Browse > Article
http://dx.doi.org/10.13106/jafeb.2021.vol8.no7.0447

The Relationship Between Company Value and Good Financial Governance: Empirical Evidence from Indonesia  

HARIYANI, Diyah Santi (Department of Management, Faculty of Economics and Business, Universitas PGRI Madiun, Faculty of Economics and Business, Universitas 17 Agustus 1945 Surabaya)
RATNAWATI, Tri (Faculty of Economics and Business, Universitas 17 Agustus 1945 Surabaya)
RAHMIYATI, Nekky (Faculty of Economics and Business, Universitas 17 Agustus 1945 Surabaya)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.7, 2021 , pp. 447-456 More about this Journal
Abstract
State-Owned Enterprises (SOEs) are business entities that are owned mainly by the state. Good financial governance (GFG) is as important for SOEs as for the private sector companies. Prudence and GFG can affect the value of the company. This research aims to test the impact of macroeconomics, investment decisions, and financing decisions on prudence, Corporate Social Responsibility Disclosure (CSRD), dividend policy, and company value of SOEs registered on the IDX from 2014-2019. GFG and financing decisions are moderating variables. The population in this study is 16 SOEs listed on the Indonesia Stock Exchange from 2014-2019. The research method is quantitative and uses Partial Least Squares (PLS), which is an approach to Structural Equation Models (SEM) that allows researchers to analyze the relationships simultaneously. The results showed that macroeconomic factors, investment decisions, financing decisions, and prudence directly affect the company's value. However, CSRD and dividend policy directly do not affect the company's value. Prudence can mediate the influence of financing decisions on company value. GFG moderates the relationship between prudence and company value. Thus, GFG is key to producing compliant regulatory reports and disclosures. GFG aims at facilitating effective monitoring and efficient control of the business. Its essence lies in fairness and transparency in operations and enhanced disclosures for protecting the interest of different stakeholders.
Keywords
Company's Value; Financing Decisions; Good Financial Governance; Prudence;
Citations & Related Records
연도 인용수 순위
  • Reference
1 Egbunike, C. F., & Okerekeoti, C. U. (2018). Macroeconomic factors, firm characteristics and financial performance: A study of selected quoted manufacturing firms in Nigeria. Asian Journal of Accounting Research, 3(2), 142-168. https://doi.org/10.1108/AJAR-09-2018-0029   DOI
2 Elbadry, A., Gounopoulus, & Frank, S. (2015). Governance quality and information asymmetry. Financial Markets, Institutions & Instruments, 24(2-3), 127-157. https://doi.org/10.1111/fmii.12026   DOI
3 Fama, E. F. (1978). The effects of a firm's investment and financing decisions on the welfare of its security holders. The American Economic Review, 68(3), 272-284. https://www.jstor.org/stable/1805260
4 Farhan, A., & Freihat, A. R. F. (2021). The impact of government ownership and corporate governance on corporate social responsibility: Evidence from UAE. Journal of Asian Finance, Economics, and Business, 8(1), 851-861. https://doi.org/10.13106/jafeb.2021.vol8.no1.851   DOI
5 Maciuca, G., Hlaciuc, E., & Ursache, A. (2015). The role of prudence in financial reporting: IFRS versus directive 34. Procedia Economics and Finance, 32(15), 738-744. https://doi.org/10.1016/s2212-5671(15)01456-2   DOI
6 Mahrani, M., & Soewarno, N. (2018). The effect of good corporate governance mechanism and corporate social responsibility on financial performance with earnings management as mediating variable. Asian Journal of Accounting Research, 3(1), 41-60. https://doi.org/10.1108/ajar-06-2018-0008   DOI
