Chapter V CONCLUSIONS AND RECOMMENDATIONS
D. Classical Assumption Test
1. Hypothesis Testing
a. Coefficient of Determination
In multiple linear regression test were analyzed also the coefficient of determination (R2). Coefficient of determination used in this study to see the influence of the independent variable (Board of Commissioners size, Independent Board of Commissioners composition, Institutional Ownership, Managerial Ownership and Board of Directors size) of the dependent variable
66 (Return on assets). Value of the correlation coefficient (R) shows how much correlation or relationship between the independent variables with the dependent variable Sarwono (2014: 100).
Table 4.6
Coefficient Determination
Source: Output SPSS 23
Table 4.6 shows that the correlation coefficient (R) for 0.763, which means that the correlation between the dependent variable with the independent variables are strong correlation based on the criteria correlation coefficient value ( > 0.75 – 0.99 ) is very strong correlation. Adjusted R Square value or coefficient of determination is equal to 0.582. This figure shows that the five independent variables in the research of board of commissioners size, independent board of commissioners composition, institutional ownership, managerial ownership and board of directors can explain 55.8% of the amount of return on assets and the remaining (100%- 55.8%) 44.2% is explained by other variables like audit committee size, family ownership, company size and ect.
b. Multiple regression analysis
This research show that the effect of good corporate governance indicator on profitability (ROA). Here is the result of multiple regression analysis :
R R Square Adjusted R Square
Std. Error of the Estimate
.763a .582 .558 .6.19648
67 Table 4.7
Regression Analysis
Model Unstandardized Coefficient
B Std. Error
BOC 1.504 4.711
BOD 4.316 4.621
INBOC 7.530 .750
IO .087 .041
MO .387 .175
Source: Output SPSS 23
From table 4.7 above stated that the Board of Commissioners (BoC) size and Institutional Ownership (IO), Independent Board of Commissioners composition (INBOC) and Managerial Ownership (MO) positively affect the Return on Assets (ROA) while Board of Directors (BoD) size negatively affect the return on assets.
Based on the table 4.7, it can be seen the relationship between BOC, BOD, INBOC, IO and MO to ROA:
ROA = - 5.670 + 1.504BOC + 7.530 INBOC + .087 IO + .387MO + 4.316 BOD + e
From the multiple linear regression equation above, it can be explained for each variable as follows:
1) Constant at -5.670units stated that if there is effect or unchanged in X1, X2, X3, X4 and X5 (BOC, INBOC, IO, MO, and BOD) then the value of return on asset will be – 5.670.
2) Regression coefficient of variable X1 (BoC) marked positive +1.504 it shows that the effect of board of commissioners size on
68 the return on assets is positive or parallel, which means that if the value of the board of commissioners size variables change increased by one point, then the value of return on assets will increase by +1.504, with assumption variables X2, X3, X4 and X5 (INBOC, IO, MO, and BOD) remain or unchanged.
3) Regression coefficient of variable X2 (BOD) marked positive 4.316 it shows that the effect of board of director size on return on assets is positive or parallel, meaning that if the value of the board of directors size variable change increase by one point, then the value of return on assets will increase by 4.316.assuming variables X1, X2, X3 and X4 (BOC, INBOC, IO and MO) remain or unchanged.
4) Regression coefficient of variable X3 (INBOC) marked positive +7.530. it explain that the effect of independent board of commissioners composition on return on assets is positive or parallel, which means that if the value of independent board of commissioners composition variable changes increase by one point, then the value of return on assets will increase by +7.530, with assumption variables X1, X3, X4 and X5 (BOC, IO, MO, and BOD) remain or unchanged.
5) Regression coefficient of variable X4 (IO) marked positive +0.087it shows that the effect of institutional ownership on the return on assets is a positive or parallel, meaning that if the value
69 of the institutional ownershipvariable change or increase by one point, then the value of return on assets would increase by + 0.087 assumingvariables X1, X2, X4 and X5 (BOC, INBOC, MO, and BOD) remain or unchanged.
6) Regression coefficient of variable X5 (MO) marked negative +0.387 it shows that the effect of managerial ownership on return on assets is positive or parallel, meaning that if the value of the managerial ownership variable change increase by one points, then the return on assets will increase by +0.387 assuming variables X1, X2, X4 and X5 (BOC, INBOC, IO and BOD) remain or unchanged.
c. Simultaneous Significant Test (F-Test)
The F test of hypothesis testing is used to see whether the overall independent variables have a significant effect on the dependent variable.
