performance: A Case Study In Bangladesh. International Scholar Journal of Accounting and Finance, 2(1), 11–20.

Ilyas, M. (2018). Impact of Corporate Governance of Earnings Management and Cost of Capital: Evidence from Pakistan. Doctoral Dissertation, Abdul Wali Khan University, 41(2), 503–519.

Iqbal, K., & Kakakhel, S. J. (2016). Corporate Governance and Its Impact on Profitability of The Pharmaceutical Industry in Pakistan. Journal of Managerial Sciences, 10(1), 73–82.

Jensen, M. C., & Meckling, W. H. (1976). Teori Perusahaan: Perilaku Manajerial,Biaya Agensi dan Struktur Kepemilikan. Journal Economic of Finance, 3(4), 305–360.

Kasmir. (2019). Analisis Laporan Keuangan (Pertama). PT Raja Grafindo Persada.

Margaritis, D. and Psillaki, M. (2007). Capital structure and firm efficiency. Journal of Business Finance and Accounting, 34(9/10), 1447–1469.

Maulita, D., & Arifin, M. (2018). Pengaruh Return On Investment (ROI) Dan Earning Per Share (EPS) Terhadpa Return Saham Syariah (Studi Kasus Pada Perusahaan Manufaktur Sub Sektor Makanan dan Minuman Yang Terdaftar Pada Indeks Saham Syariah Indonesia Periode 2012-2016). Jurnal Manajemen, 8, 10–19. http://e-jurnal.lppmunsera.org/index.php/JM/article/view/659

Ofoeda, I. (2017). Corporate governance and non-bank financial institutions profitability. International Journal of Law and Management, 59(6), 854–875. https://doi.org/10.1108/ijlma-05-2016-0052

Pasaribu, D., & Simatupang, M. (2019). Pengaruh Corporate Governance Terhadap Profitabilitas Perusahaan Industri Dasar dan Kimia yang Listing di Bursa Efek Indonesia. Jurnal Akuntansi Dan Keuangan Methodist, 3(1), 23–32.

Pouraghajan, A., Tabari, N. A. Y., Ramezani, A., Mansourinia, E., Emamgholipour, M., & Majd, P. (2012). Relationship between cost of capital and accounting criteria of corporate performance evaluation: Evidence from tehran stock exchange. World Applied Sciences Journal, 20(5), 666–673. https://doi.org/10.5829/idosi.wasj.2012.20.05.2368

Prastika, N. P. Y., & Candradewi, M. R. (2019). Pengaruh Profitabilitas, Struktur Aktiva, Dan Likuiditas Terhadap Struktur Modal Perusahaan Subsektor Konstruksi Bangunan Di Bei. E-Jurnal Manajemen Universitas Udayana, 8(7), 4444. https://doi.org/10.24843/ejmunud.2019.v08.i07.p16

Shadab, M., & Sattar, A. (2015). Cost of Capital – The Effect to the Firm Value and Profitability; Empirical Evidences in Case of Personal Goods (Textile) Sector of KSE 100 Index. Journal of Poverty, Investment and Development, 17(1), 24–28. file:///C:/Users/alkal/Downloads/26617-29270-1-PB.pdf

Sheikh, N. A., & Wang, Z. (2012). Effects of corporate governance on capital structure : empirical evidence from Pakistan. Corporate Governance, 12(5), 629–641. https://doi.org/10.1108/14720701211275569

Sheikh, W., & Alom, K. (2021). Corporate governance, board practices and performance of shipping firms in Bangladesh. Asian Journal of Shipping and Logistics, 37(3), 259–267. https://doi.org/10.1016/j.ajsl.2021.06.005

Sugiyono. (2013). Metode Penelitian Kuantitaif, Kualitatif dan R&D. Alfabeta.

Zabri, S. M., Ahmad, K., & Wah, K. K. (2016). Corporate Governance Practices and Firm Performance: Evidence from Top 100 Public Listed Companies in Malaysia. Procedia Economics and Finance, 35(October 2015), 287–296. https://doi.org/10.1016/s2212-5671(16)00036-8




DOI: https://doi.org/10.26905/jkdp.v26i2.7548

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

Published by University of Merdeka Malang

Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: -
Email: [email protected]

This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0