Analysis of the Effect of Corporate Governance on Profitability and Market Performance Empirical Studies on Non-Financial Public Companies Listed on the Indonesian Stock Exchange In 2008
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Abstract
The economic crisis that happened in the Asian region, especially in Indonesia in early July 1997 caused many corporate bankruptcies. The impact of that case is the increasing awareness of the importance of good corporate governance in all its aspects within the company. Corporate governance issues also arise because of conflicts of interest in the company between the shareholders and the management of the company which is known as The Agency Problem. With the implementation of good corporate governance within the company, it is expected to bring positive impact to the company, especially for the company's performance. The factors of corporate governance that will be examined its effect on firm performance are independent commissioners, audit committees, external auditors and foreign ownership and the control variables are firm size and leverage of the company that may affect the implementation of corporate governance on firm performance. This study relates the corporate governance factors to profitability performance as represented by return on assets and market performance as represented by price to book value by using data that provided of 105 companies coming from eight industries (all industries except banking and financial industry) that listed in IDX in 2008. This study found that the independent commissioner had no positive and significant influence both on market performance and profitability performance. The audit committee has positive and significant influence on market performance, but not to profitability performance. The external auditor has a positive and significant impact on the profitability performance but not to market performance. Meanwhile, foreign ownership doesn't have a positive and significant influence for both profitability and market performance.
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