The Influence Of Good Corporate Governance On The Financial Performance Of Property And Real Estate Companies Listed On The Indonesia Stock Exchange In 2010-2013

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The Influence of Good Corporate Governance on the Financial Performance of Property and Real Estate Companies Listed on the Indonesia Stock Exchange in 2010-2013

Introduction

In the business world, the application of Good Corporate Governance (GCG) is one of the key factors that can affect the company's financial performance. The concept of GCG has been widely discussed and implemented by companies around the world, including those listed on the Indonesia Stock Exchange (IDX). However, the effectiveness of GCG in improving financial performance is still a topic of debate among researchers and practitioners. This study aims to test the effect of GCG on the financial performance of property and real estate companies listed on the IDX during the period 2010 to 2013.

Background

The property and real estate sector is one of the largest sectors in the Indonesian economy, with a significant impact on the country's GDP. The sector has been growing rapidly in recent years, driven by increasing demand for housing and commercial spaces. However, the sector is also characterized by high risks, including market volatility, regulatory risks, and operational risks. In this context, the application of GCG is crucial to ensure the stability and sustainability of the sector.

Methodology

This study used a quantitative approach, with a sample of 20 property and real estate companies listed on the IDX each year from 2010 to 2013. The independent variables in this study consisted of public ownership, the size of the Board of Directors, the frequency of meetings of the Board of Commissioners, and the proportion of independent commissioners. The dependent variable was the company's financial performance, measured using Cash Flow Return on Assets (CFROA).

The data analysis was carried out through various methods, including classical assumptions testing, hypothesis testing, T test, F test, and determinant test, with the help of SPSS software version 21. The study also used the Purposive Sampling Method to collect the data.

Results

The results of this study showed that the frequency of meetings of the Board of Commissioners had a positive and significant influence on company performance. This means that the more active the Board of Commissioners held a meeting, the better the company's financial performance. Routine meetings allow the Board of Commissioners to effectively supervise and provide strategic direction to management, so as to increase decision making that have a positive impact on financial performance.

On the other hand, this study found that public ownership, board size, and the proportion of independent commissioners did not have a significant influence on company performance. This finding can be interpreted that despite having a high public ownership or a large board of directors, does not guarantee improvement of financial performance if it is not supported by active and effective supervision activities from the Board of Commissioners.

Discussion

The findings of this study have several implications for the property and real estate sector in Indonesia. Firstly, the study highlights the importance of active and effective supervision by the Board of Commissioners in improving financial performance. This suggests that companies should prioritize the development of a strong and effective Board of Commissioners, with a clear understanding of their roles and responsibilities.

Secondly, the study suggests that public ownership, board size, and the proportion of independent commissioners are not sufficient to guarantee improvement of financial performance. This implies that companies should focus on developing a strong and effective governance structure, rather than relying on external factors such as public ownership or board size.

Conclusion

In conclusion, this research confirms the importance of the active involvement of the Board of Commissioners in a meeting to support the company's financial performance. It is hoped that companies listed on the Indonesia Stock Exchange will continue to strive to strengthen the implementation of GCG in order to achieve optimal results.

Recommendations

Based on the findings of this study, several recommendations can be made for the property and real estate sector in Indonesia. Firstly, companies should prioritize the development of a strong and effective Board of Commissioners, with a clear understanding of their roles and responsibilities.

Secondly, companies should focus on developing a strong and effective governance structure, rather than relying on external factors such as public ownership or board size.

Thirdly, companies should prioritize the development of a strong and effective management system, with clear policies and procedures in place to support the implementation of GCG.

Limitations

This study has several limitations that should be noted. Firstly, the study only focused on property and real estate companies listed on the IDX, and may not be generalizable to other sectors or companies.

Secondly, the study only used a quantitative approach, and may not capture the nuances and complexities of GCG in practice.

Thirdly, the study only used a sample of 20 companies each year, and may not be representative of the entire population of property and real estate companies listed on the IDX.

Future Research

Several areas of future research can be identified based on the findings of this study. Firstly, further research can be conducted to explore the relationship between GCG and financial performance in other sectors or companies.

Secondly, further research can be conducted to explore the impact of GCG on other aspects of company performance, such as innovation, sustainability, and social responsibility.

Thirdly, further research can be conducted to explore the effectiveness of different governance structures and management systems in supporting the implementation of GCG.

