The Effect of Good Corporate Governance Implementation in Diversification Strategy of Family Company and Its Effect on Firm Value

Abstract

Purpose: This study aims to analyze the relation of GCG implementation and diversification strategy in the family company and its effect on the corporate value that is proxied with returns of corporate share (cumulative abnormal return - CAR).
 Methodology: This study used control variables which were size, age, and growth of the company. The hypothesis test was done by using multiple regression and an average T-test. The samples of this study were companies listed in Indonesian Stock Exchange that have fulfilled the characteristics of concentrated share ownership by one family. This formulated two-equation models i.e. Dependent variable for equation model I was diversification strategy and for equation model II was corporate value.
 Results: The result of this study shows that management compensation, independent commissioners, and managerial ownership positively affect, while the number of the audit committee and leverage ratio do not affect diversification strategy. The next testing result was a diversification strategy applied by the family company that positively affects corporate value.
 Implications: In order to conduct a controlling function, a company must plan the existence of good corporate governance (GCG) that organizes the relation and responsibility between many parties involved in the company, that a number of regulations, policies, and procedures. The implementation of GCG is expected able to guarantee the action of management in line with the interest of shareholders.

Determining Company Value with Good Corporate Governance as Moderating Variable in Jakarta Islamic Index

“…Applying excellent corporate governance is one of the ways to increase the company's worth. because it aids businesses in their analysis of investments and increases their economy and competitiveness through full disclosure of all financial transactions (Nurdiono et al, 2019).…”