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THE EFFECT OF CORPORATE GOVERNANCE ON MARKET PERFORMANCE
By: Lalu Bintang Indera Praja Supervisor: Ari Kamayanti., Dr., Ak.
Student Of Economics And Business Department, International Accounting Program University Of Brawijaya
Jl. MayjenHaryono 165, Malang 65145, Indonesia Telp. 0341-555000 (Hunting), 551396 Fax 0341-553834
E-mail: info.feb@ub.ac.id, Website: http://www.feb.ub.ac.id
ABSTRACT
This study aims to determine the effect of corporate governance in LQ-45 firms listing on the Indonesian Stock Exchange, which can directly affect the performance of the market mediation. This study was based on LQ-45 member categories and also the companies who had been member of the LQ-45 in the period of 2012-2013. Judgment sampling was employed. The data was collected using a tabulation tested for validity and reliability. The analysis is for the path analysis software testing by SMART PLS. the results found that one received significant negative effect direct corporate governance performance of the market.
But the second results found that a positive significant indirect effect among implications of further research, the Indonesian Stock Exchange and the FSA (Financial Service Authority) need to be constantly to promote the capital market and a strong need for effective supervision for the sake of making a stable stock market efficiency.
Keywords: Corporate Governance, Capital Structure, Market Performance 1.Backgroud
Capital structure development is always fraught with uncertainty that tends to drive away to Indonesian issuers investors. Indonesia has not a lot of financial institutions which are supervised by the state administration, such as Indonesia Ministry of Financial, OJK (OtoritasJasaKeuangan), IDX (Indonesia Stock Exchange), KSEI (KustodianSentralEfek Indonesia), KPEI (KliringPenjaminEfek Indonesia) and many others. These financial institutions engage in capital market Indonesia and some of these have specific duties such as underwriters, brokers, as well as price appraisal.The stock prices are always changing by the second. The fluctuations in stock prices are influenced by a number of factors. Among the dominant factors are corporate governance and capital structure which can affect a company’s market performance. Corporate governance leads the company to have high liquidity value which may attract investors to buy the company’s shares listed on the stock market (IDX).
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In 2012-2013 IHSG declined stock prices was caused by the declined in the number of trading days of 244 where is in 2012 amounted to 246 as well as reduced levels of government bonds and sukuk amounting to 197,55 into 162,72. In 2012 the stock prices index perched on 4.316,69 and in 2013 became 4.274.18. The ups and downs in stock price index are caused by many different factors such as the size of the market capitalization, the rise and fall of the IPO (Initial Public Offering), the size of the bond as well as the extent of volume and frequency of trading.
Without corporate governance, a company cannot run properly and will not have stable performance. If a company does not have corporate governance, the company will be died.
There are many indicators that influence corporate governance such as board size, board structure, board meetings, and the ‘proportion of independent non-executive directors’
(Rajendran, 2011).
2. Research Problems and Objectivesof The Study
1. Does corporate governance positively affect market performance?
2. Does corporate governance through capital structure positively affect market performance?
In Objectives the research explainde are:
1. To analyze the direct effect of corporate governance to market performance.
2. To analyze the effect of corporate governance to market performance through capital structure.
3. Literature Review
3.1Efficient Market Hypothesis
One of the most important financial theories is the Efficient Markets Hypothesis (EMH) (Fama, 1970). In this theory it is provide of efficient information about prices is informationally efficient, which implies that prices reflect all known information.
There are three primary conditions which are necessary for market to be informationally efficient:
1) Information must be costless, and it must be available to all maket participants at the same time.
2) There can be no transactions costs,taxes,or other barries to trading.
3) Prices cannot be affected by the trading of a single person or institution.
3.2 Agency Conflict Theory
According to Jensen and Meckling(1976) the agency relationship is defined as a contract made by one or more of the principal, binds itself with the other party / agent to realize some services on behalf of principals, including by delegating decision-making authority to the agent. Contactual relationships between individuals in conflict with the interests of organizations within and outside the agency will bring problems.
