ANALYSIS OF THE INFLUENCE OF GOOD CORPORATE GOVERNANCE ON COMPANY VALUE WITH PROFITABILITY AS A VARIABLE MODERATION IN MANUFACTURING COMPANIES LISTED ON INDONESIA STOCK EXCHANGE

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International Journal of Economic, Business, Accounting, Agriculture Management and Sharia Administration |IJEBAS

E-ISSN: 2808-4713 |https://radjapublika.com/index.php/IJEBAS 473 ANALYSIS OF THE INFLUENCE OF GOOD CORPORATE GOVERNANCE

ON COMPANY VALUE WITH PROFITABILITY AS A VARIABLE MODERATION IN MANUFACTURING COMPANIES

LISTED ON INDONESIA STOCK EXCHANGE

Fransiska Sirait¹, Rina Bukit², Narumondang Bulan Siregar³

1,2,3Faculty of Economics and Business, University of North Sumatra Email : [email protected]

ABSTRACT

This study aims to determine the effect of good corporate governance, namely the size of the board of commissioners, managerial ownership, institutional ownership, independent commissioners and risk management on firm value in manufacturing companies listed on the Indonesia Stock Exchange.

In addition, this study also aims to determine whether profitability can be used as a moderating variable in the model.The research design is a causal relationship research with a quantitative approach. The sample in this study was 57 manufacturing companies listed on the IDX from 2016 to 2020. The type of data used in this study is secondary data. The sampling technique used was purposive sampling. And the data analysis technique used multiple linear regression analysis and interaction test (moderating) which was carried out with the help of SPSS software.The results in this study indicate that partially the size of the board of commissioners has no significant effect on firm value. Institutional ownership has a negative and significant effect on firm value. Managerial ownership, independent commissioners and risk management have a positive and significant impact on firm value. Meanwhile, profitability cannot moderate the size of the board of commissioners, institutional ownership, managerial ownership, independent commissioners and risk management on firm value in manufacturing companies listed on the Indonesia Stock Exchange.

Keywords: good corporate governance, firm value, and profitability

1. INTRODUCTION

Manufacturing companies are known as companies that provide products needed by the market. Manufacturing companies are companies that process raw goods into semi-finished goods and finished goods that have a selling value.According to the Indonesia Stock Exchange, manufacturing sector companies are divided into several industrial sectors, namely:Basic and Chemical Industry, Miscellaneous Industry and Consumer Goods Industry. The three sectors are further divided into several sub-sectors with quite a lot of companies.

The phenomenon that occurred in 2019 the stock price for the manufacturing sector fell 9.33%

(Investasi.kontan, December 2019). Several companies whose shares experienced a decline, namely PT. Unilever Indonesia Tbk, which has weakened 8.31% since the beginning of 2019. In addition, the shares of PT. Astra International Tbk also fell 15.81%. Other companies, namely the two largest cigarette companies, namely PT. Gudang Garam Tbk and PT. Hanjaya Mandala Sampoerna Tbk has also fallen by 36.50% and 43.40% respectively since the beginning of 2019. The decline in the share price of the company will affect the value of the company. The value of the company is a very important thing for the company because it will be one of the benchmarks for investors in seeing the company's financial performance from year to year.

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Volume 2 No.4 (2022)

ANALYSIS OF THE INFLUENCE OF GOOD CORPORATE GOVERNANCE ON COMPANY VALUE WITH PROFITABILITY AS A VARIABLE MODERATION IN MANUFACTURING

COMPANIES LISTED ON INDONESIA STOCK EXCHANGE Fransiska Sirait, Rina Bukit, Narumondang Bulan Siregar

474 International Journal of Economic, Business, Accounting, Agriculture Management and Sharia Administration |IJEBAS

E-ISSN: 2808-4713 |https://radjapublika.com/index.php/IJEBAS

Figure 1.1 Increase and Decrease in the Value of Manufacturing Companies in 2016-2020

Figure 1.1 shows the increase and decrease in the value of companies in the manufacturing sector in 2016-2020.On a national scale, this sector contributes in the form of increasing the economy in Indonesia. In 2020 manufacturing companies are still the leading sector of the national economy amid the pressure of the Covid-19 pandemic, where this sector grew by 3.51% of the national economy.The high and low value of the company can be influenced by several factors, one of which is good corporate governance.

