The Influence Of Financial Performance And Mechanism Of Good Corporate Governance (GCG) On Stock Returns With Market Value As Moderating Variables In Banking Companies Listed On The IDX

Feb 27, 2025 by ADMIN 186 views

The Influence of Financial Performance and Mechanism of Good Corporate Governance (GCG) on Stock Returns with Market Value as Moderating Variables in Banking Companies Listed on the IDX

Introduction

In the world of investment, understanding the relationship between financial performance, good corporate governance (GCG), and stock returns is crucial for making informed decisions. This study aims to investigate the effect of financial performance and GCG mechanisms on stock returns in banking companies listed on the Indonesia Stock Exchange (IDX) during the 2012-2016 period. By using data from 43 banking companies, this research was conducted using the census method, producing total observations of 215 data.

The Importance of Financial Performance and Good Corporate Governance

Financial performance is a critical factor in determining the value of a company's shares. It is measured through various ratios, such as Loan to Deposit Ratio (LDR), Debt to Equity Ratio (DER), Return on Assets (ROA), and operational costs on Operational Revenue (BOPO). These ratios provide insights into a company's ability to generate profits, manage its capital structure, and maintain operational efficiency.

Good corporate governance (GCG) is also essential in ensuring that companies are managed in a transparent and accountable manner. It involves the implementation of mechanisms such as institutional ownership and the existence of an audit committee. These mechanisms help to ensure that companies are managed in the best interests of their shareholders and stakeholders.

The Effect of Financial Performance on Stock Returns

The results of this study show that financial performance has a significant effect on stock returns. Specifically, the ratios of ROA and BOPO have a clear impact on stock returns, indicating that investors tend to assess financial performance as the main indicator when making investment decisions. However, the ratios of LDR and DER do not show significant effects, suggesting that the profit generated (ROA) and operational cost efficiency (BOPO) are more important considerations for investors compared to the company's capital structure represented by LDR and DER.

The Effect of Good Corporate Governance Mechanism on Stock Returns

In addition to financial performance, the mechanism of good corporate governance also has a significant effect on stock returns. This indicates that investors are more likely to trust companies that apply good GCG principles, thus influencing their decisions to invest. The existence of an audit committee and institutional ownership are particularly important in ensuring that companies are managed in a transparent and accountable manner.

Market Value as a Moderating Variable

This study also investigated the role of market values, measured through Price to Book Value (PBV), as a moderating variable in the relationship between financial performance and GCG mechanism with stock returns. However, the results show that market value is unable to moderate the relationship. This may be caused by the fact that although companies have good performance, market value fluctuations can be influenced by other external factors, such as macroeconomic conditions and market sentiment, which does not always reflect the company's internal performance.

Conclusion

The conclusion of this study provides important insights for investors and banking company managers. Good financial performance and the application of solid GCG are very important in increasing stock value. However, market value as an indicator does not always reflect the performance, which shows the complexity in the relationship between various factors that influence investment decisions.

Implications for Investors and Banking Company Managers

This study has several implications for investors and banking company managers. Firstly, it highlights the importance of financial performance and GCG mechanisms in determining stock returns. Secondly, it suggests that investors should consider multiple factors when making investment decisions, rather than relying solely on market value. Finally, it emphasizes the need for banking companies to implement good GCG practices to increase investor trust and confidence.

Future Research Directions

This study provides a foundation for future research in the area of financial performance, GCG, and stock returns. Future studies could investigate the impact of other factors, such as macroeconomic conditions and market sentiment, on the relationship between financial performance and GCG mechanisms with stock returns. Additionally, future studies could explore the role of other moderating variables, such as industry characteristics and company size, in the relationship between financial performance and GCG mechanisms with stock returns.

References

[1] Agency for the Assessment and Application of Technology (BPPT). (2019). Good Corporate Governance (GCG) in Indonesia.
[2] Indonesia Stock Exchange (IDX). (2019). Listing Rules.
[3] World Bank. (2019). Corporate Governance in Indonesia.

