Board Diversity Index on Performance of Indonesian Manufacturing Companies: Moderating Role of Family Ownership
Abstract
This study investigates the relationship between performance in Indonesian family-owned manufacturing firms and their board diversity and ownership. Previous studies about firm performance in Indonesia only focus on the individual diversity rather than considering the effect of collective diversity aspects (constructed as an index) on its board. Previous studies focus only on the individual elements of board diversity on its BOD, rarely on its BOC. Next, previous studies did not consider the moderating role of its ownership towards the effect of board diversity on firm performance, even though the family-owned firm is one of the most common forms of business in Indonesia. This study employs price-to-book value (PBV) as a proxy for firm performance and Blau Index to construct the board diversity index (BDI). The results show that the board diversity index positively influences firm performance. Family ownership positively affects firm performance, signaling the alignment effect. The results also show a linear relationship between family ownership and firm performance, contrary to several previous studies where family ownership has a non-linear relationship with firm performance. Lastly, the results also show the moderating role of family ownership positively influences the board diversity effect on firm performance.
Keywords
Full Text:
PDFReferences
Anderson, R. C., & Reeb, D. M. (2003). Founding-Family Ownership and Firm Performance: Evidence from the S&P 500. Journal of Finance, 58(3), 1301–1327. https://doi.org/10.1111/1540-6261.00567
Bettinelli, C. (2011). Boards of directors in family firms: An exploratory study of structure and group process. Family Business Review, 24(2), 151–169. https://doi.org/10.1177/0894486511402196
Bouzgarrou, H., & Navatte, P. (2013). Ownership structure and acquirers performance: Family vs. non-family firms. International Review of Financial Analysis, 27, 123–134. https://doi.org/10.1016/j.irfa.2013.01.002
BPS. (2020). Perkembangan Beberapa Indikator Utama Sosial-Ekonomi Indonesia.
Carney, M., GEdajlovic, E., Heugens, P., Van Essen, M., & Oosterhout, J. (2011). BUSINESS GROUP AFFILIATION , PERFORMANCE , CONTEXT , AND STRATEGY : A META- ANALYSIS. Academy of Management Journal, 54(3), 437–460.
Carpenter, M. A., Sanders, W. G., & Gregersen, H. B. (2001). Bundling human capital with organizational context: The impact of international assignment experience on multinational firm performance and CEO pay. Academy of Management Journal, 44(3), 493–511. https://doi.org/10.2307/3069366
Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate Governance , Board Diversity , and Firm Value. 38.
Carter, D. A., Souza, F. D., Simkins, B. J., & Simpson, W. G. (2010). The Gender and Ethnic Diversity of US Boards and Board Committees and Firm. 18(5), 396–414. https://doi.org/10.1111/j.1467-8683.2010.00809.x
Casson, M. (1999). The economics of the family firm. Scandinavian Economic History Review, 47(1), 10–23. https://doi.org/10.1080/03585522.1999.10419802
Charbel, S., Elie, B., & Georges, S. (2013). Impact of family involvement in ownership management and direction on financial performance of the Lebanese firms. International Strategic Management Review, 1(1–2), 30–41. https://doi.org/10.1016/j.ism.2013.08.003
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
Coad, A., Segarra, A., & Teruel, M. (2013). Like milk or wine: Does firm performance improve with age? Structural Change and Economic Dynamics, 24(1), 173–189. https://doi.org/10.1016/j.strueco.2012.07.002
Corbetta, G., & Salvato, C. A. (2004). The Board of Directors in Family Firms: One Size Fits All? Family Business Review, 17(2), 119–134. https://doi.org/10.1111/j.1741-6248.2004.00008.x
Cruz, C., Firfiray, S., & Gomez-Mejia, L. R. (2011). Socioemotional wealth and human resource management (hrm) in family-controlled firms. In Research in Personnel and Human Resources Management (Vol. 30). Emerald Group Publishing Ltd. https://doi.org/10.1108/S0742-7301(2011)0000030006
Daily, C. M., Dalton, D. R., & Cannella, A. A. (2003). Corporate governance: Decades of dialogue and data. Academy of Management Review, 28(3), 371–382. https://doi.org/10.5465/AMR.2003.10196703
DeAngelo, H., & DeAngelo, L. (2000). Controlling stockholders and the disciplinary role of corporate payout policy: A study of the Times Mirror Company. Journal of Financial Economics, 56(2), 153–207. https://doi.org/10.1016/S0304-405X(00)00039-8
Díaz-Fernández, M. C., González-Rodríguez, M. R., & Simonetti, B. (2015). Top management team’s intellectual capital and firm performance. European Management Journal, 33(5), 322–331. https://doi.org/10.1016/j.emj.2015.03.004
Fama, E. F., & Jensen, M. C. (1983). Separation of Ownership and Control. Journal of Law and Economics, 26(2), 301–325. http://www.journals.uchicago.edu/t-and-c
Farooq, M., Noor, A., & Ali, S. (2022). Corporate governance and firm performance: empirical evidence from Pakistan. Corporate Governance (Bingley), 22(1), 42–66. https://doi.org/10.1108/CG-07-2020-0286
Fidanoski, F., Simeonovski, K., & Mateska, V. (2014). The impact of board diversity on corporate performance: New evidence from Southeast Europe. Advances in Financial Economics, 17, 81–123. https://doi.org/10.1108/S1569-373220140000017003
Finkelstein, S., & Hambrick, D. C. (1990). Top-Management-Team Tenure and Organizational Outcomes: The Moderating Role of Managerial Discretion. Administrative Science Quarterly, 35(3), 484. https://doi.org/10.2307/2393314
Gordini, N. (2017). Management Research Review Article information : Gender diversity in the Italian boardroom and firm financial performan. Management Research Review, 40, 1–34.