7 Abbas, G., Hammoudeh, S., Shahzad, S. J. H., Wang, S., & Wei, Y. (2019). Return and volatility connectedness between stock markets and macroeconomic factors in the G-7 countries. Journal of Systems Science and Systems Engineering, 28(1), 1-36. https://doi.org/10.1007/s11518-018-5371-y   DOI
8 Ali, S. M., & Siddiqui, D. A. (2020). Effect of macroeconomic factors on firms ROA: A comparative sectorial analysis from Pakistan. International Journal of Publication and Social Studies, 5(1), 1-17. https://doi.org/10.18488/journal.135.2020.51.1.17   DOI
9 Assagaf, A., Murwaningsari, E., Gunawan, J., & Mayangsari, S. (2019). The effect of macroeconomic variables on stock return of companies that Listed in stock exchange: Empirical evidence from Indonesia. International Journal of Business and Management, 14(8), 108-116. https://doi.org/10.5539/ijbm.v14n8p108   DOI
10 Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5, 147-175. https://doi.org/10.1016/0304-405X(77)90015-0   DOI
11 Nurdin, D., & Kasim, Y. M. (2018). Moderator effect of corporate governance on the relationship of financial performance and dividend policy, and its impact on firm value in Indonesia stock exchange. International Journal of Economics & Management Sciences, 7(1), 11-15. https://doi.org/10.4172/2162-6359.1000499   DOI
12 Oh, W., & Park, S. (2015). The relationship between corporate social responsibility and corporate financial performance in Korea. Emerging Markets Finance and Trade, 51(9), 85-94. https://doi.org/10.1080/1540496X.2015.1039903   DOI
13 Olokoyo, F., Ibhagui, O., Babajide, A., & Yinka-Banjo, C. (2020). The impact of macroeconomic variables on bank performance in Nigeria. Savings and Development, 17, 31-47. https://doi.org/10.37394/23207.2020.17.94   DOI
14 Amaliyah, F., & Herwiyanti, E. (2020). The influence of investment decisions, company size, funding decisions and dividend policies on the value of companies in the mining sector. Jurnal Penelitian Ekonomi Dan Bisnis, 5(1), 39-51. https://doi.org/10.33633/jpeb.v5i1.2783   DOI
15 Balagobei, S. (2018). Corporate governance and firm performance: Empirical evidence from an emerging market. Asian Economic and Financial Review, 8(12), 1415-1421. https://doi.org/10.18488/journal.aefr.2018.812.1415.1421   DOI
16 Berk, J., & DeMarzo, P. (2020). Corporate finance (4th ed.). London, UK: Pearson Education.
17 Al Sa'Eed, M. A. (2018). The impact of ownership structure and dividends on firm's performance: evidence from manufacturing companies listed on the Amman stock exchange (ASX). Australasian Accounting, Business, and Finance Journal, 12(3), 87-106. https://doi.org/10.14453/aabfj.v12i3.7   DOI
18 Ozyesil, M. (2019). Relationship between brand value, firm size, and stock price performance: 2nd generation panel data analysis on Turkish retail sector and sports clubs. International Journal of Economics and Financial Issues, 9(5), 38-43. https://doi.org/10.32479/ijefi.8470   DOI
19 Permatasari, F., Widianingsih, L. P. (2020). Disclosure of corporate social responsibility on financial performance with good corporate governance as a moderating variable. Media Akuntansi Dan Perpajakan Indonesia, 1(2), 1-22. https://journal.uc.ac.id/index.php/mapi/article/view/1404
20 Rosharlianti, Z. (2018). The effect of prudence and family ownership on firm value with dividend policy as an intervening variable. Jurnal Akuntansi Berkelanjutan Indonesia, 1(1), 61-82. https://doi.org/http://openjournal.unpam.ac.id/index.php/JABI/article/view/1271   DOI
21 Dewasiri, N. J., & Abeysekera, N. (2020). Corporate social responsibility and dividend policy in Sri Lankan firms: A data triangulation approach. Journal of Public Affairs, 5(2), 1-11. https://doi.org/10.1002/pa.2283   DOI