Research on the relationship between GCG and firm value has been widely studied and found different results. Poluan and Wicaksono (2019) stated that GCG as proxied by kManagerial ownership and independent commissioners have no effect on firm value. Meanwhile, institutional ownership in this study has a positive and significant effect on firm value.Negara (2019) also stated that good corporate governance has no effect on the value of the company where GCG is proxied by managerial ownership, institutional ownership and the proportion of the board of commissioners.

Meanwhile, Hafizah's research (2020) also proves that GCG with independent commissioner proxies, managerial ownership, board of commissioners size and institutional ownershipdoes not affect the value of the company. Different results are also shown by researchprasetyo, et al (2020) whoargued that the application ofgood corporate governancewhich is proxied byindependent commissioners have no effect on firm value. StudyHidayat, et al (2021) found that the independent board of commissioners had a positive effectsignificant to firm value andinstitutional ownership has a negative and significant effect on firm value.Afiani and Bernawati's research (2019) found that managerial ownership does not affect firm value. Institutional ownership has a significant negative effect on firm value and independent commissioners have a significant positive effect on firm value.

Yanto's research (2018) suggests that GCG as proxied by institutional share ownership has a positive effect on firm value. Meanwhile, managerial ownership and independent commissioners have no effect on firm value.

In addition to that, in a company there is also one part that manages the possibility of risk, namely risk management. Risk management is one part of good corporate governance. A survey conducted by AON Global Enterprise Risk Management in 2010 shows that the implementation of risk management by companies in Indonesia is still relatively low compared to other countries.

Supriyadi, et al (2020) and Listiani, et al (2021) found that the effect of risk management disclosure on firm value also has a significant positive relationship. Meanwhile, Aditya (2017) and Ticoalu, et al (2021) find that risk management disclosure has no effect on firm value.

Besidesgood corporate governance, profitability also affects the value of the company.As we know profitability is related to the profits obtained by a company in running its business.When profitability increases, the company value automatically increases and vice versa, if profitability decreases, the company value also decreases (Muttaqin, 2019). The same thing was also expressed by Ulfa (2018) who found that the value of the company can be determined by the profit obtained

0,00 50,00 100,00 150,00 200,00

2016 2017 2018 2019 2020

Nilai Perusahaan

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E-ISSN: 2808-4713 |https://radjapublika.com/index.php/IJEBAS 475 from the turnover of the company's assets. The higher the profit turnover from the company's assets, the more efficient the company's asset turnover or the higher the profit earned by the company and this will affect the value of the company which will attract investors. Different results were shown in the research of Wedayanthi and Darmayanti (2016) and Hakim (2018) which found that return on assets had a negative and insignificant effect on firm value. The increase or decrease in ROA that can be obtained from the company's financial statements is not considered by investors considering the profits to be recovered, so that in the eyes of investors the rate of return has no effect in considering the ROA variable in the company. Fatoni (2020) also said that the high return on assets of a company will not affect the influence of Good Corporate Governance on the value of the company if the implementation of corporate governance is less effective and efficient.

The questions in this study are:

1. Is the size of the board of commissioners, institutional ownership, managerial ownership, independent commissioners to firm value?

2. Can profitability moderate the effect of the size of the board of commissioners, institutional ownership, managerial ownership, independent commissioners on firm value?

2.LITERATURE REVIEW 2.1.Agency Theory

According to Surifah (2017) agency theory is based on the assumption that each party involved in a contract wants to maximize their interests. In companies with a fairly high level of ownership concentration, agency conflicts may occur between controlling shareholders and non-controlling shareholders. Worokinasih (2020) argues, "agency relationships sometimes cause problems between managers and shareholders". Shareholders and managers have different goals and want their goals to be fulfilled. As a result, a conflict of interest arises between shareholders and managers. To reduce the conflict, the company needs to implement a system, namely the implementation of Good Corporate Governance (GCG). Parts of these are independent commissioners, managerial ownership and institutional ownership. The three parts have a role in maintaining the suitability of information (asymmetric information) and aligning the interests between shareholders and managers on the existence of the company.

