Indonesian Journal of Law and Economics Review
Vol 18 No 3 (2023): August
Finance Management

Impact of Good Corporate Governance Mechanisms on Financial Performance: Evidence from Indonesian Manufacturing Companies
Dampak Mekanisme Tata Kelola Perusahaan yang Baik terhadap Kinerja Keuangan: Bukti dari Perusahaan Manufaktur Indonesia


Article View
  • Hendy Satria*,
  • Masyitah As Sahara,
  • Yeni Fitriani
Hendy Satria
STIE Pembangunan Tanjungpinang, Indonesia *
Masyitah As Sahara
STIE Pembangunan Tanjungpinang, Indonesia, Indonesia
Yeni Fitriani
STIE Pembangunan Tanjungpinang, Indonesia, Indonesia

(*) Corresponding Author
Picture in here are illustration from public domain image or provided by the author, as part of their works
DOI: https://doi.org/10.21070/ijler.v18i3.947
Published August 4, 2023
Keywords
  • Corporate Governance,
  • Financial Performance,
  • Manufacturing Companies,
  • Panel Data Regression,
  • Indonesia
How to Cite
Satria, H., As Sahara, M., & Fitriani, Y. (2023). Impact of Good Corporate Governance Mechanisms on Financial Performance: Evidence from Indonesian Manufacturing Companies. Indonesian Journal of Law and Economics Review, 18(3). https://doi.org/10.21070/ijler.v18i3.947

Copyright (c) 2023 Hendy Satria, Masyitah As Sahara, Yeni Fitriani

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Crossref
Scopus
Google Scholar
Europe PMC

Abstract

This study investigates the effect of four independent variables, namely independent commissioners, audit committees, leverage, and firm size, as mechanisms of good corporate governance on the financial performance of Indonesian manufacturing companies. The population consists of 142 companies listed on the Indonesia Stock Exchange (IDX) and publishing financial reports from 2019 to 2022. Panel data regression analysis using E-Views Software is employed for analysis. The findings reveal that independent commissioners, audit committees, leverage, and firm size collectively influence financial performance by 36.2%, with the remaining 64.8% attributed to other factors. All variables demonstrate a significant influence, but only independent commissioners exhibit a negative effect. These findings emphasize the importance of effective corporate governance practices in enhancing financial performance and provide valuable insights for policymakers and stakeholders to foster sustainable and resilient corporate environments.

Highlight:

  • Multiple Independent Variables: The study examines the impact of four crucial corporate governance mechanisms, including independent commissioners, audit committees, leverage, and firm size, on the financial performance of Indonesian manufacturing companies.
  • Collective Influence on Financial Performance: The findings suggest that these corporate governance mechanisms collectively contribute to 36.2% of the financial performance variation, highlighting their significant role in shaping company outcomes.
  • Negative Effect of Independent Commissioners: Interestingly, the study reveals that while all variables show a substantial influence, independent commissioners have a negative effect on financial performance, necessitating further investigation and potential policy adjustments.

Keyword: Corporate Governance, Financial Performance, Manufacturing Companies, Panel Data Regression, Indonesia

Article View

Downloads

Download data is not yet available.

References

  1. T. Astria, "Analisi Pengaruh Audit Tenure, Struktur Corporate Governance, Dan Ukuran KAP Terhadap Integritas," Skripsi, Fakultas Ekonomi Universitas Diponegoro, Semarang, 2011.
  2. L. D. Brown and M. L. Caylor, "Corporate Governance and Firm Performance," Conference on Financial Economics and Accounting, 2004.
  3. M. Cordazzo and P. Rossi, "The influence of IFRS mandatory adoption on value relevance of intangible assets in Italy," Journal of Applied Accounting Research, vol. 21, no. 3, pp. 415-436, 2020. https://doi.org/10.1108/JAAR- 05-2018-0069
  4. I. Ghozali, "Aplikasi Analisis Multivariete Dengan Program (IBM SPSS)," Badan Penerbit Universitas Diponegoro, 2016.
  5. I. Hull and S. Rothenberg, "Firm Performance: The Interactions of Innovation," Strategic Management Journal, vol. 29, no. 3, pp. 781-789, 2008. https://doi.org/10.1002/smj
  6. J. Liu, S. Sheng, C. Shu, and M. Zhao, "R & D, networking expenses, and firm performance: An integration of the," Industrial Marketing Management, vol. 92, pp. 111-121, 2021. https://doi.org/10.1016/j.indmarman.2020.11.010
  7. N. A. Morgan, D. W. Vorhies, and C. H. Mason, "Market Orientation, Marketing Capabilities and Firm Performance," Strategic Management Journal, vol. 920, pp. 909-920, 2009. https://doi.org/10.1002/smj
  8. M. Schommer, A. Richter, and A. Karna, "Does the Diversification–Firm Performance Relationship Change Over Time? A Meta-Analytical Review," Journal of Management Studies, vol. 56, no. 1, pp. 270-298, 2019. https://doi.org/10.1111/joms.12393
  9. K. E. N. G. Smith and C. M. Grlmm, "Environmental Variation, Strategic Change And Firm Performance," Strategic Management Journal, vol. 8, no. 3, pp. 363-376, 1987.
  10. A. Ulistianingsih, "Pengaruh Good Corporate Governance, Konservatisme Akuntansi Dan Ukuran Perusahaan Terhadap Manajemen Laba (Studi Empiris pada Perusahaan Manufaktur yang terdaftar di Bursa Efek Indonesia Tahun 2015-2016)," Skripsi, vol. 4, pp. 1-96, 2015.
  11. H. T. Vu and N. M. Ha, "A Study on the Relationship Between Diversification and Firm Performance Using the GSEM Method," Emerging Markets Finance and Trade, vol. 57, no. 1, pp. 85-107, 2021. https://doi.org/10.1080/1540496X.2019.1582413
  12. W. Westerman, A. De Ridder, and M. Achtereekte, "Firm performance and diversification in the energy sector," Managerial Finance, vol. 46, no. 11, pp. 1373-1390, 2020. https://doi.org/10.1108/MF-11-2019-0589
  13. D. Yazdanfar and P. Öhman, "Financial distress determinants among SMEs: empirical evidence from Sweden," Journal of Economic Studies, vol. 47, no. 3, 2020. https://doi.org/10.1108/JES-01-2019-0030