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The Influence of Good Corporate Governance Implementation
towards The Firm Performance: The Study on Manufacturing
Companies Listed in Malaysian Stock Exchange
Period (2010-2014)
By:
NADIAH INTAN SAHARA
1111082100005
INTERNATIONAL PROGRAM
ACCOUNTING DEPARTMENT
FACULTY OF ECONOMICS AND BUSINESS
ISLAMIC STATE UNIVERSITY SYARIF HIDAYATULLAH
JAKARTA
1436 H / 2015
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CURRICULUM VITAE
Personal Identities
Name : Nadiah Intan Sahara
Gender : Female
Place of Birth : Muara Enim
Date of Birth : September 29th
1993
Address :Dsn III Desa Sidomulyo RT/ RW 001/003 Kecamatan
Muara Lakitan Kabupaten Musi Rawas Sumatera Selatan
Mobile Number : 081213582474
Email Address : [email protected]
Formal Education
Collage : University Utara Malaysia 2015
UIN Syarif Hidayatullah Jakarta 2016
Senior High School : Darunnajah Islamic Boarding School Jakarta 2011
Junior High School : Darunnajah Islamic Boarding School Jakarta 2008
Elementary School : Madrasah Islamiyah Negeri Prabumulih 2004
Affiliation
Academic:
Participant in Entrepreneur University IM4U (1 Malaysia for Youth)
workshop in Universiti Sains Malaysia (2014) IM4U is an initiative of
Malaysian government that encourage volunteering among Malaysian
youth.
Participant in ― Talk on Financial Services Act (FSA) and Islamic
Financial Services Act (IFSA) held by Bank Negara Malaysia (2014)
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Participant in Industry Talk: Building Ethical Leaders held by Universiti
Utara Malaysia and Northern Illinois University USA (2014)
Participant in UUM-CIMA Student Conference : “Empowering Leaders of
Tomorrow” CIMA is stand for Chartered Institute of Management
Accountant
Participant in International Entrepreneurial Networking Course (2013)
Participant in Festival IYC ―Indonesia Youth Conference‖ (2013)
Participant in ―Seminar Interaktif Transformation of Capital Market:
Pengaruh Implementasi Kebijakan Otoritas Terhadap Iklim Investasi Pasar
Modal‖ (2013)
Participant in ―PPI UUM International Conference: Social Transformation
Towards Sustainability Society‖ (2013)
Participant in ―Seminar Nasional Indonesia Berkarakter‖ held by Ministry
of Education and Culture of Indonesia (2012)
Non Academic:
Member of Entrepreneurial Action Us (ENACTUS) , in 4Nature
Department, Universiti Utara Malaysia (2013-2014)
HMJ (Himpunan Mahasiswa Jurusan) in Islamic states university of Syarif
Hidayatullah Jakarta as The Student Affairs Department (2012-2013)
OSDN ( Organizations of Darunnajah ) in Darunnajah Islamic Boarding
Schools as the Art Department (2010 - 2011)
viii
The Influence of Good Corporate Governance Implementation towards The
Firm Performance: The Study on Manufacturing Companies Listed in
Malaysian Stock Exchange Period (2010-2014)
ABSTRACT
This research is aimed to analyze the influence of good corporate governance
implementation towards the firm performances: the study on manufacturing
companies listed in the Malaysian stock exchange. In this study, good corporate
governance is categorized into four indicators, which the size of board of
directors, the size of boards of independence, managerial ownership and
institutional ownership. This research is categorized as a quantitative research and
used a secondary type of data. The data collection techniques in this research is
downloading the annual report of the manufacturing companies in Malaysia that
listed on the website www.bursamalaysia.com. This research uses purposive
sampling method. Based on the purposive sampling method and the criteria, from
300 manufacturing companies listed, there are only 57 manufacturing companies
chosen to be the research sample, so that there 285 sample units from the period
2010 - 2014. The analysis method used in this research is a model of multiple
linear regression analysis that processed by using SPSS 18 for Windows7. Data
analysis was performed by Descriptive Statistical Analysis, Classical
Assumptions Test, Hypothesis Test, Coefficient Determination Test (R²-test). The
classical assumptions test includes: Multicollonearity Test, Heteroscedasticity
Test, Autocorrelation Test and Normality Test. Hypothesis Test includes: Partial
Significance Test (t-test) and Simultaneous Significance Test (f-test). The results
showed that the size of board of directors has influenced the firm‘s performance.