3.3 Asymmetry Information
Signalling theory has a dense conjunction with informational asymmetry, a theory that is introduced by (Stigler and Becker, 1977), which states that the high cost of information led to
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the use ancient tradition in decision making. When a capital or financial market is relatively new, then of course the intensity of asymmetric information in general will be higher, thus signaling theory will play a part. While, Asymetric Information in the Stock Exchange will always be there, because even though the information came from the same source in the same format as well, the analysts and public investor will generally interpret the information differently, so that the information captured by the public investors will be different too.
3.4 Corporate governance
The Issues attracted much interest of researchers because it is associated with a country's legal system. In the legal system itself includes some protection to investors, capital market regulations and accounting rules. Countries that adopt the Common Law system like USA and UK have a high level of investor protection, capital market regulations are effective, and accounting more transparent. So that the capital market is more liquid because of the low level of Information asymmetry (Laporta.et al, 2000).Renneborg et al (2006) from Tillburg University, defines a complete namely: corporate governance is a combination of traditional and new aspects in the governance and control of enterprise-piece unit that includes the following aspects. There are Internal control mechanism(which involves the structure of the board of directors, shareholder and stakeholder representation, separation of CEO and Chairman, as well as the existence of audit and renumeration committees), the concentration of shareholder voting rights, adoption of codes of good practice, market for Corporate Control, the mechanism of anti take over, the system of banking relationships, protection of shareholders and creditors, the development of capital markets, standard Accounting, knowledge of regulations (for example: there are water sheds between auditors and consultants), payment systems management performance and remuneration, the Court effective workforce, product market competition.
3.5 Capital Structure and Theory of Irrelevant Capital Structure
One of the most basic issues facing financial managers is the method to be used to finance the firm’s assets. Should the firm borrow(use debt) or sell stock(use equity)?. In 1958, Franco Modgliani and Merton Miller (MM) published one of the most surprising theories of modern financial managemnet they concluded that the value of a firm depends solely on its future earnings stream, and hence its value is unaffected by its debt/equity mix. The conclussion is they concluded that a firm’s value stems from its assets, regardless of how those assets are financed. This finding had such widespread implications that the article was judged by members of The Financial Management Association to have had more impact on financial management than any other published work.
3.6 Market Performance
Performance is a basic concept of a general nature. This concept is usually understood implicitly that it is difficult to be expressed explicitly. Performance associated with a particular concept or approach needs special measurements (Chakravarthy; 1986) (McGuire, Schneeweeis, and Hill 1986). (Knipes; 1986) defines the word perfomance or 'performance' of The American Herritage Dictionary (1985; 922) as "the way in which someone or something functions ...".(Suta, 2005).
4 3.7 The Measurement of Market Peformance
Measurement of financial performance are classified into two approaches, namely accounting based measurement and market-based measurement (Suta, 2005). Mentioned in this definition that includes accounting measurement is included sales growth, profitability, return on assets, and earnings per share. Market based measurement includes on the total stock returns, market capitalization growth, and stock distribution.
3.8 Relationship between Corporate Governance and Market Perfomance
Hypothesis 1
H1
Have good corporate governance will have an impact on the outcome of a good performance from anyway. This is equivalent to the statement (Brown and Caylor, 2004) which says that if better Corporate Governance is related to better from performance, better-Governance firms should perform than the worse-Governed firm. Though that is not necessarily. Many things can still happen in the company one relation between corporate governance in the company with the market performance. If the relation does not show positive results, it can be said that the companies that exist, especially in Indonesia is still relatively emerging market firms. It can be explained through the theory of strong efficiency market, semi strong efficiency market, weak from efficiency market (Fama, 1970).
H1 : Corporate Governance positively affects market performance
3.9 The Relationship between Corporate Governance and Market Perfomance through Capital Structure
Hypothesis 2
H2
H1
The relationship of Corporate Governance to Capital Structure has been studied by several researchers. (Gonzales, 2008) has evaluated the capital structure determinants of Latin American firms using a comprehensive sample covering seven countries. Results indicate that the Corporate Governance Mechanisms, taken together impact negatively and positively on Debt Ratio and Return on Assets.Capital structure decision is the vital one since the profitability of an enterprise is directly affected by such decision (Kajananthan.R, 2011). The successful selection and use of capital is one of the key elements of the firms’
financial strategy (Velnampy&Aloy Niresh,2012).In a previous studycapital structurehasconsiderable influenceonmarketperformance. According to (Kajananthan. R,
Corporate Governance
Market Performance
Corporate
Governance Market
Performance Capital
Structure
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2011) that the existence of a well developed capital market, financial intermediary, corporate governance and the legal protection offered by a country assist the effectiveness of debt.
