Board Diversity Index on Performance of Indonesian Manufacturing Companies: Moderating Role of Family Ownership

Aditya Candra Pamarta, Cynthia Afriani Utama

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.


DOI: https://doi.org/10.26905/jkdp.v27i3.9848


Keywords


Blau Index, Board Diversity Index, Two-Tier Board System, Price-to-Book Value, Alignment Effect, Entrenchment Effect

Full Text:

PDF

References


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