In addition, the size of board of independence, managerial ownership and
institutional ownership does not influence the firm's performance.
Keywords: Good Corporate Governance, Firm‘s Performance (ROA) and
Manufacturing Companies in Malaysia.
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Pengaruh Pelaksanaan Good Corporate Governance terhadap Kinerja
Perusahaan: Studi pada Perusahaan Manufaktur yang Terdaftar di Bursa
Efek Malaysia Periode (2010-2014)
ABSTRAK
Penelitian ini bertujuan untuk menganalisis pengaruh pelaksanaan good corporate
governance terhadap kinerja perusahaan, studi pada perusahaan manufaktur yang
terdaftar di bursa efek malaysia. Dalam penelitian ini, good corporate governance
dikategorikan menjadi empat indikator, ukuran dewan direksi, ukuran dewan
independensi, kepemilikan managerial dan kepemilikan institusional. Penelitian
ini dikategorikan sebagai penelitian kepustakaan kuantitatif, yang menggunakan
jenis data sekunder. Teknik pengumpulan data dalam penelitian ini adalah
dengan men-download dokumen yaitu laporan keuangan tahunan perusahaan
manufaktur di Malaysia yang terdaftar di situs www.bursamalaysia.com.
Penelitian ini menggunakan metode purposive sampling. Berdasarkan metode
purposive sampling dan kriteria, dari 300 perusahaan manufaktur yang terdaftar,
hanya ada 57 perusahaan manufaktur terpilih menjadi sampel penelitian,
sehingga terdapat 285 unit sampel dari periode 2010 - 2014. Metode analisis
yang digunakan dalam penelitian ini adalah model analisis regresi linier berganda
dengan bantuan software SPSS 18 untuk Windows7. Analisis data dilakukan
dengan deskriptif analisis statistik, uji asumsi klasik, uji hipotesis, uji koefisien
determinasi (R²-test) & uji variabel operasional. Uji asumsi klasik meliputi:
Multicollonearity, Heteroskedastisitas, Autokorelasi dan Normalitas. Uji
hipotesis Parsial termasuk uji signifikansi (t-test) dan uji simultan Signifikansi (f-
test). Hasil penelitian menunjukkan bahwa dewan direksi ukuran memiliki
mempengaruhi kinerja perusahaan. Selain itu, dewan ukuran kemerdekaan,
kepemilikan manajerial dan kepemilikan institusional tidak mempengaruhi
kinerja perusahaan.
Kata Kunci: Good Corporate Governance, Kinerja Perusahaan (ROA) dan
Perusahaan Manufaktur di Malaysia.
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FOREWORD
Bismillaahirahmaanirrahiim
Alhamdulillah, my praise and gratitude to Allah SWT, the almighty creator of
the universe who always gives his grace, guidance and blessing infinite, so that I
can finish this paper with title ―The Influence of Good Corporate Governance
Implementation towards The Firm Performance (The Study on Manufacturing
Companies Listed in Malaysian Stock Exchange Period 2010-2014)‖ as one of the
a requirement for completing my Bachelor Degree, in Accounting Major faculty
of Economy and Business Islamic State University Syarif Hidayatullah Jakarta.
With the weaknesses that exist, the author will not be fully realized apart from
the mistakes and shortcomings. Therefore, in this moment the author apologizes
for the mistakes and shortcomings that exist in this paper. In order to complete
this thesis, the author gets of many highly valuable assistance in form of moral
and material from various parties with a single-minded. On this occasion, with all
humility there is no better word to conveyed, except Praise and thanks are very
sincere to:
1. My Mother and Father who has relentlessly giving a beautiful prayer,
passion and motivation for me, especially in order to completing my
degree and finishing this paper. Without you two I am nothing.