22 Dowling, J., & Pfeffer, J. (1975). Organizational legitimacy: Social values and organizational behavior. The Pacific Sociological Review, 18(1), 122-136. https://doi.org/10.2307/1388226   DOI
23 Cerqueira, A., & Pereira, C. (2020). The effect of economic conditions on accounting conservatism under IFRS in Europe. Review of Economic Perspectives, 20(2), 137-169. https://doi.org/10.2478/revecp-2020-0007   DOI
24 Crifo, P., Escrig-Olmedo, E., & Mottis, N. (2019). Corporate governance as a key driver of corporate sustainability in France: The role of board members and investor relations. Journal of Business Ethics, 159(4), 1127-1146. https://doi.org/10.1007/s10551-018-3866-6   DOI
25 D'Amato, A., & Falivena, C. (2020). Corporate social responsibility and firm value: Do firm size and age matter? Empirical evidence from European listed companies. Corporate Social Responsibility and Environmental Management, 27(2), 909-924. https://doi.org/10.1002/csr.1855   DOI
26 Dang, H. N., Vu, V. T. T., Ngo, X. T., & Hoang, H. T. V. (2020). Impact of dividend policy on corporate value: Experiment in Vietnam. International Journal of Finance and Economics, 11(6), 312-331. https://doi.org/10.1002/ijfe.2095   DOI
27 Danila, N., Noreen, U., Azizan, N. A., Farid, M., & Ahmed, Z. (2020). Growth opportunities, capital structure and dividend policy in an emerging market: Indonesia case study. Journal of Asian Finance, Economics, and Business, 7(10), 1-8. https://doi.org/10.13106/jafeb.2020.vol7.no10.001   DOI
28 Ciocan, C. C. (2018). Prudence vs. credibility. A formal comparative analysis between Romanian accounting regulations and IFRS. Audit Financiar, 17(1), 114-123. https://doi.org/10.20869/auditf/2019/153/004   DOI
29 Ross, S. A. (1977). Determination of financial structure: The incentive-signaling approach. The Bell Journal of Economics, 8(1), 23-40. https://doi.org/10.2307/3003485   DOI
30 Lee, J. W., & Brahmasrene, T. (2020). An exploration of dynamic relationships between macroeconomic variables and stock prices in Korea revisited. Journal of Asian Finance, Economics, and Business, 7(10), 23-34. https://doi.org/10.13106/jafeb.2020.vol7.no10.023   DOI
31 Saeidi, S. P., Sofian, S., Saeidi, P., Saeidi, S. P., & Saaeidi, S. A. (2014). How does corporate social responsibility contribute to firm financial performance? The mediating role of competitive advantage, reputation, and customer satisfaction. Journal of Business Research, 341-350. https://doi.org/10.1016/j.jbusres.2014.06.024   DOI
32 Setyahadi, R. R., & Narsa, I. M. (2020). Corporate governance and sustainability in Indonesia. Journal of Asian Finance, Economics, and Business, 7(12), 885-894. https://doi.org/10.13106/jafeb.2020.vol7.no12.885   DOI
33 Liu, Q. M., Lee, C. C., & Zhang, R. (2018). Economic policy uncertainty and firms' cash dividend policies. In: 3rd International Conference on Education, E-Learning and Management Technology (EEMT 2018), 29 to 31 October 2018 in Bangkok, Thailand (pp. 515-519). https://doi.org/10.2991/iceemt-18.2018.100   DOI
34 LaFond, R., & Watts, R. L. (2007). The information role of conservatism. The Accounting Review, 83(2), 447-478. https://doi.org/https://doi.org/10.2308/accr.2008.83.2.447   DOI
35 Li, W. X. B., He, T. T., Marshall, A., & Tang, G. Y. N. (2020). An empirical analysis of accounting conservatism surrounding share repurchases. Eurasian Business Review, 10(4), 609-627. https://doi.org/10.1007/s40821-019-00145-6   DOI
36 Lintner, J. (1962). Dividends, earnings, leverage, stock prices, and the supply of capital to corporations. The Review of Economics and Statistics, 44(3), 243-269. https://doi.org/doi:10.2307/1926397   DOI
37 Liu, T. K. (2020). The impact of corporate social responsibility on performance in the financial industry. Asian Economic and Financial Review, 10(9), 1037-1050. https://doi.org/10.18488/journal.aefr.2020.109.1037.1050   DOI