2.2.Signaling Theory

Signaling theoryis a theory that describes the reasons companies have the urge to provide financial statement information to external parties.This signal is in the form of information about what management has done to realize the owner's wishes.Some of the things that management informs outside or external parties of is the content of financial statements such as profitability.

Profitability is an important thing that can attract investors. In addition, risk management disclosure can also be a signal for investors. With this disclosure, investors directly feel the company's openness.

2.3.Board of Commissioners Size

The board of commissioners is a leader in the organization who has the responsibility to control and supervise the use of resources so that they are in accordance with and in line with organizational goals that have been set by the organization. the more the board of commissioners, the supervision of the company will be better, there will be more advice and input for management.

Therefore, the value of the company will increase if the number of the board of commissioners increases (Agustina, 2017). With the size of the board of commissioners, it will reduce fraud in financial reporting and is expected to increase the effectiveness of supervision and seek to improve the quality of financial reports (Azizah, et al 2019).

2.4.Institutional Ownership

Institutional ownership is shares owned by institutions or institutions such as insurance companies, banks, investment companies and other institutional ownership. According to Jensen and Meckling (1976) institutional ownership has a very important role in minimizing agency conflicts that occur between managers and shareholders.The greater the value of institutional ownership, the

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more effective the supervision to the company so that the owner of the company can control the behavior of management so that act in accordance with the company's goals which will ultimately increase the value company (Lestari, 2017). The dominant controlling shareholder has strong control over the company and is expected to be able to act fairly with managers and minority shareholders (Ji-Hyun, 2022). Institutional Ownership is measured by the percentage of the number of shares owned by the institution to the number of shares outstanding in the market.

2.5.Managerial ownership

Managerial ownership is shareholders from the management (directors and commissioners) who actively participate in decision making. Jensen and Meckling (1976) stated that one way to reduce agency costs is to increase share ownership by management (internal parties). The ownership structure consisting of managerial ownership can affect the running of a company, which in turn will affect the company's performance and also the value of the company. Managerial ownership that has a controlling role in company policy making (Agustina, 2017). Managerial Ownership is measured based on the percentage of the number of outstanding shares owned by the management of the total share capital of the company circulating in the market.

3.CONCEPTUAL FRAMEWORK AND HYPOTHESES 3.1.conceptual framework

The population in this study were all consumer goods companies listed on the IDX from 2016 to 2020. In selecting the sample, a sampling technique was used, namely the purposive sampling technique. Purposive sampling technique is the technique of selecting or determining samples with certain criteria. The criteria used in this study are

1. Manufacturing companies are listed on the Indonesia Stock Exchange from 2016 to 2020.

2. Manufacturing companies that submit complete financial reports from 2016 to 2020.

3. Have an annual report that includes a report on corporate governance, namely the size of the board of commissioners, institutional ownership, managerial ownership, independent commissioners and risk management.

The data used in this research is secondary data. Regarding the data to be processed

using SPSS 25 software tools.

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E-ISSN: 2808-4713 |https://radjapublika.com/index.php/IJEBAS 477 3.2.Hypothesis

A. The size of the board of commissioners, institutional ownership, managerial ownership, independent commissioners and risk management have a positive effect on firm value

B. Profitability moderates the effect of the size of the board of commissioners, institutional ownership, managerial ownership, independent commissioners and risk management on firm value.

4.RESEARCH METHODS 4.1.Classic assumption test

1. Normality test

Source: Processed by Researchers (2022)

The test results through SPSS show that the Exact Sig. (2-tailed) is 0.093 > 0.05. So it can be said that the data has been distributed normally.

2. Multicollinearity Test

From the test results using the variance inflation factor, it shows that the value of the size of the board of commissioners, institutional ownership, managerial ownership, independent commissioners and risk management is less than 10 (<10). So it can be said that there is no multicollinearity.

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3. Heteroscedasticity Test

The test results with scatterplot images show that the points spread around the number 0 and do not form a pattern. So it can be said that there is no heteroscedasticity problem.

4. Autocorrelation Test

The test results with Durbin-Watson show that the value lies between -2 and 2 (- 2<0.266>2). So it can be said that there is no autocorrelation symptom.

