S I D H A R TA U TA M A F E U I
Public dan Corporate Governance serta Pengaruhnya terhadap Kinerja Perusahaan
Objectives
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To provide evidences of public and corporate governance practices in Indonesia,
To explain the effect of public governance on corporate governance
To explain the effect of public and corporate governance on firm performance
A C G A – C L S A C G C O U N T R Y A N D C O M PA N Y A S S E S S M E N T
A S E A N C G S C O R E C A R D C G A S S E S S E M E N T O N P L C S
W O R L D W I D E G O V E R N A N C E I N D I C AT O R S
Corporate Governance: Aligning
Corporate, Shareowner, Public Interests
“An effective system of corporate governance must strive to
channel the self-interest of managers, directors and the advisors upon whom they rely into
alignment with the corporate, shareholder and public interest.”
Ira Millstein
Senior Partner, Weil Gotshal & Menges, LLP Senior Associate Dean, Corporate Governance, Yale School of Management
Chair Emeritus, the Forum’s Private Sector Advisory Group
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4
OECD Corporate Governance
Principles
IICD
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Ensuring the basis for an effective corporate governance framework
Protecting Rights of Shareoweners
Equitable Treatment of Shareholders
Respecting Rights of Stakeholders
Disclosure and Transparency
CLSA - ACGA CG Watch 2012
IICD
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CLSA – ACGA conduct an CG assessment at country and company level every two years. Environmental and social issues are also
addressed.
Twelve countries (including Indonesia) are surveyed.
The assessment primarily is based on questionnaires sent to to institutional investors in the Asia region.
CG Watch market scores: 2007 to 2012
IICD
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(%) 2007 2010 2012 Trend of CG reform
1. Singapore 65 67 69 Improving, but culture needs to open more 2. Hong Kong 67 65 66 Static, but reinvigorated regulator positive 3. Thailand 47 55 58 Improving, but corruption a major issue 4. = Japan 52 57 55 Government stalling, companies opening 4. = Malaysia 49 52 55 Culture at last showing signs of openness 6. Taiwan 54 55 53 Rules improving, but still behind the curve 7. India 56 48 51 Enforcement up, Delhi an obstacle
8. Korea 49 45 49 Government more open, chaebols closed 9. China 45 49 45 Rules improve, but culture still weak 10. Philippines 41 37 41 Improving, but will it be sustained?
11. Indonesia 37 40 37 Regressing, but new regulator may help
CG Watch: Market Category Scores
ASEAN Capital Market Forum: Raising CG Practices with
ASEAN CG Scorecard
I I C D, Please do not distribute without IICD's permission Rules/StandardsEnhancing CG Rules/Standards Adoption of CG
Practices Encouraging
Voluntary Adoption of CG
ASEAN CG Scorecard
CG Scorecard: Results for Indonesia
I I C D, Please do not distribute without IICD's permission
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0 20 40 60 80 100 120
Mengapa perlu Good Public Governance (GPG)?
Mengurangi masalah keagenan di sektor publik dengan meningkatkan transparansi serta pengawasan yang efektif pada:
Eksekutif Legislatif Yudikatif
Badan Pengawas dan Pemeriksa
Memastikan tercapainya tujuan pemerintah:
Memajukan kesejahteraan umum, keadilan sosial,
GPG Principles (WGI)
Voice and Accountability: The extent to which a country's
citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media.
Political Stability and Absence of Violence: The likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically-motivated violence and terrorism.
GPG Principles
(Worldwide Governance Indicators)
Regulatory Quality: The ability of the government to formulate
and implement sound policies and regulations that permit and promote private sector development.
Rule of Law: The extent to which agents have confidence in and
abide by the rules of society, and in particular the quality of
contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence.
Control of Corruption: The extent to which public power is
Worldwide Governance Indicators, 2012
The Worldwide Governance Indicators (WGI):
A research dataset summarizing the views on the quality of
governance provided by a large number of enterprise, citizen and expert survey respondents in industrial and developing countries.
Data are gathered from a number of survey institutes, think
tanks, non-governmental organizations, international organizations, and private sector firms.
The WGI do not reflect the official views of the World Bank, its
Indonesia: Rank (%) of Governance Indicators over time
Year 19980.0 Year 2005 Year 2011 5.0
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Public Governance, Corporate
Governance and Firm
19 Public
Governan ce
Corporate Governance
Firm
performance PUBLIC GOVERNANCE AND
Government Quality and Corporate
Governance
(Fan et al.2011)
21“...the extent to which government officials' and
politicians' decisions benefit the citizen they serve, and whether the decisions are made and executed in a
legally and socially acceptable manner.” (p. 209)
Low quality government results in firms (in Fan et al.