38 Setyaningsih, T., & Gunarsih, T. (2018). The effect of financial ratio and corporate governance mechanisms on the financial distress in the Indonesia stock exchange. Journal of Applied Economics in Developing Countries, 3(2), 59-66. https://jurnal.uns.ac.id/jaedc/article/view/40127
39 Kolawole, E., Sadiq, M. S., & Lucky, O. (2018). Effect of dividend policy on the performance of listed oil and gas firms in Nigeria. International Journal of Scientific and Research Publications (IJSRP), 8(6), 289-302. https://doi.org/10.29322/ijsrp.8.6.2018.p7837   DOI
40 Marabel-Romo, J., Guiral, A., Crespo-Espert, J. L., Gonzalo, J. A., & Moon, D. (2017). Fair value accounting in the absence of prudence in accounting standards: An illustration with exotic derivatives. Revista Espanola de Financiacion Y Contabilidad, 46(2), 145-167. https://doi.org/10.1080/02102412.2016.1258027   DOI
41 Kallapur, S., & Trombley, M. A. (1999). The association between investment opportunity set proxies and realized growth. Journal of Business Finance and Accounting, 26(3-4), 505-519. https://doi.org/10.1111/1468-5957.00265   DOI
42 McGuire, J. B., Sundgren, A., & Schneeweis, T. (1988). corporate social responsibility and firm financial performance. Academy of Management Journal, 31(4), 854-872. https://doi.org/10.5465/256342   DOI
43 Michelon, G., Pilonato, S., & Ricceri, F. (2015). CSR reporting practices and the quality of disclosure: An empirical analysis. Critical Perspectives on Accounting, 33, 59-78. https://doi.org/10.1016/j.cpa.2014.10.003   DOI
44 Miller, M. H., & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares. The Journal of Business, 34(4), 411-433. https://doi.org/10.2307/2351143   DOI
45 Isshaq, Z., Bokpin, G. A., & Onumah, J. M. (2009). Corporate governance, ownership structure, cash holdings, and firm value on the Ghana stock exchange. Journal of Risk Finance, 10(5), 488-499. https://doi.org/10.1108/15265940911001394   DOI
46 El-Habashy, H. A. (2019). The impact of accounting conservatism on corporate performance indicators in Egypt. International Journal of Business and Management, 14(10), 1. https://doi.org/10.5539/ijbm.v14n10p1   DOI
47 Gordon, M. J. (1963). Optimal investment and financing policy. The Journal of Finance, 18(2), 264. https://doi.org/10.2307/2977907   DOI
48 Gray, R., Kouhy, R., & Lavers, S. (1995). Corporate social and environmental reporting: A review of the literature and a longitudinal study of UK disclosure. Accounting, Auditing & Accountability Journal, 8(2), 47-77. https://doi.org/10.1108/09513579510146996   DOI
49 Iqmal, F. M., & Putra, I. G. S. (2020). Macroeconomic factors and influence on the stock return that impact the corporate values. International Journal of Finance & Banking Studies, 9(1), 68-75. https://doi.org/10.20525/ijfbs.v9i1.667   DOI
50 Jensen, C., & Meckling, H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3, 305-360. https://doi.org/10.1016/0304-405X(76)90026-X   DOI
51 Siti, M., Mus, R., Semmaila, M., & Nur, N. (2019). Effect of investment decisions, financing decisions, and dividend policy on profitability and value of the firm. International Journal of Accounting & Finance in the Asia Pacific (IJAFAP), 2(1), 1-9. https://doi.org/1037//0033-2909.I26.1.78
52 Smith, C. W., & Watts, R. L. (1992). The investment opportunity set and corporate financing, dividend, and compensation policies. Journal of Financial Economics, 32(3), 263-292. https://doi.org/10.1016/0304-405X(92)90029-W   DOI
53 Subagyo, H. (2021). Relationships between debt, growth opportunities, and firm value: Empirical Evidence from the Indonesia stock exchange. Journal of Asian Finance, Economics, and Business, 8(1), 813-821. https://doi.org/10.13106/jafeb.2021.vol8.no1.813   DOI