H2: Corporate governance positively affect market performance through capital structure 4. The Research Framework
This research is built based on empirical and logical framework that corporate governance influences market performance of the firms, and that market perfomance is also influanced by capital structure, where as capital structure is influence also by corporate governance.
4.1 Research Variables and Indicators a. Independent Variable:
The independent variable in this research is corporate governance, which is formed by four indicators, that are The Total of Directors and Commissioners, The Total of Directors and Independent Commissioners, Public Ownership, and Compensation.
b. Dependent Variable:
The dependent variable in this research is market performance, which is formed by one indicator, that is Market Capitalization Growth.
c. Intervening Variable:
The intervening variable in this research is capital structure, which is formed by one indicator, that is Total Debt to Total Assets Ratio.
4.2 Operational Definition and Measurement 1.Corporate Governance
Corporate Governance is the way of corporate management to conduct the business of the firms relating to aim sustainable growth (Jensen &Menckling, 197). In this sense, the researcher is using four indicators that are The Total of Directors and Commissioners, The Total of Directors and Independent Commisioners, Public Ownership, and compensation.
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The Formula of Corporate Governance of this research:
CG = F (The Total of Directors and Commissioners+The Total of Directors and Independent Commissioners+Public Ownership + Compensation)
Indicator Definition:
a The Total Directors and Commissioners
According to Kajananthan.R (2011) the total of Directors and Commissioners is a group of people elected or appointed to oversee the activities of a company or organization. In Western countries, the board is called the board of directors or board of managers, board of regents, and the board of trustees. Activities of the supervisory board is determined by the powers, duties, and responsibilities given to it by an authority that is outside. Usually, these things are described in the articles of association (AD) of the organization.In this research the measurement of directors and commissioners put in annual report and financial report based on LQ-45 list company.
b The Total of Independent Board
According to Puspitaningrum & Atmini (2012) are commissioners who are not employees or people who deal directly with the organization, and do not represent the shareholders. An example is an appointed commissioner who is or has held the position of president of a company from a different industry sectors. Outside Commissioner appointed because of his experience is considered useful for the organization. They can supervise and oversee the commissioner in how the organization is run. Commissioner extraordinary useful in arbitrate disputes between the commissioners, or between shareholders and the board of commissioners. Outside Commissioner considered useful because they can be objective and have a small risk of a conflict of interest. On the other hand, outside the commissioner may lack experience in dealing with the specific problems faced by the organization.In this research the measurement of directors and Independent commissioners put in annual report and financial report based on LQ-45 list company.
c. Public Ownership
According to Ganiyu & Abiodun (2012) Public Ownership may refer to state ownership or control of any asset, industry, or enterprise at any level, national, regional or local(municipal); or to common (full-community) non-state ownership.
The process of bringing an asset into public ownership is called nationalization or multicapitalization. In primarily market-based economies, government-owned assets are often managed and run like joint-stock corporations with the government owning a controlling stake of the shares. This model is often referred to as a state-owned enterprise.On this research to defined about public ownership using the percentage information on financial report of ownership depend on share capital. With share capital on percentage, the information also showed about the total amount of ownership.
d. Compensation
According to (Chang, Chou, and Huang, 2014) Compensation ratio is under the accrual method of accounting, the account of compensation reports the salaries that employees have earned during the period indicated in the heading od the income statement, whether or not the company has yet paid the employees. Compensation will usually be an operating expense (as opposed to a nonoperating expense).in this study researcher use method of salary employee in rupiah’s divided by total expense per year to measure compensation.
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Compensation = x 100%
2. Market Performance
Market Performance is defined as the growth of market capitalization growth within 2012-2013 observation.
3. Capital Structure
Capital Structure is the Average Ratio of Total Debt to Total Assets, in the year of 2013.