2011):
conducting bribery and political connection building
(Charumilind et al., 2006; Claessens et al., 2008; Fan et al., 2008).
having complex organizational structures, poor
transparency and weak corporate governance (e.g.,
Why do countries matter so much for corporate
governance? (Doidge et al. 2004)
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Country characteristics (investor protection, economic and financial development,
institutional infrastructure) are more
important than company characteristics in determining the level of corporate
governance.
Investor protection at country level is an important determinant of corporate
Legal System and CG (Klapper and Love, 2004)
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Legal system (Efficiency of the Judiciary, Rule of Law, Corruption, Risk of Expropriation, and Risk of Contract Repudiation) has a positive relation with firm-level CG.
CG has a positive relation with firm value and performance and the relation is stronger in
Moderating Effect of PG on the Impact of CG on Loan Contracting
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Ge et al. (2012): “favorable effect of
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Research Opportunities in the
Relation between Governance
CG as a Determinant of Earnings Management: Evidences in Indonesia*
Voluntary Disclosure
CG Index (n.s)
% of Independent Commissioner (n.s)
Related Party Transactions (mixed)
Managerial Ownership (mixed)
Institutional Ownership (mixed)
Existence of Audit Committee (n.s)
Number of board members (n.s)
CG as a Determinants of Earnings Quality: Evidences in Indonesia*
Size of BOC (+)
Independence of BOC (+)
Number of members of audit committee (n.s)
% of independent members in audit committee (n.s) Existence of audit committee (mixed)
Managerial ownership (n.s.) Institutional ownership (n.s) Composition of BOC (n.s.)
Audit Quality (size and specialization) (n.s)
Why most governance variables are not significant?
Suitability of governance mechanism in Indonesia
Ownership structure and group affiliation are not adequately be considered
Suitability of governance mechanism in Indonesia
US & UK: Dispersed ownership structure: management expropriates wealth of
shareholders (Type 1 Agency Costs)
Shareholders appoint members of BOD
Board of Directors: Majority should be independent
(from key executives)
Members of Audit Committee appointed by BOD Managerial ownership: Employed to align
management’s interest with shareholders’ interest.
Insitutional ownership: Have the capacity and
Suitability of governance mechanism in Indonesia
Indonesia:
Concentrated ownership with control right of controlling
shareholders exceeding their cash-flow right.
More concentrated ownership reduces type 1 agency
costs
Controlling shareholders effectively determine members
of BOC (including independent commissioner) and BOD. Management is under control of controlling
Suitability of governance mechanism in Indonesia
However, it increases the likelihood of
controlling shareholders expropriate the
wealth of non-controlling shareholders
(Type 2 agency costs)
Can BOC be effective in overseeing BOD
Suitability of governance mechanism in Indonesia
Managerial ownership:
The measure may actually represent ownership of
controlling shareholders
Maybe useful to reduce agency costs if managers
are all professionals (i.e. Not related to controlling shareholders)
Institutional ownership:
Its role under concentrated ownership is different
Areas to Research: Corporate Governance and Financial Reporting Quality
Impact of corporate governance variables on financial
reporting quality:
Divergence of Control Rights and Cash Flow Rights
Representation of controlling owners and government officials in
BOC and BOD
Family controlled firms; Group affiliation
Related party transactions: efficient vs abusive
Qualification of BOC: Financial literacy, Independency, Diversity,
Competency
Competency, Independency, Duties and authorities of Internal Audit
Qualification of Audit Committee (input, process)
Moderating effect of PG variables on the impact of CG
34 Public
Governan ce
Corporate Governance
Quality of Financial Report
FUTURE RESEARCH: MODERATING EFFECT OF PUBLIC GOVERNANCE ON THE
References
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ACMF-ADB, ASEAN Corporate Governance Scorecard: Country Report and
Assessments 2012-2013,
ACMF, ASEAN Corporate Governance Scorecard - template,
www.theacmf.org/ACMF/upload/asean_cg_scorecard.pdf
CLSA, 2012, CG Watch 2012: Corporate Governance in Asia,
http://www.acga-asia.org/loadfile.cfm?SITE_FILE_ID=658
Doidge, C., G. A. Karolyi, and R. M. Stulz, 2007, Why do countries matter so
much for corporate governance?, Journal of Financial Economics 86, 1-39.
Fan, J.P.H, K.C.J. Wei, and X. Xinzhong, 2011, Corporate finance and governance
in emerging markets: A selective review and an agenda for future research,
Journal of Corporate Finance 17, 207-214.
Ge , W., J. B. Kim, B.Y. Song, 2012, Internal governance, legal institutions and
bank loan contracting around the world, Journal of Corporate Finance 18, 413-432.
Klapper, L.F. And I. Love, 2004, Corporate governance, investor protection, and
performance in emerging markets, Journal of Corporate Finance 10, 703-728.
Worldwide Governance Indicators,