From the test results simultaneously obtained as follows:
70 Table 4.8
Simultaneous Test Results (F-Test)
ANOVAa
Model Sum of Squares Df Mean Square F Sig.
1 Regression 4606.494 5 921.299 23.994 .000b
Residual 3302.090 86 38.396
Total 7908.584 91
a. Dependent Variable: ROA
b. Predictors: (Constant), MO, INBOC, BOC, IO, BOD
Source: Output SPSS 23
From the table 4.8 the results of the calculation of the F test statistic of 23.994 with probability 0.000. Because the probability is smaller than 0.05, which means simultaneously all independent variables board of commissioners, independent board of commissioners composition, institutional ownership, managerial ownership, and board of directors size on the return on assets. Corporate governance is a system that regulates and control of a company that is expected to provide and improve the company performance to the shareholders. Dey Report (1994) in Febriyanto (2013) explain that corporate governance effective in the long term can improve the profitability and benefit the shareholders. Means the control functions have been implemented efficiently on companies are being sampled in this research.
Therefore implementation of good corporate governance believed to increase profitability. The results of this research there are successfully supported by
71 the results research conducted by Herawaty (2008) who found a positive relationship between corporate governance on profitability.
c. Significant Partial Test (T-Test)
Statistical t-test performed to further investigate which of the independent variables in influencing the dependent variable. The hypothesis that will be tested as follows:
Table 4.9
Partial Test Results (T-Test)
Model
Unstandardized Coefficients
Standardized Coefficients
T Sig.
B Std. Error Beta
1 (Constant) -5.670 4.270 -1.328 .188
BOC 1.504 4.711 .027 .319 .750
BOD 4.316 4.621 .080 .934 .353
INBOC 7.530 .750 .728 10.036 .000
IO .087 .041 .165 2.138 .035
MO .387 .175 .176 2.210 .030
Source: Output SPSS 23
By Seeing Table 4.9, the results of significant test partial (T-Test) are as follows:
a) Variable Board of Commissioners
Variable (H1) has a significance level 0.750 is greater than the significance standard level 0.05. This shows that the board of commissioners does not have a significant effect on return on assets. Thus the first hypotheses (H1), which states that, the effect of Board of Commissioners on the Profitability (ROA) are rejected.
72 The result was consistent with results from Yermack (1996) ,Lorderer and Peyer (2002)which states that the more personnel into the commissioners can result in worse company performance. That is because with the increasing number of commissioners then this body will have difficulty in carrying out its role, including difficulties in communication and coordination among members of the board of commissioners.
These findings are inconsistent with Yonnedi and Yulia (2011) found that bigger board of commissioners’ size effect to increasing the profitability and consistent Hardikasari (2011) states that board of commissioners’ size has effect to increasing of profitability.
b) Variable Board of Director
Variable (H2) has a significance level 0.353 greater than the significance standard level 0.05. This shows that the board of director does not have a significant effect on return on assets. Thus the second hypotheses (H2), which states that the effect of Board of Director on the Profitability (ROA) are rejected.
The result consistent with previous research, including those conducted by Jensen (1993), Lipton and L'orsch (1992) and Yermack (1996) found no significant effect of board of directors size on profitability. The company has a large of board of director size cannot do the coordination, communication, and decision-making better than the company that has a smaller board of director.
These findings are inconsistent with Febriyanto (2013) find the effect between board of directors size and company performance, higher board of
73 directors size of the company will provide a form of supervision over good performance and control, it will generate good profitability and will be able to improve the company performance.
The result inconsistent with Pearce & Zahra (1992) cited in Faisal (2004) which states that an increase in the size of the board of directors will provide benefits for the company, since the creation of networks with parties outside the company and ensure the availability of resources, the board of directors of the company monitoring the companies best possible way to establish the purpose of the company, which ultimately can help to improve the profitability.
c) Variable Independent Board of Commissioners
Variable (H3) has a significance level 0.000 less than the significance standard level 0.05. This shows that the independent board of commissioners size has a significant effect on return on assets. Thus the hypotheses (H3) which states that the effect of the size Independent Board of Commissioners on the Profitability (ROA) can be accepted.
The result was consistent with results from Fama and Jensen (1983) states that independent commissioners will be more effective in monitoring management. monitoring by independent commissioners considered able to solve the agency problem. In addition, independent commissioner scan contribute to increase sales.
The result was consistent with results from Gani & Jermias (2006) they found that board independence is tied to profitability by looking at different
74 strategies. It is well known that corporate performance and its relationship to the board need to be studied within the broader picture of the corporate structure and governance of a country. One possibility is the institutional and corporate structure differences among the countries studied. For example, the level of ownership concentration may influence the effectiveness of independent directors in monitoring firm performance (Lawrence & Stapledon 1999).