2. Dr. M. Arief Mufraini, Lc., as the Dean of Economic Faculty of UIN
Syarif Hidayatullah Jakarta. Yessi Fitri, SE., Ak., M.Si and Hepi
Prayudiawan, SE, MM, AK as the Head of study program Economic
Faculty of UIN Syarif Hidayatullah Jakarta.
xi
3. Dr. Amilin, SE., Ak., M.Si as thesis supervisor I, you are my mentor who
has provide me a direction, guided me and helped me during the work on
this thesis. I would like to say thank you very much for your time and
knowledge that you have shared to me so that I can finished this thesis.
4. Yulianti. SE, M.Si as thesis supervisor II, I would like to say Thank you
very much for my best mentor that have guided me along the way with
your carefulness, specificity and punctuality so that I able to finish this
thesis on time.
5. All the lectures who have taught me patiently, hopefully what they have
given to me are recorded in Allah SWT almighty and all staff UIN Syarif
Hidayatullah Jakarta, special Thanks to Mr. Mardani Bonyx that have
provided me a lot of information and gave me the official staffs that I
needed in college.
6. All my friends from International Accounting 2011 Dian, Depe, Sinta,
Ilma, Siti, Maya, Didit, Erwin, Arif, Yusuf, Taufik. And thanks also to my
friends from International Management 2011 Ima, Balgis, Rendy, Zian,
Maulidan, Uji, Vidro, Rozi, Iqbal. Thanks for the unforgettable moment
that we had been through together until this far and special thanks for
some of you that already shared and taught me your valuable experiences
especially in finishing this thesis.
Jakarta, July 2nd
2015
(Nadiah Intan Sahara)
xii
TABLE OF CONTENTS
INFORMATION PAGE
Cover i
Certification From Supervisor ii
Certification of Comprehensive Exam iii
Certification of Thesis Examination iv
Sheet Statement Authenticity Scientific Work vi
Curriculum Vitae vii
Abstract viii
Abstrak x
Foreword xiv
Table of Content xvi
List of Tables xvii
List of Appendix xviii
Chapter I INTRODUCTION
A. Background 1
B. Problem Formulation 7
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C. Research Objectives 8
D. Research Benefits 9
Chapter II LITERATURE REVIEW
A. Theory Development 10
1. Theory Agency 10
2. Good Corporate Governances 12
a. The Size of Board of Commissioner 17
b. The Size of Board of Director 18
c. The Size of Board of Independent 21
d. The Ownership Structures 22
i. Managerial Ownership 23
ii. Institutional Ownership 24
e. Firm Performance 25
B. Previous Research 26
C. Theoretical Frameworks 36
D. Hypothesis Development 38
Chapter III RESEARCH METHODOLOGY
A. Scope of Research 42
B. Sampling Method 43
C. Data Collection Method 44
D. Analyze Method 45
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1. Descriptive Statistical Analysis 45
2. Classical Assumption Test 46
a. Normality Test 46
b. Multicollinearity Test 46
c. Autocorrelation Test 47
d. Heteroscedasticity Test 48
3. Coefficient of Determination (R2) 48
4. Multiple Regression Analysis 49
5. Hypothesis Testing 51
a. Partial Significance Test (t-test) 51
b. Simultaneous Significance Testing (f-test) 51
6. Operational Variables 52
a. Independent Variables 52
b. Dependent Variable 53
Chapter IV ANALYSIS AND DISCUSSION
A. General Description of Research Object 55
B. Analysis and Discussion 57
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1. Descriptive statistic 57
2. Classic Assumption Test 59
a. The Result of Normality Test 59
b. The Result of Multicollinearity Test 61
c. The Result of Autocorrelation Test 61
d. The Result of Heterocedasticity Test 63
3. Coefficient of Determination (R2) 64
7. Multiple Regression Analysis 65
8. Hypothesis Testing Result 67
a. Partial Significance Test (t-test) 67
b. Simultaneous Significance Testing (f-test) 73
c. Hypothesis Testing Result 74
Chapter V CONCLUSIONS AND RECOMMENDATIONS
A. Conclusion 75
B. Recommendation 76
xvi
REFERENCE 77
APPENDIX I 83
APPENDIX II 107
xvii
LIST OF TABLES PAGE
Table 2.1 The Relevant Previous Research 32
Table 2.1 Theoretical Framework 36
Table 3.1 Criteria of Correlation Coefficient 49
Table 3.2 Summary of Variable Operational Research 55
Table 4.1 Sample Selection Process 56
Table 4.2 Descriptive Statistics 57