Hafsi, T., & Turgut, G. (2013). Boardroom Diversity and its Effect on Social Performance: Conceptualization and Empirical Evidence. Journal of Business Ethics, 112(3), 463–479. https://doi.org/10.1007/s10551-012-1272-z
Hambrick, D. C., & Mason, P. A. (1984). Upper Echelons: The Organization as a Reflection of Its Top Managers. The Academy of Management Review, 9(2), 193. https://doi.org/10.2307/258434
Harjoto, M., Laksmana, I., & Lee, R. (2015). Board Diversity and Corporate Social Responsibility. Journal of Business Ethics, 132(4), 641–660. https://doi.org/10.1007/s10551-014-2343-0
Hatane, S. E., Winoto, J., Tarigan, J., & Jie, F. (2022). Working capital management and board diversity towards firm performances in Indonesia’s LQ45. Journal of Accounting in Emerging Economies. https://doi.org/10.1108/JAEE-11-2018-0130
Helfat, C. E., Harris, D., & Wolfson, P. J. (2006). The Pipeline to the Top: Academy of Management Perspectives, 20(4), 42–64. https://doi.org/10.5465/amp.2006.23270306
Hillman, A. J., & Dalziel, T. (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. Academy of Management Review, 28(3), 383–396. https://doi.org/10.5465/AMR.2003.10196729
Hitt, M. A., & Tyler, B. B. (1991). Strategic Decision Models : Integrating. Strategic Management Journal, 12(5), 327–351.
Howton, S. W. (2006). Effect of governance characteristics on the state of the firm after an initial public offering. Financial Review, 41(3), 419–433. https://doi.org/10.1111/j.1540-6288.2006.00150.x
Isabel, Garcia, M., & Sanchez, J. (2017). Gender diversity, financial expertise and its effects on accounting quality. In Management Decision (Vol. 55, Issue 2).
Johannisson, B., & Huse, M. (2000). Recruiting outside board members in the small family business: An ideological challenge. Entrepreneurship and Regional Development, 12(4), 353–378. https://doi.org/10.1080/08985620050177958
Kementerian Perindustrian. (2015). Rencana Induk Pembangunan Industri Nasional 2015-20135.
Kementerian Perindustrian. (2020). Sektor Industri Masih Jadi Andalan PDB Nasional. https://kemenperin.go.id/artikel/21922/Sektor-Industri-Masih-Jadi-Andalan-PDB-Nasional#:~:text=Sektor industri masih memberikan kontribusi,insentif yang dibutuhkan saat ini.
Kılıç, M. & C. K. (2016). The effect of board gender diversity on firm performance: evidence from Turkey Merve. An International Journal, 31(7).
Konrad, A. M., Kramer, V., & Erkut, S. (2008). Critical Mass:. The Impact of Three or More Women on Corporate Boards. Organizational Dynamics, 37(2), 145–164. https://doi.org/10.1016/j.orgdyn.2008.02.005
Konrad, A. M., Prasad, P., & Pringle, J. (2006). Handbook of Workplace Diversity. Sage Publications.
