Corporate governance and leverage on firm value: Evidence of Indonesian large firms

Perdana Wahyu Santosa, Any Setianingrum, Chadra Yusuf

Abstract


This paper aims at the nexus of corporate governance, leverage, and firm value of selected Indonesian large firms in the 2014-2019 period. Specifically, the study is concerned about the effect of independent commissioner board size, institutional ownership, and audit committee size as proxies of corporate governance on firm value. The controlling variables are leverage and firm age. Panel regression analyzed secondary data collected from the LQ-45 index at Indonesia Stock Exchange firms as the large firms. The findings show that institutional ownership positively impacted firm value. However, the independent commissioner and audit committee exerted insignificant influence. The study results further showed that firm age and leverage significantly negatively impact firm value, respectively. Decisively, findings from this paper reflect that corporate governance positively influences firm value significantly. The study recommended that corporate governance dynamics in firms be empowered and re-examined, especially the audit committee's effectiveness. Both firm age and leverage do not affect productivity and firm value. The audit committee's role is more than optimal in carrying out the supervisory and control functions of the corporate management so that the responsibility of the management is considered transparent and results in an increase in shareholder trust. It is also recommended that the increase in firm age and excessive leverage be balanced with the creation of innovation and productivity of large firms.


Keywords


corporate governance, commissioner, audit, ownership, firm age, leverage

Full Text:

PDF

References


Abdul-Majid, J. (2017). Audit committee independence and a contracting perspective on goodwill impairment: Singaporean evidence. Business: Theory and Practice, 18, 128–135. https://doi.org/10.3846/btp.2017.013

Alanazi, A. S. (2019). Corporate governance and firm performance: Empirical evidence from emerging market. Risk Governance and Control: Financial Markets & Institutions, 9(1), 45–52. https://doi.org/http://doi.org/10.22495/rgcv9i1p4

Albart, N., Sinaga, B., Santosa, P. W., & Andati, T. (2020). The effect of corporate characteristics on capital structure in Indonesia. Journal of Economics, Business, and Accountancy Ventura, 23(1), 46–56. https://doi.org/10.14414/jebav.v23i1.2153

Aulia, A. S., & Wijaya, C. (2020). The effect of corporate governance quality on default risk of companies listed in Indonesia stock exchange (IDX) period 2013-2017. American International Journal of Business Management, 3(5), 36–44.

Bodie, Z., Kane, A., & Marcus, A. J. (2014). Investments (2014th ed.). McGraw Hill Education.

Brigham, E. F., & Houston, J. F. (2016). Fundamentals of Financial Management (14th ed.). Cengage.

Brigham, E. F., & Houston, J. F. (2019). Fundamentals of financial management (Fourtheen). South-Western Cengage Learning. academic.cengage.com

Chan, K. C., & Li, J. (2008). Audit committee and firm value: Evidence on outside top executives as expert-independent directors. Corporate Governance: An International Review, 16(1), 16–31. https://doi.org/10.1111/j.1467-8683.2008.00662.x

Connelly, B. L., Hoskisson, R. E., Tihanyi, L., & Certo, S. T. (2010). Ownership as a Form of Corporate Governance. Journal of Management Studies, 47(8), 1561–1589. https://doi.org/10.1111/j.1467-6486.2010.00929.x

Dewinta, I. A. R., & Setiawan, P. E. (2016). Pengaruh Ukuran Perusahaan, Umur Perusahaan, Profitabilitas, Leverage, Dan Pertumbuhan Penjualan Terhadap Tax Avoidance. E-Jurnal Akuntansi, 14(3), 1584–1615.

Dirawati Pohan, C., & Dwimulyani, S. (2017). Analisis Pengaruh Kinerja Keuangan, Good Corporate Governance Dan Corporate Social Responsibility Terhadap Nilai Perusahaan Pada Perusahaan Pertambangan Di Bursa Efek Indonesia. Jurnal Magister Akuntansi Trisakti, 4(1), 37. https://doi.org/10.25105/jmat.v4i1.4986

Du, J., Mickiewicz, T., & Douch, M. (2021). Individual and institutional ownership, firm age and productivity. Journal of Competitiveness, 13(1), 23–41. https://doi.org/10.7441/joc.2021.01.02

Jamaludin, M. F., & Hashim, F. (2017). Corporate governance, institutional characteristics, and director networks in Malaysia. Asian Academy of Management Journal of Accounting and Finance, 13(2), 135–154. https://doi.org/10.21315/aamjaf2017.13.2.7

Jones, C. P. (2014). Investments: Principles and Concepts (12th ed.). John Willey & Sons.

Kusumaningtyas, T., & Andayani, K. (2015). Pengaruh good corporate governance terhadap nilai perusahaan yang terdaftar pada indeks Sri-Kehati. Jurnal Ilmu Dan Riset Akuntansi, 4(7), 1–15. http://jurnalmahasiswa.stiesia.ac.id/index.php/jira/article/view/3539

Kyriazopoulos, G. (2017). Corporate governance and capital structure in the periods of financial distress: Evidence from Greece. Investment Management and Financial Innovations, 14(1), 254–262. https://doi.org/10.21511/imfi.14(1-1).2017.12

Laily, N. (2017). The Effects of Good Corporate Governance and Audit Quality on Earnings Management. Journal of Accounting and Business Education, 1(1), 134–143. https://doi.org/10.26675/jabe.v1i1.9754

Latif, A., & Abdullah, F. (2015). The Effectiveness of Corporate Governance in Constraining Earnings Management in Pakistan. The Lahore Journal of Economics, 20(1), 135–155. https://doi.org/10.35536/lje.2015.v20.i1.a5

Lee, K. T., Ooi, C. A., & Hooy, C. W. (2019). Corporate diversification, board diversity and stock-price crash risk: Evidence from publicly listed firms in Malaysia. International Journal of Economics and Management, 13(2), 273–289.

