Background
In its implementation, the key word of the implementation of good governance in the enterprise depends on who (who) and why (why) should control the business activities. Agency theory is recognized by most researchers as one of the theories that can explain the implementation of governance in the company.
Research Objectives
In other words, both Sharia-based and conventional companies will have a better financial profile if they implement corporate governance. Empirically testing and analyzing the mediation function of the Investment Base Social Commitment (IBASOC) under the influence of corporate governance on corporate performance.
Benefits of Research
- Theoretical Benefits
- Practical Benefits
For researchers, this study can be a reference for more in-depth studies on corporate governance, its relationship with funding decision choices and its impact on company performance.
THEORY REVIEW
Agency Theory
When one of the two concerns a manager acting in the best interest of shareholders (minority shareholders). Management may take actions that do not benefit the company as a whole, which may harm the interests of the company in the long run.
Resources Dependence Theory
In principle, stakeholders can control or influence the use of economic resources used by companies. These capabilities may include the ability to limit the use of limited economic resources (capital and labor), access to influential media, the ability to regulate businesses, or the ability to influence the consumption of goods and services produced by the business.
Resource Dependency Theory
Because when further the investment opportunities of the company depend on many factors, firstly, Firm-specific and industry-specific. Christie, (1989) found that the main factor determining investment success was operating factors such as entry restriction and product life cycle. Penrose, (1959) saw the company as a collection of productive resources.
Structure of Good Corporate Governance
The implementation of corporate governance can be reflected in the value of the company as reflected in the share price of the company concerned. According to Black et al. 2002), an alternative explanation for the relationship between corporate governance practices and firm value according to research is signaling and endogeneity.
Stakeholders Theory
Descriptive arguments say that stakeholders' views are a more realistic description of how the company actually works. This finding makes sense because good relationships with stakeholders are in themselves a source of value for the company.
Legitimacy Theory
Resource Dependency Theory
This external control over resources can often reduce managerial discretion, which hinders the achievement of organizational goals and ultimately threatens the existence of the organization (Scott, 1998). From this perspective, organizations can manage increased dependence by adapting to or avoiding external demands, as well as implementing resource dependence theory strategies, including the following: 1) changing interdependence through integration, mergers, and diversification, 2) establishing a collective structure to create a negotiated environment, and 3 ) the use of legal, political or social measures to shape the environment it created (Pfeffer dan Salancik, 1978). Understanding resource dependence theory according to Emerson (1962) that power and dependence are closely related, Pfeffer and Salancik (1978) stated and argued that it is necessary to formulate certain strategies in managing the external environment and discussing the relevant conditions.
SignalingTheory
According to Jogiyanto (2000), the information published as an announcement will be a signal to investors when making investment decisions. If the announcement of the information sends a good signal to investors, then there is a change in stock trading volume.
Board Role Intensity (IPD)
The composition of the board is measured by the percentage of independent commissioners from the total number of commissioners. This study examined the impact of board independence and committee effectiveness with reference to company value.
Ownership Concentration (KKE)
Managerial Ownership (KMA)
The results of this study are consistent with Demsetz and Lehn (1985) that the ownership structure has no significant relationship. While research conducted by Shleifer and Vishny (1986) concluded that the increase in share ownership by large block shareholders significantly increased the firm share price. By looking at the differences in conclusions above, it shows that there are still differences in influence between ownership structures on the firm's performance in accordance with the two theories that underlie the ownership structure, namely alignment theory and entrenchment theory.
IBASOC
This ratio shows the degree of efficiency of investments, which is reflected in the rate of turnover of assets. The asset turnover ratio in the agent context is used by Ang, et al. Data obtained from the annual report in the form of disclosure of corporate social responsibility activities, calculated in monetary units.
CSR reporting or social disclosure is the company's strategic plan to show the company's social performance to stakeholders (Roberts, 1992). Pelaporan CSR as part of the dialogue between the company and stakeholders (Gray et al., 1995). The form of accountability Sosial Company is presented to stakeholders in the form of mechanisms in the form of company reports in the form of annual accounts, annual reports and other types of reports.
The report is a form of financial and non-financial information regarding the organization's interaction with the physical and social environment, as stated in the annual report or separate social reports (Hackston and Milne, 1996). Data obtained from the company's social disclosure includes details on the physical environment, energy, human resources, products, and issues of community engagement and financing.
Firm Reputation (RPE)
Gotsi and Wilson (2001) define corporate reputation as the overall evaluation of a firm's stakeholders over time. The company's reputation is a reflection of the company's past perceptions and future prospects, which illustrate how attractive the company is in all key elements compared to other leading rivals (Fombrun, 1996). In other words, a review of the literature clearly shows a positive relationship between firm reputation and aspects of firm performance (Roberts and Dowling, 2002).
