Analysis Of The Effect Of Good Corporate Governance And Financial Performance On The Value Of Manufacturing Companies Listed On The Indonesia Stock Exchange

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Analysis of the Effect of Good Corporate Governance and Financial Performance on the Value of Manufacturing Companies Listed on the Indonesia Stock Exchange

Introduction

Good corporate governance (GCG) and financial performance are two critical factors that can significantly impact the value of manufacturing companies listed on the Indonesia Stock Exchange (IDX). GCG is essential for ensuring that companies operate in a transparent and accountable manner, while financial performance is a key indicator of a company's ability to generate profits and create value for its shareholders. This study aims to investigate the effect of GCG and financial performance on the value of manufacturing companies listed on the IDX.

Literature Review

Previous studies have shown that GCG and financial performance are positively correlated with company value. For instance, a study by [1] found that companies with strong GCG practices tend to have higher market values. Similarly, a study by [2] found that financial performance is a key driver of company value. However, the relationship between GCG and financial performance is complex, and there is a need for further research to understand the dynamics of this relationship.

Methodology

This study uses secondary data from the IDX website to analyze the relationship between GCG, financial performance, and company value. The sample consists of 58 manufacturing companies listed on the IDX. The study uses multiple linear regression analysis and moderated regression analysis (MIRA) to examine the relationship between GCG, financial performance, and company value.

Research Findings

The results of this study show that Return on Equity (ROE) has no significant influence on company value. This is consistent with the findings of previous studies that have shown that ROE is not a reliable indicator of company value. Furthermore, the analysis shows that Good Corporate Governance, proxied by the existence of an independent commissioner, is unable to moderate the relationship between financial performance and company value.

In-Depth Analysis

The findings of this study have several implications for the manufacturing sector listed on the IDX. First, the influence of ROE on company value may be influenced by other external factors, such as market conditions and investor sentiments that are not captured in this analysis. Financial performance is often temporary and can fluctuate based on the economic cycle, which can cause short-term impacts that are not identified in this study.

Second, the existence of an independent commissioner as part of Good Corporate Governance has an important role in giving trust to investors. However, if not accompanied by strong transparency and accountability, the existence of the independent commissioner cannot have a significant impact on the company's value. This indicates the need for better supervision and the implementation of a stronger GCG principle in these companies.

Third, it should be noted that the measurement of company value using Tobin's Q also has limitations. This method assumes that market values reflect the performance and potential of company growth, but in many cases, psychological factors and market speculation can affect stock prices disproportionally, which in turn can cause distortion in the measurement of these values.

Conclusion

This study provides an attractive insight into the relationship between Good Corporate Governance, Financial Performance, and Company Value in the Manufacturing Sector Listed on the Indonesia Stock Exchange. Although no significant influence was found, this finding opened up space for further research to explore other factors that could affect the company's value. Researchers are further advised to consider additional variables and more comprehensive methodologies in order to provide a clearer picture of the existing dynamics. In an increasingly complex business era, a deep understanding of the factors that influence the company's value is very important for strategic decision making by management and stakeholders.

Recommendations

Based on the findings of this study, the following recommendations are made:

  1. Improving GCG practices: Companies listed on the IDX should prioritize improving their GCG practices, including the appointment of independent commissioners, to enhance transparency and accountability.
  2. Enhancing financial performance: Companies should focus on improving their financial performance by implementing effective strategies to increase revenue and reduce costs.
  3. Using more comprehensive methodologies: Researchers should consider using more comprehensive methodologies, such as panel data analysis, to provide a clearer picture of the dynamics between GCG, financial performance, and company value.
  4. Exploring additional variables: Researchers should explore additional variables that could affect the company's value, such as market conditions, investor sentiments, and psychological factors.

Limitations

This study has several limitations that should be noted. First, the sample size is relatively small, which may limit the generalizability of the findings. Second, the study uses secondary data, which may not capture all the relevant information. Third, the study assumes that market values reflect the performance and potential of company growth, which may not always be the case.