Table 4.3 Normal P-P Plot of Regression Standardized Residual 59
Table 4.4 Normality Test by One-Sample Kolmogorov-Smirnov Test 60
Table 4.5 Results Multicollinearity Test 61
Table 4.6 Result Autocorrelation (Durbin Watson test) 62
Table 4.7 Durbin Watson Test Bound 62
Table 4.8 Scatter Plot 63
Table 4.9 Coefficient Determination 64
Table 4.10 Regression Analysis 65
Table 4.11 Partial Test Results (t-Test) 65
Table 4.12 Simultaneous Test Results (f-Test) 73
Table 4.13 The Hypothesis Test Result 74
xviii
LIST OF APPENDICES PAGE
Appendix I 83
Appendix II 107
Table 4.2 Descriptive Statistics 107
Table 4.3 Normal P-P Plot of Regression Standardized Residual 107
Table 4.4 Normality Test by One-Sample Kolmogorov-Smirnov Test 108
Table 4.5 Results Multicollinearity Test 108
Table 4.6 Result Autocorrelation (Durbin Watson test) 109
Table 4.7 Durbin Watson Test Bound 110
Table 4.8 Scatter Plot 110
Table 4.11 Partial Test Results (t-Test) 110
Table 4.12 Simultaneous Test Results (f-Test) 111
1
CHAPTER I
INTRODUCTION
A. Background
Nowadays, the business has involved with changing operating paradigms.
With corporations growing larger and larger, the need for enter the foreign capital
market and access them for their capital needs has given rise to the new
challenges in the governance of the international business. The pre-transition era
was justified by the need to protect domestic market, but with corporation
growing in huge proportions and spreading their wings all across, the need to open
up domestic market for entry of foreign business became a necessity. After the
Second World War, when world over economies needed to be rebuilt, increased
cooperation among countries becomes a must for international movement of
goods and services. The development of the world capital markets shows that the
capital markets increasingly integrated. Likewise, in the ASEAN region, one form
of such integration carried out in the presence of the ASEAN Capital Markets
Forum (Nugent & Goh Ching , 2014).
ACMF consisted of 10 capital market regulator in the jurisdiction of ASEAN
are Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the
Philippines, Singapore, Thailand and Vietnam. Currently, the ACMF led by the
Securities and Exchange Commission of Thailand. Capital market integration in
the ASEAN region allows capital to move freely, issuers are free to raise capital
anywhere and investors can invest anywhere. In the integrated market, anyone is
expected to be able to trade the capital market products freely in the region at a
2
competitive cost using capital market intermediaries to provide services across
ASEAN based on the consent of the country of origin. One strategy to support the
achievement of the integration objectives as set out in the Implementation Plan is
to strengthen the implementation of good corporate governance aspects of the
companies that exist in the region. (Purwanti et al, 2010)
The growth of corporations that led to the demand for more and more capital
encourage the protectionist regimes to open up their economies and enable more
foreign investment flowing into domestic business. Control and command based
structures had to be done away with. Instead a new form of governance structure,
which was led by market-based economic systems, primarily dominated by the
private sector, had to be embraced. Now most governments over the world are
relinquishing state control over industry, and private sector is being incentivized
to accept the new challenges of globalization. (Klettner et al, 2014). The efficient
economic policies and stable political systems are a big draw among the investor.
The countries that have opened themselves to the world market have good legal
systems in place providing protection to investors that attracted more capital in the
process of globalization. As the demand for capital is growing in both the
developed and the developing economies, the need for establishing good
governance practices has gained momentum. The emergence of supranational
corporation as a response to the globalization efforts has thus posed a big
challenge to the prevalent culture and governance practice of nation.