4.2.Hypothesis testing

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E-ISSN: 2808-4713 |https://radjapublika.com/index.php/IJEBAS 479 The test results show that the size of the board of commissioners has a negative effect with a coefficient value of -0.014 and is not significant with a significance value of 0.455 >

0.05. This shows thatThe larger the size of the board of commissioners, the company will experience coordination and communication problems in the company. So that the information provided either in the form of direction or control by the board of commissioners becomes less effective. In addition, when the board of commissioners gives an opinion or choice to the board of directors, the board of commissioners is not independent in aligning its interests with the interests of the company. Therefore, the trust between the board of directors and the board of commissioners may not be well established, thereby reducing the effectiveness of supervision and can reduce the value of the company. The results of this study are in line with Thendean's (2019) research.

Institutional ownership has a negative and significant effect on firm value with a coefficient of -0.259 and a significance value of 0.26 <0.05. This shows that the smaller the number of institutional shareholdings can be an effective monitoring tool that can increase the value of the company. On the other hand, the larger the share by institutional ownership, it can lead to manipulation in management performance. This will cause the value of the company to decrease. This is contrary to agency theory, causing monitoring costs that can increase agency costs, namely audit fees. The results of this study are in line with the research of Dewi and Abundant (2019).

Managerial ownership has a positive and significant effect on firm value with a coefficient of 0.582 and a significance value of 0.000 <0.05. The results of the study are in line withDewi (2017) and Darmayanti (2018).This shows thatthe proportion of managerial ownership causes management to work harder for the interests of shareholders, namely itself so that it can increase the value of the company. In addition, managerial ownership can help equalize the interests of shareholders and management, thereby reducing agency conflicts that can increase firm value.

Independent commissioners have a positive and significant effect on firm value with a coefficient of 0.927 and a significance value of 0.006 <0.05.This is in accordance with agency theory where an independent board of commissioners can supervise managers in carrying out their duties and minimize fraud so that managers work actively and will increase the value of the company. This study shows that the existence of independent commissioners in the company is able to increase the value of the company. The results of this study are in line with the research of Putra (2016) and Widyaningsih (2018).

4.3.Coefficient of Determination Analysis

The test results show the value of the coefficient of determination (R-Square) is 0, 144 or in other words the independent variable affects 14.4% of the dependent variable. While the remaining 85.6% is influenced by other factors.

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4.4.Moderation Test

The test results show that profitability does not significantly moderate the size of the board of commissioners, institutional ownership, managerial ownership, independent commissioners and risk management on firm value. Each value is more than 0.05 and can be seen in the sig column.The size of the asset turnover in the company is not able to strengthen the relationship between the size of the board of commissioners and the value of the company. In addition, the more effective asset management does not encourage the company's board of commissioners to carry out their duties properly to increase the value of the company. The results of this study are in line with Herizona and Yuliana (2021). In addition, the effectiveness of asset turnover does not make the institution intend to buy back their shares in the company. No matter how big the level of profitability of manufacturing companies through ROA will not affect the relationship between managerial ownership and firm value.The effectiveness of asset turnover owned by manufacturing companies listed on the IDX has not been able to affect the performance of independent commissioners on firm value andthe high and low value of profitability cannot strengthen the breadth of information that will be conveyed in the ERM disclosure on company value to shareholders.

5.CONCLUSIONS AND RECOMMENDATIONS 5.1.Conclusion

1. The size of the board of commissioners has a negative and insignificant effect on firm value. Institutional ownership has a negative and significant effect on firm value.

Meanwhile, managerial ownership, independent commissioners and risk management have a positive and significant effect on firm value.

2. Profitability does not significantly moderate the effect of the size of the board of commissioners, institutional ownership, managerial ownership, independent commissioners and risk management on firm value.

5.2.Suggestion

1. Future research is expected to re-examine the effect of other variables that can affect firm value including leverage, liquidity, operating cash flow, dividend policy, investment decisions.

2. In the results of this study, it can be seen that profitability cannot be used as a moderating variable. So that in future research, it is expected to re-examine profitability in the research model, whether as an independent variable or as an intervening variable.

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E-ISSN: 2808-4713 |https://radjapublika.com/index.php/IJEBAS 481 Besides being able to use other profitability ratios such as return on equity, net profit margin, and others.

3. Using populations and samples outside the manufacturing company and using the most recent observation period.

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