Kowalewski, O., Talavera, O., & Stetsyuk, I. (2010). Influence of family involvement in management and ownership on firm performance: Evidence from Poland. Family Business Review, 23(1), 45–59. https://doi.org/10.1177/0894486509355803
Kumar, R., Singh, K., & Jain, S. K. (2022). Assessment of Agile manufacturing impact on business performance of Indian manufacturing industry: A PLS-SEM approach. Sustainable Manufacturing and Service Economics, 1(October 2021), 100001. https://doi.org/10.1016/j.smse.2022.100001
Kusumastati, W. W., Siregar, S. V., Martani, D., & Adhariani, D. (2022). Board diversity and corporate performance in a two-tier governance context. Team Performance Management, 28(3–4), 260–279. https://doi.org/10.1108/TPM-11-2021-0076
La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (1999). Corporate ownership around the world. Journal of Finance, 54(2), 471–517. https://doi.org/10.1111/0022-1082.00115
Luckerath-Rovers, M. (2013). Women on boards and firm performance ¨. 491–509. https://doi.org/10.1007/s10997-011-9186-1
Mahadeo, J. D., Soobaroyen, T., & Hanuman, V. O. (2012). Board Composition and Financial Performance: Uncovering the Effects of Diversity in an Emerging Economy. Journal of Business Ethics, 105(3), 375–388. https://doi.org/10.1007/s10551-011-0973-z
Mallin, C. A. (2013). Corporate Governance (4th ed.). Oxford University Press.
Miller, T., & del Carmen Triana, M. (2009). Demographic Diversity in the Boardroom : Mediators of the Board Diversity – Firm Performance Relationship Toyah Miller and María del Carmen Triana. Journal of Management Studies, July.
Mubarka, K., & Kammerlander, N. H. (2022). A closer look at diversity and performance in family firms. Journal of Family Business Management. https://doi.org/10.1108/JFBM-12-2021-0155
Musteen, M., Barker, V. L., & Baeten, V. L. (2006). CEO attributes associated with attitude toward change: The direct and moderating effects of CEO tenure. Journal of Business Research, 59(5), 604–612. https://doi.org/10.1016/j.jbusres.2005.10.008
Napitupulu, I. H., Situngkir, A., Basuki, F. H., & Nugroho, W. (2020). Optimizing good Corporate Governance Mechanism to Improve Performance: Case in Indonesia’s Manufacturing Companies. Global Business Review, 46. https://doi.org/10.1177/0972150920919875
Nguyen, T., Locke, S., & Reddy, K. (2015). Does boardroom gender diversity matter? Evidence from a transitional economy. International Review of Economics and Finance, 37, 184–202. https://doi.org/10.1016/j.iref.2014.11.022
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
Ozdemir, O. (2020). Board diversity and firm performance in the U.S. tourism sector: The effect of institutional ownership. International Journal of Hospitality Management, 91(August), 102693. https://doi.org/10.1016/j.ijhm.2020.102693
Pasaribu, P., Masripah, M., & Mindosa, B. (2019). Does Gender Diversity in the Boardroom Improve Firm Performance? Evidence from Indonesia. Economics and Finance in Indonesia, 65(1), 1. https://doi.org/10.47291/efi.v65i1.597
Pfeffer, J. (1972). Size and Composition of Corporate Boards of Directors: The Organization and its Environment. Administrative Science Quarterly, 17(2).
Pillai, R., & Al-Malkawi, H. A. N. (2018). On the relationship between corporate governance and firm performance: Evidence from GCC countries. Research in International Business and Finance, 44(February 2017), 394–410. https://doi.org/10.1016/j.ribaf.2017.07.110
Post, C., & Byron, K. (2015). Women on boards and firm financial performance: Lehigh university. Academy of Management Journal, 58(5), 1546–1571.