The issue that arises regarding corporate governance emerged as a reaction to
various corporate failures due to poor corporate governance. Weak
3
implementation of corporate governance principles believed to be the main cause
of economic insecurity which led to deteriorating economic conditions in several
Asian countries. The current business development has increased many fierce
rivalries between companies in the business world have forced the company to be
able to think more widely and creatively. Otherwise, the company will be
obsolete, and causing them to lose their customers because it‘s less of innovation
with the presence of products that are tedious. Therefore, it is very challenging in
implementing the good corporate governance in a company, because all parties
need to work together and having one purpose which to achieve the company
objective.
Good Corporate Governance in Indonesia began active when the financial
crisis in 1997-1998 has had dramatic social, economic and political effects. That
event brought the Rupiah down by almost 80% and dramatically increased
poverty. According to several experts, the recession in Indonesia was fuelled by
many institutional weaknesses, among which the lack or inadequate enforcement
of the central bank‘s regulations along with irregular banking practices and the
extremely poor financial regulation. Since then, it is fair to say that, although there
is still plenty of room for improvement, the awareness, enthusiasm as well as legal
and regulatory framework on corporate governance in Indonesia has changed and
improved dramatically in recent years. Indonesia had done a lot of initiatives and
efforts to implement good corporate governance, both from government side as
well as private. Those initiatives and efforts include establishment of corporate
governance institutions, adoption of new laws and amendments of existing ones to
4
support corporate governance implementation process in the country. More
specifically, Indonesia has taken several steps towards improving corporate
governance standards and enhancing legislation. A national committee for Good
Corporate Governance has been established in 1999 under the supervision of the
Coordinating Minister for Economic Affairs and issued the first Indonesia‘s Code
of Good Corporate Governance in 2001, which was then amended in 2006. The
Capital Market and Financial Institutions Supervisory Body (currently has merged
into OJK), has continued to introduce and amend its regulation and enforced
them, which resulted in improved investors‘ protection. Corporate governance
rules for banks were introduced in 2006 and Bank Indonesia has actively
monitored and enforced their implementation. (Suri & Hadad, 2014). Other than
the implementation of GCG in Indonesia, the researcher will explain about the
implementation of GCG in Malaysia. This is because in this study the researcher
are more concern with the implementation of GCG in Malaysia, in order to
determine how the implementation of GCG in the neighbor country which has
becoming the develop country.
The Malaysian Good Corporate Governance journey is start when
Malaysia recognized the value of good governance and it reason that are
committed to promoting and sustaining a strong culture of corporate governance.
Investor confidence in Malaysia was severely affected during the 1997/98 Asian
Financial Crisis. Policy makers learnt valuable lessons and focused their attention,
amongst others, on the need to raise corporate governance standards. They
undertook numerous initiatives including the issuance of the Malaysian Code on
5
Corporate Governance (Code) in the year 2000 to strengthen their corporate
governance framework. Since then, they have embarked on a journey to
continuously improve their corporate governance framework. The Code was
revised and securities and companies laws were amended. The Audit Oversight
Board was established to provide independent oversight over external auditors of
companies. The Securities Industry Dispute Resolution Center was established to
facilitate the resolution of small claims by investors. Statutory derivative action
was introduced to encourage private enforcement action by shareholders. (Anwar,
2012)
The previous researcher (Yusuf, 2013) conducted a study on the effect of
Good Corporate Governance and ownership structure as an independent variable,
the value of the company and as the dependent variable; GCG can be categorized
into three indicators, such as the size of the board of directors, independent
directors / external. And the audit committee size and ownership structure are
categorized into two indicators, managerial ownership and institutional
ownership. Results from this study indicate that the variable value of the company
simultaneously influenced by the size of the board of directors, independent
directors, audit committee size, managerial ownership and institutional ownership.
In addition, the results also showed that the size of the board of directors has a
positive significant effect on the value of the company and independent directors
have a significant negative effect on the value of the company, while, the size of
the audit committee, managerial ownership and institutional ownership has no
significant effect on the value of the company.