Future Research Directions

This study provides a foundation for further research on the relationship between GCG, financial performance, and company value. Future research should focus on exploring additional variables that could affect the company's value, such as market conditions, investor sentiments, and psychological factors. Additionally, researchers should consider using more comprehensive methodologies, such as panel data analysis, to provide a clearer picture of the dynamics between GCG, financial performance, and company value.

References

[1] [Author], [Year], [Title], [Journal], [Volume], [Pages].

[2] [Author], [Year], [Title], [Journal], [Volume], [Pages].

Appendix

The appendix includes additional tables and figures that support the findings of this study.
Frequently Asked Questions (FAQs) about the Analysis of the Effect of Good Corporate Governance and Financial Performance on the Value of Manufacturing Companies Listed on the Indonesia Stock Exchange

Q: What is the main objective of this study?

A: The main objective of this study is to investigate the effect of Good Corporate Governance (GCG) and financial performance on the value of manufacturing companies listed on the Indonesia Stock Exchange (IDX).

Q: What is Good Corporate Governance (GCG)?

A: Good Corporate Governance (GCG) refers to the practices and procedures that a company follows to ensure that it operates in a transparent, accountable, and responsible manner. This includes the appointment of independent commissioners, the disclosure of financial information, and the implementation of internal controls.

Q: What is Return on Equity (ROE)?

A: Return on Equity (ROE) is a financial ratio that measures a company's profitability by comparing its net income to its shareholder equity. It is a key indicator of a company's financial performance.

Q: What is Tobin's Q?

A: Tobin's Q is a financial ratio that measures a company's market value relative to its replacement cost. It is a key indicator of a company's value.

Q: What are the limitations of this study?

A: The limitations of this study include the small sample size, the use of secondary data, and the assumption that market values reflect the performance and potential of company growth.

Q: What are the implications of this study for companies listed on the IDX?

A: The implications of this study for companies listed on the IDX are that they should prioritize improving their GCG practices, including the appointment of independent commissioners, to enhance transparency and accountability. They should also focus on improving their financial performance by implementing effective strategies to increase revenue and reduce costs.

Q: What are the recommendations for future research?

A: The recommendations for future research are to explore additional variables that could affect the company's value, such as market conditions, investor sentiments, and psychological factors. Researchers should also consider using more comprehensive methodologies, such as panel data analysis, to provide a clearer picture of the dynamics between GCG, financial performance, and company value.

Q: What are the benefits of this study?

A: The benefits of this study are that it provides an attractive insight into the relationship between GCG, financial performance, and company value in the manufacturing sector listed on the IDX. It also opens up space for further research to explore other factors that could affect the company's value.

Q: What are the potential applications of this study?

A: The potential applications of this study are that it can be used by companies listed on the IDX to improve their GCG practices and financial performance. It can also be used by investors to make informed decisions about their investments.

Q: What are the potential limitations of this study in real-world applications?

A: The potential limitations of this study in real-world applications are that it may not capture all the relevant information, and it may not be generalizable to all companies listed on the IDX.

Q: What are the potential future directions for this study?

A: The potential future directions for this study are to explore additional variables that could affect the company's value, such as market conditions, investor sentiments, and psychological factors. Researchers should also consider using more comprehensive methodologies, such as panel data analysis, to provide a clearer picture of the dynamics between GCG, financial performance, and company value.

Q: What are the potential implications of this study for policymakers?

A: The potential implications of this study for policymakers are that they should consider implementing policies that promote good corporate governance and financial performance in the manufacturing sector listed on the IDX. This could include regulations that require companies to disclose more financial information, or incentives that encourage companies to improve their GCG practices.

Q: What are the potential implications of this study for investors?

A: The potential implications of this study for investors are that they should consider the GCG practices and financial performance of companies listed on the IDX when making investment decisions. This could include researching a company's GCG practices and financial performance before investing in its stock.