4.3 Data Collection Method
In this research there are two kind of data for data collection and method collection. Firsly the primary all data about annual report and financial report coming from the emiten of LQ-45 in Indonesia Stocks Exchange. Secondly, the secondary data about market growth capitalization, capital structure, compensation, total board, and total independent board coming from public market information in Indonesia Stocks Exchange. There is any factor choosing in period of 2012-2013. And the factor is in 2012-2013 Indonesia was declined in market growth population that caused by how corporate governance do. and if corporate governance not doing well the impact depend on maket growth of a country. The market growth included by market value, market volume, market transactions, and IHSG (index hargasahamgabungan).well, the reason why using LQ-45 because the LQ-45 is has high liquidity selected by good criteria from BEI (Bursa Efek Indonesia) as index regulator in Indonesia.
4.4 Population and Sampling
Population in this research is all listed companies on Indonesian Stock Exchange. The sample is firms that are categorized as LQ-45 member within period of 2012-2013. The sample formula is using the categorized of LQ-45 with criteria 40 list company member on 2012-2013 and 5 new members list on 2012-2013. On 40 members of the LQ-45 that had had stable liquidity within period of 2012-2013, those are have stable public ownership depend on under 5% from public, market shares competent and the balancing of total expense and total salary of employee. So that the new members have same categories with 40 list company within period of 2012-2013.
4.5 Data Analysis Method 1.Descriptive Analysis
The descriptive analysis is applied by way of tabulating all data. Primary data will be average for each indicator and respective sample firm. Other additional data will be also analyzed such as age and education of respondent. The descriptive analysis is then presented by using of percentage, and will be explained about description in general of the result of the research.
8 2. Quantitative Data Analysis
The data that has been tabulated, then, will be processed by using computerized quantitave statistical tools with software Smart PLS. Statistical processing is using Path Analysis. PathAnalysisis an extensionof themultiple linear regression analysis,orpath analysis useof regression analysistoappraise bycausalityrelationshipbetween variables(modelcasual) predeterminedbased onthe theory of(Imam Ghazali, 2005:249).
3. Reliability Test
Reliability is the consistency and stability of the score (scare of measurement).
Different reliability with validity for the first focusing on the problem of consistency, while the second is more concerned about accuracy (Kuncoro, 2009: 175).
4. Path Analysis
Path analysis is a technique for analyzing causal relationship that occurs in multiple regression if the indepedent variables affect the dependent variable not only directly but also indirectly. Path analysis is a direct development of multiple regression form with aim to provide estimates of the level of interest (magnitude) and significance in a hypothetical causal relationship of variable set (Kuncoro, 2009). The path coefficientscalculatedby making twoequation structualisa regression equationshowing the relationshiphypothesized. In this casethere aretwo equationsare:
(Path Analysis Model) Equation Model: e1
p2 p3
5. Findings And Discussions
The Development of the capital market has always shown volatility in every minute even at every second. In this instability it will be demonstrated through by the OJK capital market statistics tables and charts and daily stocks trading month period of January 2007 – January 2014. OJK provide a statement with tables and graphs with that way peoples can assess how to know information of capital market in Indonesia by the period. In 2007 the price of the stock market index which reaches the average in numbers of 2745 with a market capitalization on 1988 trillion rupiah. In 2008 the Indonesian capital market
Corporate p1 Governance
Capital Structure
Market Perfomance
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experienced a severe economic crisis that is enough stock with the index has decreased significantly by 1355 with a market capitalization in the numbers of 1076. Then in 2008 the stocks listed by LQ-45 will tend to fall following the economic crisis experienced by Indonesia.The government needs to evaluate some of the performance by the companies supporting a country’s economy as well as stated-owned enterprises and ranging from the financial sector to the mining sector. Corporate governance is also indispensable with any company in order to achieve by good performance.
5.1 Data Capture
In this study data was taken using the data of financial statements and annual report from each of the companies that have been listed on the Stock Exchange (the Indonesia Stock Exchange) from 2012 to 2013. Based on data obtained from the IDX (Indonesia Stock Exchange) there are 5 of 50 issuers who was a member of issuers that have a high level of liquidity to the market capitalization of the good, but the fifth issuer has its own reasons for not listed on IDX therefore announced that the five listed companies have come out of the LQ-45 in 2012 and 2013. For the calculation of the LQ-45 which has been listed on the Stock Exchange at least 3 months, transaction activity in the market (value, volume, and frequency of transactions), the number of trading days in the market regular, market capitalization at the specified time period, in addition to considering the criteria of liquidity and market capitalization, will be also the issuer's financial condition and growth prospects of the issuer.