Purkayastha, S., Veliyath, R., & George, R. (2022). Type I and type II agency conflicts in family firms: An empirical investigation. Journal of Business Research, 153(July), 285–299. https://doi.org/10.1016/j.jbusres.2022.07.054
Rossi, M. (2016). The impact of age on firm performance: A literature review. Corporate Ownership and Control, 13(2CONT1), 217–223. https://doi.org/10.22495/cocv13i2c1p3
Setia-Atmaja, L. Y. (2009). Governance mechanisms and firm value: The impact of ownership concentration and dividends. Corporate Governance: An International Review, 17(6), 694–709. https://doi.org/10.1111/j.1467-8683.2009.00768.x
Shleifer, A., & Vishny, R. W. (2007). A survey of corporate governance. Corporate Governance and Corporate Finance: A European Perspective, LII(2), 52–90. https://doi.org/10.4324/9780203940136
Shukeri, S. N., Shin, O. W., & Shaari, M. S. (2012). Does Board of Director’s Characteristics Affect Firm Performance? Evidence from Malaysian Public Listed Companies. International Business Research, 5(9), 120–127. https://doi.org/10.5539/ibr.v5n9p120
Shyu, J. (2011). Family ownership and firm performance: Evidence from Taiwanese firms. International Journal of Managerial Finance, 7(4), 397–411. https://doi.org/10.1108/17439131111166393
Siagian, F., Siregar, S. V., & Rahadian, Y. (2013). Corporate governance, reporting quality, and firm value: evidence from Indonesia. Journal of Accounting in Emerging Economies, 3(1), 4–20. https://doi.org/10.1108/20440831311287673
Singla, D. H. K. (2011). Does Firm Size Affect Profitability? An Empirical Investigation Of Indian Textile Industry. Paradigm, 15(1–2), 18–25. https://doi.org/10.1177/0971890720110104
Song, H. J., Yoon, Y. N., & Kang, K. H. (2020). The relationship between board diversity and firm performance in the lodging industry: The moderating role of internationalization. International Journal of Hospitality Management, 86(May 2019), 102461. https://doi.org/10.1016/j.ijhm.2020.102461
Srivastava, A., & Bhatia, S. (2020). Influence of Family Ownership and Governance on Performance: Evidence from India. Global Business Review. https://doi.org/10.1177/0972150919880711
Stein, J. C. (1988). Takeover Threats and Managerial Myopia. Journal of Political Economy, 96(1), 61–80. https://doi.org/10.1086/261524
Sukamulja, S. (2021). Manajemen Keuangan Korporat: Teori, Analisis, dan Aplikasi dalam Melakukan Investasi. Penerbit Andi Yogyakarta.
Talavera, O., Yin, S., & Zhang, M. (2018). Age diversity, directors′ personal values, and bank performance. International Review of Financial Analysis, 55(October 2017), 60–79. https://doi.org/10.1016/j.irfa.2017.10.007
Tasheva, S., & Hillman, J. A. (2015). Integrating Diversity at Diffn Levels. Academy of Management Review, 1–46.
Tejerina-Gaite, F. A., & Fernández-Temprano, M. A. (2021). The influence of board experience on firm performance: does the director’s role matter? Journal of Management and Governance, 25(3), 685–705. https://doi.org/10.1007/s10997-020-09520-2
Thomsen, S., & Conyon, M. (2019). Corporate Governance and Board Decisions. Djof Forlag & Now Publishers.
Utama, C. A. (2012). Company disclosure in Indonesia: Corporate governance practice, ownership structure, competition and total assets. Asian Journal of Business and Accounting, 5(1), 75–108.
Vafaei, A., Ahmed, K., & Mather, P. (2015). Board Diversity and Financial Performance in the Top 500 Australian Firms. Australian Accounting Review, 25(4), 413–427. https://doi.org/10.1111/auar.12068
Weber, J., Lavelle, L., Lowry, T., Zellner, W., & Barrett, A. (2003). Family Inc. Business Week, 3857(10), 100–114.
Westphal, J. D., Milton, L. P., Westphal, J. D., & Milton, L. P. (2000). How Experience and Network Ties Affect the Influence of Demographic Minorities on Corporate Boards. 45(2), 366–398.
Xu, Q., Fernando, G. D., & Schneible, R. A. (2022). Age diversity, firm performance and managerial ability. Review of Accounting and Finance, 21(4), 276–298. https://doi.org/10.1108/RAF-09-2021-0232
Xu, Y., Zhang, L., & Chen, H. (2018). Board age and corporate financial fraud: An interactionist view. Long Range Planning, 51(6), 815–830. https://doi.org/10.1016/j.lrp.2017.08.001
Yeh, C. M., & Trejos, B. (2015). The influence of governance on tourism firm performance. Current Issues in Tourism, 18(4), 299–314. https://doi.org/10.1080/13683500.2013.820258
Yuliana, I., & Kholilah, K. (2019). Diversity of the Executive Board, Investment Decisions, and Firm Value: Is Gender Important in Indonesia? Jurnal Reviu Akuntansi Dan Keuangan, 9(3), 387. https://doi.org/10.22219/jrak.v9i3.10019
Zattoni, A., Gnan, L., & Huse, M. (2015). Does Family Involvement Influence Firm Performance? Exploring the Mediating Effects of Board Processes and Tasks. Journal of Management, 41(4), 1214–1243. https://doi.org/10.1177/0149206312463936
DOI: https://doi.org/10.26905/jkdp.v27i3.9848
Refbacks
- There are currently no refbacks.
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: +62 81 2332-1664
Email: jkp@unmer.ac.id
This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0