54 Fariz, N., Farizal, N., Zulkepli, N., & Kamaluddin, A. (2020). Accounting conservatism and financial performance : Accountability of shariah-compliant companies in Malaysia. Humanities and Social Sciences Letters, 8(3), 280-297. https://doi.org/10.18488/journal.73.2020.83.280.297   DOI
55 Sukesti, F., Ghozali, I., Fuad, F., Almasyhari, A. K., & Nurcahyono, N. (2021). Factors affecting the stock price: The role of firm performance. Journal of Asian Finance, Economics, and Business, 8(2), 165-173. https://doi.org/10.13106/jafeb.2021.vol8.no2.0165   DOI
56 Ting, P. H. (2021). Do large firms just talk about corporate social responsibility? The evidence from CSR report disclosure. Finance Research Letters, 38, 101476. https://doi.org/10.1016/j.frl.2020.101476   DOI
57 Soyemi, K. A. (2020). Internal corporate governance practices and choice of the external auditor in Nigeria: A logistic regression analysis. Binus Business Review, 11(1), 9-16. https://doi.org/10.21512/bbr.v11i1.5894   DOI
58 Djokic, D., & Duh, M. (2016). Corporate governance quality in selected transition countries. Managing Global Transitions, 14(4), 335-350. http://www.fm-kp.si/zalozba/ISSN/1581-6311/14_335-350.pdf
59 Ullah, A., Pinglu, C., Ullah, S., Safeer, A. A., & Perhiar, S. M. (2020). Role of corporate social responsibility in sustaining earning value: Insights from an emerging country. Asian Economic and Financial Review, 10(11), 1280-1298. https://doi.org/10.18488/journal.aefr.2020.1011.1280.1298   DOI
60 Utama, E. P., & Titik, F. (2019). Influence of leverage, firm size, managerial ownership, and profitability on conservatism accounting. E-Proceeding of Management, 53(9), 1689-1699. https://doi.org/10.1017/CBO9781107415324.004   DOI
61 Shaban, O. S., Alqtish, A. M., & Qatawnh, A. M. (2020). The impact of fair value accounting on earnings predictability: Evidence from Jordan. Asian Economic and Financial Review, 10(12), 1466-1479. https://doi.org/10.18488/journal.aefr.2020.1012.1466.1479   DOI
62 Widagdo, B., Jihadi, M., Bachitar, Y., Safitri, O. E., & Singh, S. K. (2020). Financial ratio, macroeconomy, and investment risk on sharia stock return. Journal of Asian Finance, Economics, and Business, 7(12), 919-926. https://doi.org/10.13106/jafeb.2020.vol7.no12.919   DOI
63 Zhong, Y., & Li, W. (2016). Accounting conservatism: A literature review. Australian Accounting Review, 1(2), 45-62. https://doi.org/10.1111/auar.12107   DOI
64 Ulfa, S. N., Simatupang, A., Igustia, D. A., & Zaitul. (2019). The effect of the assignment period and the big four on accounting conservatism. In: The 2nd Proceeding Annual National Conference for Economics and Economics Education Research, STKIP Convention Centre, West Sumatra, Indonesia, 30-31 August 2019 (pp. 461-470).
65 Winarsari, A. D., & Handini, S. (2020). The influence of internal and external factors of the company on dividend policy and firm value: Study on LQ45 companies in Indonesia stock exchange 2015-2017. Ekspektra: Jurnal Bisnis Dan Mana-jemen, 4(1), 22-34. https://doi.org/10.25139/ekt.v4i1.2658   DOI
66 Musfialdy, H. (2019). Relationship between investment decisions, environmental concerns and environmental performance on corporate social responsibility. Jurnal Aplikasi Manajemen, 17(1), 30-36. https://doi.org/10.21776/ub.jam.2019.017.01.04   DOI
67 Olubisi, G. M., Chukwuekwu, O., Olaolu, A., Onyeka-Iheme, C. V., & Asikhia, O. (2021). Corporate social responsibility and firms' performance: A literature review. The International Journal of Business & Management, 9(1), 142-147. https://doi.org/10.24940/theijbm/2021/v9/i1/BM2101-047   DOI
68 Sugiarto, H. V. S., & Fachrurrozie, K. (2018). The determinant of accounting conservatism on manufacturing companies in Indonesia. Accounting Analysis Journal, 7(1), 1-9. https://doi.org/10.15294/aaj.v5i3.20433   DOI