Limitations of the Study

This study has several limitations. Firstly, the sample size is limited to 43 banking companies listed on the IDX, which may not be representative of the entire banking sector. Secondly, the study only investigates the effect of financial performance and GCG mechanisms on stock returns, and does not consider other factors that may influence investment decisions. Finally, the study uses a static analysis, which may not capture the dynamic nature of the relationship between financial performance and GCG mechanisms with stock returns.

Future Research Directions

Conclusion

In conclusion, this study provides important insights into the relationship between financial performance, GCG mechanisms, and stock returns in banking companies listed on the IDX. The results show that financial performance and GCG mechanisms have a significant effect on stock returns, and that market value is unable to moderate the relationship. This study has several implications for investors and banking company managers, and provides a foundation for future research in the area of financial performance, GCG, and stock returns.
Frequently Asked Questions (FAQs) about the Influence of Financial Performance and Good Corporate Governance (GCG) on Stock Returns

Q: What is the main objective of this study?

A: The main objective of this study is to investigate the effect of financial performance and good corporate governance (GCG) mechanisms on stock returns in banking companies listed on the Indonesia Stock Exchange (IDX) during the 2012-2016 period.

Q: What are the key findings of this study?

A: The key findings of this study are:

Financial performance, measured through various ratios such as Loan to Deposit Ratio (LDR), Debt to Equity Ratio (DER), Return on Assets (ROA), and operational costs on Operational Revenue (BOPO), has a significant effect on stock returns.
Good corporate governance (GCG) mechanisms, such as institutional ownership and the existence of an audit committee, also have a significant effect on stock returns.
Market value, measured through Price to Book Value (PBV), is unable to moderate the relationship between financial performance and GCG mechanisms with stock returns.

Q: What are the implications of this study for investors and banking company managers?

A: The implications of this study for investors and banking company managers are:

Good financial performance and the application of solid GCG are very important in increasing stock value.
Investors should consider multiple factors when making investment decisions, rather than relying solely on market value.
Banking companies should implement good GCG practices to increase investor trust and confidence.

Q: What are the limitations of this study?

A: The limitations of this study are:

The sample size is limited to 43 banking companies listed on the IDX, which may not be representative of the entire banking sector.
The study only investigates the effect of financial performance and GCG mechanisms on stock returns, and does not consider other factors that may influence investment decisions.
The study uses a static analysis, which may not capture the dynamic nature of the relationship between financial performance and GCG mechanisms with stock returns.

Q: What are the future research directions based on this study?

A: The future research directions based on this study are:

Investigating the impact of other factors, such as macroeconomic conditions and market sentiment, on the relationship between financial performance and GCG mechanisms with stock returns.
Exploring the role of other moderating variables, such as industry characteristics and company size, in the relationship between financial performance and GCG mechanisms with stock returns.

Q: What are the practical implications of this study for banking companies?

A: The practical implications of this study for banking companies are:

Implementing good GCG practices, such as institutional ownership and the existence of an audit committee, to increase investor trust and confidence.
Improving financial performance, measured through various ratios such as LDR, DER, ROA, and BOPO, to increase stock value.
Considering multiple factors when making investment decisions, rather than relying solely on market value.

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

A: The implications of this study for regulators and policymakers are:

Encouraging banking companies to implement good GCG practices to increase investor trust and confidence.
Improving the regulatory framework to ensure that banking companies are managed in a transparent and accountable manner.
Providing support and guidance to banking companies to improve their financial performance and GCG mechanisms.

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

A: The future research directions for this study are:

Investigating the impact of other factors, such as macroeconomic conditions and market sentiment, on the relationship between financial performance and GCG mechanisms with stock returns.
Exploring the role of other moderating variables, such as industry characteristics and company size, in the relationship between financial performance and GCG mechanisms with stock returns.
Conducting a longitudinal study to capture the dynamic nature of the relationship between financial performance and GCG mechanisms with stock returns.