The provision says that the Stock Exchange is entitled to quote some issuers that are no longer listed on the list of the best liquidity, namely LQ-45. Fifth issuers that have come out in 2012-2013 in the LQ-45 is the State Savings Bank Tbk, PT Delta DuniaMakmurTbk, PT Gajah Tunggal Tbk, PT Krakatau Steel, PT SalimIvomasPratamaTbk. While five new issuers in LQ-45 in 2012-2013 is PT. Bhakti InvestamaTbk, PT. Sentul City Tbk, PT BumiSerpongDamaiTbk, PT BW Plantations Tbk, PT. IntracoPentaTbk. Based on the data that has been obtained in this study, it can be obtained by a variety of concrete information to support the research variables.
Research variables in question is variable Good Corporate Governance (x) of the Market Performance (y1), which is mediated by Capital Structure (y2) in the Issuer LQ-45 are listed on the Stock Exchange (the Indonesia Stock Exchange).
5.2 Percentage Indicators
From list of 50 companies there are mentioned by 40 companies are still members of LQ-45 period by 2012-2013. There are 5 companies has been out of member LQ-45 and 5 companies becoming new member of LQ-45 period by 2012-2013. On the table having shown that the structure of public ownership from 50 companies obtained average in 0.401 equivalent to 40%. Compensation ratio has a value 0f 0.216 equivalent to 22%.
The ratio of total debt to total assets (capital structure) have a value of 0.547 or 55%.
While the capital growth (market performance) with average value 0.0261or 3%.
The average obtained to determine which firms have public ownership structure is lower and also as a measurement of the lowest ratio from the highest value. The measurement average not only in public ownership but also on compensation giving to expense ratio, the ratio of total debt to total assets (capital structure), and market capital growth (market performance).
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Percentage Indicator
5.3 The Results of Hypothesis Testing
1. Equation Modeling Analysis Approach struktual with Partial Least Square (PLS)
- Evaluation of Measurement Model (Outer Model)
PLS analysis aims to analyze simultaneously constructs formed by the indicator, the prediction-oriented (Ghozali, 2008, p. 4). In this study will be testing the validity and reliability of each latent variable is the variable service atmosphere, company image and customer loyalty with the help of software SmartPLS. The size of individual reflexive be valid if it has a value of loading (λ) with latent variables to be measured ≥ 0.5, if one indicator has a value of loading (λ) <0.5, the indicator should be discarded (dropped) because it would indicate that the indicator is not good enough for precisely measure the latent variable. Here is the output path diagram on the PLS structural equation using software SmartPLS.
Structural Equation Path Diagram with SMART PLS
11 2.Test of Validity and Reliability
a. Discriminant Validity (Discriminant Validity)
Discriminant Validity can be determined by looking at the value of cross loading factor. Cross loading is useful to know whether the construct has sufficient Discriminant Validity, ie by comparing the correlation indicator with the construct that must be greater than the correlation between the indicators with other constructs.If the correlation indicator constructs have a higher value than the correlation of these indicators against other constructs, it can be said that has Discriminant Validity construct high.
Cross Loading and Outer Loading
Table Outer Loading
Table Cross Loading
3. Average Variance Extracted (AVE)
Avarage Variance Extracted (AVE) is a value that indicates the amount of variance indicators contained by the latent variables. Expected value greater AVE= 0.5 to show the adequacy of good validity for latent variables. In the reflective indicator variables can be seen from the avarage variance extracted (AVE) for each construct (variable).
