Effectiveness of The Board of Directors and Company Performance: Corporate Governance Perspective in Indonesia

Abstract

The purpose of this study was to determine the effect of board size, board independence, and board activity on company performance from a corporate governance perspective. This study uses a quantitative approach. IDX issuers in the manufacturing sector registered in 2017-2018 are the research population. The samples were obtained using the purposive sampling method. Based on the criteria, the samples in this study were 146 companies. This study uses multiple linear regression analysis. This study found that board size has a negative effect on ROA, but has an effect on and is positively correlated with ROE. Board independence has a positive effect on the achievement of company ROA and ROE. While the third variable, namely board activity does not affect the achievement of ROA and ROE of the company. Based on the limitations, further research is expected to be able to explore other factors that are relevant in influencing company performance during and after the COVID 19 pandemic, for example, namely external factors. Keywords: Board of Directors, Corporate Governance, Company performance

The Moderating Role of Organizational Culture on the Relationship between Corporate Governance Dimensions and Financial Performance in Saudi Manufacturing Industry: A Theoretical Framework

“…A larger board can benefit from increased diversity, with directors hired from varied professional disciplines with unique skills and abilities (Dewri, 2021;Abang'a et al, 2021;Sani, 2022). In contrast, some studies (e.g., Assenga et al, 2018;Pratiwi & Chariri, 2021) argue that a larger board is less effective at en-hancing corporate performance because new ideas and opinions are less likely to be expressed in a large pool of directors and the monitoring process is less effective, which negatively impacts financial performance (Assenga et al, 2018;Pratiwi & Chariri, 2021). Thus, Saudi Arabia's Corporate Governance Regulations (CGR) mandate a board size of 3-11.…”

“…Coleman & Wu, 2020;Dewri, 2021;Abang'a et al, 2021). Independent directors help organisations monitor management while remaining unbiased to the firm and its CEO (Assenga et al, 2018;Pratiwi & Chariri, 2021;Purbawangsa & Rahyuda, 2022). Since its start, corporate governance guidelines and guidance have emphasised the role and responsi-bilities of independent board members (Pratiwi & Chariri, 2021;Purbawangsa & Rahyuda, 2022).…”

“…Independent directors help organisations monitor management while remaining unbiased to the firm and its CEO (Assenga et al, 2018;Pratiwi & Chariri, 2021;Purbawangsa & Rahyuda, 2022). Since its start, corporate governance guidelines and guidance have emphasised the role and responsi-bilities of independent board members (Pratiwi & Chariri, 2021;Purbawangsa & Rahyuda, 2022). Only a little amount of empirical agency theory research shows a negative relationship between independent directors and financial success (He, 2021) or no significant relationship (Almaqtari et al, 2021).…”

“…Only a little amount of empirical agency theory research shows a negative relationship between independent directors and financial success (He, 2021) or no significant relationship (Almaqtari et al, 2021). However, most empirical agency theory-focused research (Dewri, 2021;Abang'a et al, 2021;AlFaryan, 2021;Pratiwi & Chariri, 2021;Purbawangsa & Rahyuda, 2022) suggests that independent directors improve enterprises' financial performance. In non-financial corporations, more independent directors on boards should improve oversight and reduce managerial opportunism for shareholder benefits and financial performance (Assenga et al, 2018;Pratiwi & Chariri, 2021;Purbawangsa & Rahyuda, 2022).…”

“…However, most empirical agency theory-focused research (Dewri, 2021;Abang'a et al, 2021;AlFaryan, 2021;Pratiwi & Chariri, 2021;Purbawangsa & Rahyuda, 2022) suggests that independent directors improve enterprises' financial performance. In non-financial corporations, more independent directors on boards should improve oversight and reduce managerial opportunism for shareholder benefits and financial performance (Assenga et al, 2018;Pratiwi & Chariri, 2021;Purbawangsa & Rahyuda, 2022). For example,Saudi Arabian Corporate Governance Regulations (CGR) require one-third of the board of directors to be independent, including the director, and one-third to have accounting and financial qualifications and knowledge of the company's work.…”