Miras-Rodríguez, M., Martínez-Martínez, D., & Escobar-Pérez, B. (2018). Which Corporate Governance Mechanisms Drive CSR Disclosure Practices in Emerging Countries? Sustainability, 11(1), 61. https://doi.org/10.3390/su11010061

Mukhtaruddin, M., Ubaidillah, U., Dewi, K., Hakiki, A., & Nopriyanto, N. (2019). Good Corporate Governance, Corporate Social Responsibility, Firm Value, and Financial Performance as Moderating Variable. Indonesian Journal of Sustainability Accounting and Management, 3(1), 55. https://doi.org/10.28992/ijsam.v3i1.74

Muktadir-Al-Mukit, D., & Keyamoni, T. J. (2019). Corporate Governance and Earnings Management Practices among Listed Firms: A Study on Post Stock Market Crisis Period in Bangladesh. Journal of Asian Business Strategy, 9(1), 1–9. https://doi.org/10.18488/journal.1006.2019.91.1.9

Musallam, S. R. M., Fauzi, H., & Nagu, N. (2019). Family, institutional investors ownerships and corporate performance: the case of Indonesia. Social Responsibility Journal, 15(1), 1–10. https://doi.org/10.1108/SRJ-08-2017-0155

Nanda, A. P., & Nahumury, J. (2018). The effect of financial performance, board of commissioners, blockholder ownership, auditor type and firm age on voluntary disclosure. The Indonesian Accounting Review, 8(2), 145. https://doi.org/10.14414/tiar.v8i2.1525

Nuryono, M., Wijanti, A., & Chomsatu, Y. (2019). Pengaruh Kepemilikan Manajerial, Kepemilikan Institusional, Komisaris Independen, Komite Audit, Serta Kulitas Audit Pada Nilai Perusahaan. Jurnal Ilmiah Edunomika, 3(01), 199–212. https://doi.org/10.29040/jie.v3i01.457

Perdana, R. S., & Raharja. (2014). Analisis Pengaruh Corporate Governance Terhadap Nilai Perusahaan. Diponegoro Journal of Accounting, 3(3), 1–13.

Rahmadani, F. D., & Rahayu, S. M. (2017). Pengaruh GCG, Profitabilitas dan Leverage Terhadap Nilai Perusahaan. Jurnal Administrasi Bisnis (JAB), 52(1), 173–182.

Ratnadi, N. M. D., & Putra, I. N. W. A. (2018). Institutional Ownership, Characteristics of the Audit Committee and Information Power Earnings. Jurnal Akuntansi, 22(3), 405. https://doi.org/10.24912/ja.v22i3.396

Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2013). Fundamentals of Corporate Finance. In The McGraw-Hill Companies, Inc. (Tenth). McGraw-Hill/Irwin.

Santosa, P. W. (2019). Financial performance, exchange rate and stock return: Evidence from manufacturing sector. Jurnal Manajemen Teknologi, 18(3), 205–217. https://doi.org/10.12695/jmt.2019.18.3.5

Santosa, P. W. (2020). The moderating role of firm size on financial charactersitics and Islamic firm value at Indonesian equity market. Business: Theory and Practice, 21(1), 391–401. https://doi.org/10.3846/btp.2020.12197

Santosa, P. W., Aprilia, O., & Tambunan, M. E. (2020). The Intervening Effect of the Dividend Policy on Financial Performance and Firm Value in Large Indonesian Firms. International Journal of Financial Research, 11(4), 408–420. https://doi.org/10.5430/ijfr.v11n4p408

Santosa, P. W., & Hidayat, A. (2014). Riset Terapan: Teori dan Aplikasi (First Edit). Globalstat Solusi Utama.

Santosa, P. W., Rahayu, S. I., Simon, Z. Z., & Tambunan, M. E. (2021). The moderating role of audit quality and firm size in the effect of corporate governance on related party transactions: Evidence from Indonesia. Investment Management and Financial Innovations, 18(4), 166–176. https://doi.org/10.21511/imfi.18(4).2021.15

Santosa, P. W., Tambunan, M. E., & Kumullah, E. R. (2020). The role of moderating audit quality relationship between corporate characteristics and financial distress in the Indonesian mining sector. Investment Management and Financial Innovations, 17(2), 88–100. https://doi.org/10.21511/imfi.17(2).2020.08

Shefrin, H. (2017). Behavioral Corporate Finance (Second). McGraw Hill Higher Education. https://www.mheducation.com/highered/product/behavioral-corporate-finance-shefrin/M9781259277207.affordability.html

Subramanyam, K. R. (2014). Financial Statement Analysis (Eleventh). McGraw-Hill/Irwin.

Sugiarto, M., & Santosa, P. W. (2018). Pengaruh indikator makroekonomi, kinerja keuangan, dan tata kelola terhadap nilai perusahaan sektor properti di bursa efek Indonesia. Journal of Economics and Business Aseanomics, 2(2), 288–312. https://doi.org/https://doi.org/10.33476/jeba.v2i2.487

Tuan, N. Van, & Tuan, N. A. (2016). Corporate Governance Structures and Performance of Firms in Asian Markets: a Comparative Analysis Between Singapore and Vietnam. Organizations and Markets in Emerging Economies, 7(2), 112–140. https://doi.org/10.15388/omee.2016.7.2.14210

Yanto, E. (2018). Effect of Corporate Social Responsibility and Good Corporate Governance on the Value of Company with Profitability as Moderating Variables. JAAF (Journal of Applied Accounting and Finance), 2(1), 36–49. https://doi.org/10.33021/jaaf.v2i1.304




DOI: https://doi.org/10.26905/jkdp.v26i4.7664

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