Required a good model when the value AVE of each construct is greater than 0.5. AVE values can be seen through the following table:
Table Good Corporate
Governance Result
PO 0.344 Strong
TOB -0.882 Non-Strong
TIB -0.732 Non-Strong
SER -0.532 Non-Strong
Good Corporate Governance
Capital Structure
Market Performance
PO 0.344 0.202 0.090
TOB -0.882 -0.100 0.037
TIB -0.732 0.181 0.021
SER -0.532 0.048 -0.031
MCG 0.000 -0.000 1.000
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Average Variance Extracted (AVE)
AVE
GCG 0.429
CS 1.000
MP 1.000
4. Composite Reliability
Indicates the degree that indicates the latent common so as to show the block indicator that measures the internal consistency of indicators forming constructs. If the value of the composite reliability and Cronbach alpha> 0.7 means that the construct is expressed reliable. Value composite reliability and Cronbach alpha can be seen from the following table
Table 4.2.5 Composite Reliability
Composite Reliability Result
GCG 0.587 Non Reliable
CS 1.000 Reliable
MP 1.000 Reliable
Source: Data researchers processed with SMART PLS software Tabel 4.2.6
Cronbachs Alpha
Cronbachs Alpha Result
GCG 0.282 Non Reliable
CS 1.000 Reliable
MP 1.000 Reliable
Source: Data researchers processed with SMART PLS software
Value composite reliability and Cronbachs alpha of the dependent variable of this study was more than 0.6. It can be concluded that the variable is declared reliable, while the independent variable that is the construct of good corporate governance is less than 0.6.
5. Evaluation of Structural Models (Inners Model)
Structural models can be evaluated by looking at the value of R2 on the dependent variable and the path parameter coefficient (coefficient path parameter).
R-Square
Table R-Square
R Square
CS 0.082
MP 0.330
Source: Data researchers processed with SMART PLS software
R² is used to measure Q², which is predictive relevance (goodness of fit).
6. Goodness of Fit
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Structural model evaluated by looking at the percentage djelaskan variants, namely by looking at the R² for the dependent latent constructs, then the calculated value of Stone-Geisser Q Square test and also see the coefficient of track structure, with the formula:
Q² = 1- (1-R²) (1-R²) ... (1-Rp²)
Testing Goodness of Fit models in inner struktual predictive model using the value-relevance (Q²). R² value of each dependent variable in tebel above in this study are as follows:
1. To R² Variable Capital Structure of 0,08 2. To R² Variable Market Perfomance of 0.33 Predictive Value-relevance obtained by the formula:
Q² = 1- (1-R²) (1-R²) Q² = 1- (1-0,08) (1-0,33)
= 1 to 0.6164
= 0.3836
The results of the calculations showed predictive value-relevance of 0.3836 or models can be said to possess the predictive value of 38.36%.
5.4 Hypothesis Result by Path Coefficients & T-Value
To determine the effect relationship can be evaluated through a table variable coefficient Path. The hypothesis in this study are:
H1: Corporate Governance no effect on Market Performance
H2: Corporate Governance effect on Market Performance through Capital structure
Here is a table of the value of Path Coefficients and T-Value that is processed with the help of software SmartPLS:
Table
Path Coefficients & T-Value Path
Coefficients
Sample Mean (M)
Standard Error (STERR)
P Values
Results
CGMP -0.285 0.262 0.438 0,27 Non-
Significant CG → CS →MP -0.311 0.344 0.173 0,002 Significant Source: Data researchers processed with SMART PLS software
Path coefficient value of good corporate governance influences on Market Performance is equal to -0.28. In the first hypothesis is that good corporate governance of the Market Performance has a beta value of -0.44 with a significance level of 0,27 which means in this case GCG not significantly affect the Market Performance.
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Path coefficient value of good corporate governance influence on Market Performance by Capital Structure is at -0311. In the second hypothesis is that good corporate governance of the Market Performance by Capital Structure variable GCG has a beta value of -0.29 and significant value of 0.002 which means GCG has a significant influence on the Market Performance by Capital Structure.
5.5 Discussions
5.5.1 Corporate Governance does not affect Market Performance
In this research that explained there are no significant direct influence of corporate governance constructs Market performance. It can explained by using the theory of efficiency Market Hypothesis (EMH) (Fama, 1970), which states that the level of market efficiency is categorized into 3 levels, there are : Strong Form Efficiency, Semi Strong Form Efficiency, Weak Form Efficiency. The corporate governance is still has no positive signal to boost enterprise value market performance. In the Strong Form Efficiency holds that current market prices reflects all information whether publicy or positively held. If this form correct, then even insiders defined as director, officers and major stockholders would find it as impossible to earns excess returns ( Fama and Louis, 1996). That statement is related by this research which is only based on public ownership. This can notbe as the basisthat only saying thatpublicownershiphasstrongconstructtocorporate
governanceandprovidepositiveeffectonmarketperformance.On theother indicatorssaythat thetotalofboard, totalindependentboardand compensationalsodid notprovidea strongeffectoncorporategovernance onmarketperformance.Itmeans thatin2012-2- 2013theLQ-45 just dwell onthe structure ofpublic ownershipas a formtoincrease thecapitalof companiesin which itis actually not veryadvisableforthecompanieswhich incidentallyis good thento consideralsoother factorswhichsupportssuch ascrosslistings andalsoindependentauditors(ClaessensandYurtoglu, 2012).This results can be also interpreted that the Indonesian capital market as a locus (location) of research has not been classified as Strong Efficiency yet, that future information cannot to be reflected in the performance of the stock market (market perfomance). Corporate Governance aimed or intended for sustainability and going concern in the company in the long run.