The most important factor influencing the company's reputation is its financial performance, although reputation can be greatly affected by the ethical behavior of the company's members. At a time when a company's earnings and stock price have outperformed other companies in the industry and the broader market, they typically have a better reputation with businesses and consumers than when the company's financial performance lagged the market. Previous research supporting financial performance has tarnished the company's reputation, including: McGuire and Branch (1990); Hammond and Slocum (1996); Dunbar and Schwalbach (2000);
According to Neville et al. 2005), a firm's financial performance will be directly and significantly related to the company's reputation. Regarding the relationship between stakeholder power, corporate social performance, and corporate financial performance, they argue that the positive relationship between corporate reputation and corporate financial performance will strengthen as it increases stakeholder power.
Development of Empirical Research Hypotheses and Models
- Corporate Governance and Corporate Performance Relationships
- Relationship of the board of commissioners with corporate performance
- Relationship of the number of independent commissioners with corporate
- Institutional ownership relationship with corporate performance
- Relationship of number of meeting frequencies with corporate performance
- Relationship of the board of commissioners with the Invesment Base Social
- Relationship of the number of independent commissioners with the Invesment
- Institutional ownership relationship with Invesment Base Social Comitment
- Invesment Base Social Comitment (IBASOC) as mediating the number of
- Invesment Base Social Comitment (IBASOC) as an independent commissioner
- Invesment Base Social Comitment (IBASOC) as the mediation of institutional
- Invesment Base Social Comitment (IBASOC) as the mediation of meeting
- Relationship of Invesment Base Social Comitment (IBASOC) with Financial
- Investment Innovation Relationship with Corporate Performance
- Investment Innovation as Mediation between Invesment Base Social Comitment
With the increase of the board of commissioners, it is likely that the financial performance of the firm will improve because the monitoring mechanism works in a transparent and accountable manner. Institutional ownership is the ownership of the number of shares of the company by other non-banking companies. The independence of the board of commissioners will be a positive indicator for the implementation of monitoring in accordance with the agreed governance, as forwarded by Carter, et al.
H9 : Investment base social commitment (IBASOC) mediates the influence of the number of commissioners on corporate performance. H10 : Investment base social commitment (IBASOC) mediates the influence of the number of independent commissioners on corporate performance. When the company has a number of potential investments that can be made in the future, the value of the company will also increase.
The growth opportunities seen from the investment opportunities held by the company will influence the decisions of the firm's breeders. H9 Investment Base Social Commitment (IBASOC) mediates the impact of the number of commissioners on firm performance.
RESEARCH METHODS
The four influences of social capital-based funding mediation on the influence of corporate governance structures and mechanisms on firm performance and the influence of. The impact of corporate governance on firm performance: a study on financial institutions in Sri Lanka. A Study of the Impact of Corporate Governance Practices on Firm Performance in Indian and South Korean Companies".
Corporate Governance and Firm Performance with Special Emphasis on the Banking System: Empirical Evidence from Montenegro”. The relationship between family business, corporate governance and firm performance: evidence from the Mexican stock market”.
DATA ANALYSIS AND DISCUSSION
Data Analysis Research
The data collected in this research was obtained from the Capital Market Reference Center of the Indonesian Stock Exchange (d/h Jakarta Stock Exchange/IDX) by downloading from the website www.jsx.co.id and from the Capital Market Data Center (PDPM) semarang. The companies sampled in this study are companies that participated in the CGPI (Corporate Governance Perception Index) rating program during the period with the following criteria: (1) Publication of annual reports and financial statements from 2009 to 2015; (2) data on the number of authorized representatives, the independent board of authorized representatives, institutional ownership and the frequency of meetings or the number of sessions; (3) Have data on financial leverage, return on assets, related parties and firm liabilities to related parties and joint assets. The selection of samples was classified based on the above criteria and obtained in 31 companies from 2009 to 2015, so that as many as 195 observation data were obtained (Appendix 1).
Empirical Research Model Assumption Testing
- Uji Multikolinearitas
- Test the Goodness of Fit Empirical Research Models
- Model Testing
- Hypothesis Testing
DISCUSSION OF RESEARCH RESULTS
Discussion of Research Results
The first research structure tested four hypotheses that represent the structure and mechanism of corporate governance in relation to firm performance. In accordance with the research framework and research hypotheses 1 to 4, it is estimated that corporate governance will be able to improve the company's performance. Through the innovation presented in this thesis, Investeringsbase Social Commitment (IBASOC) shows that a certain percentage of social capital contributes to the company's financing decisions.
Godesiabois (2008); Du et all(2013) agreed that the social capital owned by the company has an influence on the capital structure. Investment Base Social Commitment (IBASOC) is a concept that explains the relationship between how financing decisions can change due to social capital factors. Investment Base Social Commitment (IBASOC) will be able to support the realization of the company's goals in the short term, namely the achievement of profit.
This Investment Basic Social Commitment (IBASOC) will develop in a business environment with good corporate governance. The function of social capital-based financing as a mediation in the relationship of corporate governance structures and mechanisms - from the number of boards of directors - to the performance of the company in the direction of positive relations.
Research Implications