References

  • [1] Good Corporate Governance: A Guide for Directors and Officers (2013)
  • [2] Corporate Governance and Financial Performance: A Review of the Literature (2012)
  • [3] The Impact of Good Corporate Governance on Company Performance: Evidence from Indonesia (2011)
  • [4] The Role of the Board of Commissioners in Good Corporate Governance: A Study of Property and Real Estate Companies in Indonesia (2010)

Appendix

  • [1] List of Companies Included in the Study
  • [2] Data Analysis Methodology
  • [3] Results of Data Analysis
  • [4] Conclusion and Recommendations
    Frequently Asked Questions (FAQs) on Good Corporate Governance and Financial Performance

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 is managed in a fair, transparent, and accountable manner. GCG involves the implementation of policies and procedures that promote the interests of shareholders, employees, customers, and other stakeholders.

Q: Why is GCG important for financial performance?

A: GCG is important for financial performance because it helps to ensure that a company is managed in a way that is consistent with its goals and objectives. GCG promotes transparency, accountability, and fairness, which can lead to improved financial performance and increased investor confidence.

Q: What are the key components of GCG?

A: The key components of GCG include:

  • Independent Board of Commissioners: A board of commissioners that is independent of management and has the authority to make decisions on behalf of the company.
  • Transparent Financial Reporting: Financial reporting that is transparent, accurate, and timely.
  • Effective Risk Management: A system of risk management that is designed to identify, assess, and mitigate risks to the company.
  • Compliance with Laws and Regulations: Compliance with all relevant laws and regulations.
  • Internal Controls: Internal controls that are designed to ensure the accuracy and reliability of financial reporting.

Q: What is the role of the Board of Commissioners in GCG?

A: The Board of Commissioners plays a critical role in GCG. The Board is responsible for overseeing the management of the company and ensuring that it is managed in a way that is consistent with its goals and objectives. The Board should have a clear understanding of its roles and responsibilities and should be able to make decisions on behalf of the company.

Q: What is the impact of GCG on financial performance?

A: The impact of GCG on financial performance is significant. Studies have shown that companies that implement GCG tend to have better financial performance than those that do not. GCG can lead to improved financial performance by promoting transparency, accountability, and fairness.

Q: What are the benefits of GCG for investors?

A: The benefits of GCG for investors include:

  • Increased transparency: GCG promotes transparency, which can lead to increased investor confidence.
  • Improved financial performance: GCG can lead to improved financial performance, which can result in increased returns for investors.
  • Reduced risk: GCG can help to reduce risk by promoting effective risk management and compliance with laws and regulations.

Q: What are the challenges of implementing GCG?

A: The challenges of implementing GCG include:

  • Cultural and behavioral changes: Implementing GCG requires cultural and behavioral changes within the organization.
  • Training and development: Implementing GCG requires training and development for employees.
  • Resource constraints: Implementing GCG can require significant resources, including time, money, and personnel.

Q: How can companies implement GCG?

A: Companies can implement GCG by:

  • Establishing a Board of Commissioners: Establishing a Board of Commissioners that is independent of management and has the authority to make decisions on behalf of the company.
  • Developing a Code of Conduct: Developing a code of conduct that outlines the company's values and principles.
  • Implementing Internal Controls: Implementing internal controls that are designed to ensure the accuracy and reliability of financial reporting.
  • Providing Training and Development: Providing training and development for employees on GCG.

Q: What are the next steps for companies that want to implement GCG?

A: The next steps for companies that want to implement GCG include:

  • Conducting a GCG Assessment: Conducting a GCG assessment to identify areas for improvement.
  • Developing a GCG Plan: Developing a GCG plan that outlines the company's goals and objectives for GCG.
  • Implementing GCG: Implementing GCG by establishing a Board of Commissioners, developing a code of conduct, implementing internal controls, and providing training and development for employees.

Q: What are the benefits of GCG for the economy?

A: The benefits of GCG for the economy include:

  • Increased investor confidence: GCG can lead to increased investor confidence, which can result in increased investment and economic growth.
  • Improved financial performance: GCG can lead to improved financial performance, which can result in increased economic growth.
  • Reduced risk: GCG can help to reduce risk by promoting effective risk management and compliance with laws and regulations.

Q: What are the next steps for governments that want to promote GCG?

A: The next steps for governments that want to promote GCG include:

  • Developing GCG Regulations: Developing GCG regulations that promote transparency, accountability, and fairness.
  • Providing Training and Development: Providing training and development for employees on GCG.
  • Encouraging Companies to Implement GCG: Encouraging companies to implement GCG by providing incentives and support.

Q: What are the benefits of GCG for society?

A: The benefits of GCG for society include:

  • Increased transparency: GCG promotes transparency, which can lead to increased trust and confidence in the company.
  • Improved financial performance: GCG can lead to improved financial performance, which can result in increased economic growth and job creation.
  • Reduced risk: GCG can help to reduce risk by promoting effective risk management and compliance with laws and regulations.