5.5.2 Corporate Governance affects Market Performance through Capital Structure
In this research findings are quite interesting too is that there is a significant effect of the Good Corporate Governance of the Market Performance through Capital Structure.
It shows that the amount of debt compared with the capital structure are being a intervening variable to determine market performance. The larger the company's debt level then the better of performance of the stock’s values. In the resultspreviously
saidthat corporate governancedoes notgive
apositiveeffectonmarketperformancehasprovidedinformationthata strong of theownership structureis the publicwhopreferredthe companyLQ-45 in2012-2013. By promoting thecapitalstructure ofthecompanythinkscansupport the performanceof a company.
Althoughthe structure ofcapitalisnot a main roadas supportinga good
performance.Butunlikereality,evidenced by
thepositiveinfluenceonmarketperformanceissupported bythe structure ofthe debt.At the same time, the recent financial crisis has reinforced how failures in corporate governance can ruincorporations and adversely affect whole economies. These developments have made themonitoring of the use of capital more complex in many ways, enhancing the need for good corporate governance(ClaessensandYurtoglu, 2012).
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This prove that the assymetric information theory is still exists, due to Indonesia capital markets and its economy still considered as emerging markets. The capital market in emerging markets are contained broad investment opportunities and give a much higher profits compare to rate of borrowing money. Companies that want to boost performance will tend to use debt financing with limited capital. Besides that, debt also earn interest on debt is becoming taxshield (can be used for tax deduction) in accordance with the theory of capital structure and taxshield (Mogdiliani and Miller, 1958).If assymetric information is still existing in the Indonesian capital market situation, it is also mean that indirectly agency conflict still contained in the Indonesian capital market.
Agency Conflict is mean that the company is merely a means of the agent to satisfy their own goal (Jensen and Meckling, 1976). Nevertheless the existence of agency conflict in this study can not be proven directly through the relationship between good corporate governance with the capital structure.
6. Conclusions
Indicators of good corporate governance is the strongest public ownerships while the others are total of the Board and a total of Independent Board and Compensation has no influence in the formation of good corporate governance. Through Latent Variable test found that the score for good corporate governance is below standard value. Indicates that corporate governance is still a formality because the data analysis unit for corporate governance is not too have sufficient distinguishing factor.
There were no significant effects of good corporate governance with the Market Performance. This suggests that the Indonesian capital market has not shown strong form efficiency. There is a significant relationship indirectly between good corporate governance on performance through capital market structure. This indicates the presence of assymetric information. With the assymetric information thus indirectly also indicate the role of agency conflict in the Indonesian capital market.
6.1 Research Limitations
This research is not apart from poses some limitations. These limitations are expected to be a reference and repairment improvement for the next research. Some of limitations are as follows:
1. The period of this study using a is very limited period of time, that is two years so it is not complex data information from BEI (Bursa Efek Indonesia) depend on LQ-45 financial report and annual report.
2. This research is still using es limited data on several indicators of performance measurement so for the next study is expected to use a more complete data.
3. This research there are no originality data from Indonesia Financial Services Authority to complete information for this research.
6.2 Suggestion For Future Research
1. Further research is needed on this study with a larger sample size. Given the model in this study was not large enough to predict. Other than that required also additional indicators for corporate governance, among others, the ESOP (Employee Stock Ownership Plan), MSOP (Management Stock Ownership Plan) and also indicators of corporate social responsibility.
2. For another research give more data for example the data from Indonesia Financial Services Authority to given differentiation with others regulator of stock.
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