The Effect of Corporate Governance on the Performance of a Company. Some Empirical Findings from Indonesia

Open access

Abstract

Purpose: This study is aimed at analyzing the influence of the size of the board of directors, audit committee, institutional ownership and managerial ownership on the financial performance of manufacturing companies listed on the Indonesia Stock Exchange.

Methodology: The study analyses 156 Indonesia firms listed on the Indonesia Stock Exchange using linear regression analysis.

Findings: The results indicated that the size of the board of directors has a positive effect on financial performance, while the size of the audit committee, institutional ownership and managerial ownership has no effect on the financial performance. While on the simultaneously testing, it showed that the size of the board of directors, audit committee size, institutional ownership and managerial ownership influence the financial performance.

Research limitations/implications: The research has been limited to the manufacturing sector of Indonesian companies and the internal mechanism of corporate governance. The study suggests considering an external mechanism of corporate governance as predictor variables.

Originality: The study adds to the literature of corporate government and firm performance in emerging countries. The study implies that corporate governance mechanism for audit committee, managerial ownership and institutional ownership do not enhance company performance. The average size of an audit committee just to fulfill the regulation. Corporate governance mechanism that improve financial performance is size board director. Improvement in board performance as board size increase has positive impact that enhance financial performance of company.

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