These findings are inconsistent with Wijayanti & Mutmainah (2012) which states that the board of independent commissioners are people who come from outside the company, this allows the knowledge of the board of independent directors on the conditions and circumstances the company is also relatively limited, this causes the ineffective role of the board of independent commissioners in improving profitability. And probably occur a situation where the board of directors and board of commissioners that comes from inside the company are not overly considering the inputs given by the board of commissioners from outside the company, thereby causing the lack of influence of the board of independent commissioners to the profitability.
d) Variable Institutional ownership
Variable (H4) has a significance level 0.035 less than the significance standard level 0.05. This shows that the institutional ownership has a significant effect on return on assets. Thus the four hypotheses (H4) which states that the effect of the Institutional Ownership on the Profitability (ROA) can be accepted.
75 These findings are consistent with results from Tarjo (2008) institutional ownership may indicate the presence of institutional investors that strong corporate governance mechanisms which can be used to monitor the management of the company.
These findings are consistent with results Yonnedi and Yulia (2011) Higher institutional ownership will be automatically causes higher ability to monitoring the management to act in accordance with the expectations of shareholders. The higher management oversight means that higher effect on management performance to perform well and produce return on asset, so that motivate the manager to manage the profit to be diminished and the higher institutional ownership then it’s going to reduce the behavior of opportunistic managers who can reduce the agency cost that is expected to increase profitability (wahyudi and pawestri, 2006).
These findings are inconsistent with results Wulandari (2006) which found that institutional ownership does not affect the profitability because the majority owner of the institution involved in the control of companies that tend to act in their own interests although sacrifice the minority owners.
e) Variable Managerial ownership
Variable (H5) has a significance level 0.030 less than the significance standard level 0.05. This shows that the managerial ownership has a significant effect on return on assets. Thus the five hypotheses (H5) which states that the effect of the size Board of Director on the Profitability (ROA) can be accepted.
76 These findings are consistent with results from Jensen (1993) managerial ownership can help pooling of interests between shareholders and managers, increasing the proportion of managerial ownership can effect to increasing the profitability . Managerial ownership will encourage management to improve profitability, because they also have company. The greater proportion of management ownership, the management tends to try harder in the interests of shareholders in improving company performance. Improved profitability will indicate higher Return on Asset. Manager shave company stock tend to make a strategy to improve profitability in the long run.
This result inconsistent with Haryani et al. (2011) result, they find there is no effect between managerial ownership on profitability in Indonesia caused by the structure of managerial ownership in Indonesia is still very small compared to the institutional ownership of corporations listed on the Indonesia Stock Exchange. With small holdings, the managers do not feel they have the company so that the profitability. Thus, managerial ownership has not been able to be a mechanism that increases the profitability.
77 CHAPTER V
CONCLUSION AND RECOMMENDATION A. Conclusion
This research aim to analyze the effect of good corporate governance (board of commissioners, board of director, board of independent commissioners, institutional ownership and managerial ownership) on profitability.
From the results of research conducted on the effect of good corporate governance on profitability in the menufacture companies listed on Indonesian Stock Exchange during the period 2012-2015, by use multiplier linear regression it can be concluded as follows:
1. These results indicate that Board of Commissioners size does not effect the profitability. The result consistent with previous research Yermack (1996) Lorderer and Peyer (2002). The result inconsistent with previous research Yonnedi and Yulia (2011).
2. These results indicate that board of directors size does not effect the profitability. The result consistent with previous research Jensen (1993), Lipton and L'orsch (1992) and Yermack (1996). The result inconsistent with previous research, Febriyanto (2013). The result inconsistent with previous research, including those conducted by Pearce & Zahra (1992) cited in Faisal (2004).
3. These results indicate that board of independent Commissioners size have effect the profitability. The result consistent with previous research, Fama
78
& Jensen (1983).The result consistent with previous research by Gani &
Jermias (2006). The result inconsistent with previous research, including those conducted by Wijayanti & Mutmainah (2012).
4. These results indicate that institutional ownership haveeffect the profitability. The result consistent with previous research, including those conducted by Tarjo (2008). The result consistent with previous research, including those conducted by Yonnedi & Yulia (2011). The result inconsistent with previous research, including those conducted by Ardy (2013), Hapsoro (2008) & Wulandari (2006).
5. These results indicate that the managerial ownership haveeffect the profitability. The result consistent with previous research, including those conducted by Jensen (1993). The result inconsistent with previous research, including those conducted by Haryani et al. (2011).