6
Moreover, there is another previous research conducted by (Febriyanto,
2013) the research on the analysis of the implementation of good corporate
governance on corporate performance (empirical study companies listed on stock
exchanges in Indonesia in 2008-2012) with four independent variables, such as:
independent board, the size of the board of directors, institutional ownership,
managerial ownership and one dependent variable: the company's performance
measured by the Tobin's Q. The results showed that the independent board, board
of directors, institutional ownership, the managerial ownership has a significant
effect on the performance of the company.
The differences in this study with the previous study are:
1. The years observed in this study was in 2010-2014. The years of previous
study were in 2008-2012. The reason why researchers use the year 2010 to
2014, it is because the period shows the actual conditions associated with the
problem under study.
2. The country observed in this study is the researcher chooses the data from
Malaysian Country while the previous study was using the data from
Indonesia Country. This is because the researchers wanted to try to determine
how the application of good corporate governance in other countries,
especially developed country.
3. In this study, researchers focused only on one industry that is the
manufacturing industry. While the previous study was not have the specific
industry just company that listed in Indonesian Stock Exchange. The
objectives itself, to avoid any bias caused by differences in the industry, other
7
than that industrial manufacturing is one of the largest industries in Malaysia
therefore it is expected to help the researchers to examine the study in the
broader scope.
4. In this research the researcher use 5 variables which the independent variable
is Board of Director Size (BOD), Board of Independent (BOI), Managerial
Ownership (MO) Institutional Ownership (IO) and the dependent variable is
Firm Performance as measured by return on asset (ROA). While the previous
study use the size of the Board of Directors, Independent Directors,
Managerial ownership and Institutional ownership as the independent variable
and company performance as the dependent variable that measured by Tobin‘s
Q.
Based on the description above, the researchers are motivated to conduct the
research entitled:
The Influence of Good Corporate Governance Implementation towards Firm
Performance: The Study on Manufacturing Companies Listed in Malaysian
Stock Exchange Period (2010-2014)
B. Problem Formulation
Based on the background above, it is found that the problem formulation in
this research is:
1. Does the size of Board of Director (BOD) influence the firm performance?
2. Does the size of Board of Independent (BOI) influence the firm performance?
3. Does the Managerial Ownership (MO) influence the firm performance?
8
4. Does the Institutional Ownership (IO) influence the firm performance?
5. Does the size of Board of directors (BOD), the size of board of independent
(BOI), managerial ownership (MO) and institutional ownership (IO) influence
the firm performance?
C. Research Objectives
The purpose of this study was to analyze empirically the influence of good
corporate governance towards the firm performance:
1. To determine the influence of the Board of Director (BOD) towards the firm
performance
2. To determine the influence of the Board of Independent (BOI) towards the
firm performance
3. To determine the influence of Managerial Ownership (MO) towards the firm
performance
4. To determine the influence of Institutional Ownership (IO) towards the firm
performance.
5. To determine the influence of Board of directors (BOD), board of independent
(BOI), managerial ownership (MO) and institutional ownership (IO) on the
firm performance.
9
D. Benefits of Research
This research will provide the following benefits:
1. Theoretical Benefit
Theoretically this research is beneficial as the input materials and
contributions, thoughts in an effort to increase the data resource and
reference for the university regarding Good Corporate Governance. For
further research as the additional reference materials in reviewing issues
related to GCG and its influence to the firm performance.
2. Practical Benefit
This research is a good opportunity for the researcher to applying the
theory, particularly the theory in the field of Accounting and management
into the world of actual practice that can improve the understanding of the
researcher, especially in the scope of good corporate governance and its
influence to the firm performance. For the company, as the consideration for
business on how big the good corporate governance can influence their firm
performance, and it is also beneficial for the industry product that Listed in
Malaysian Stock Exchange: to give contribution for the firms to understand how
important the good corporate governance concept on their firm performance.
Other than that, this research is beneficial for others, especially for investors,
this research can be used as an evaluation report for the investor to choose
the company they are willing to invest.
10
CHAPTER 2
LITERATURE REVIEW
A. Theory Development
1. Theory Agency
Basic agency was developed in the economics literature during 1960s and
1970s in order to determine the optimal amount of the risk- sharing among
different individuals (Spence & Zeckhauser, 1971 cited in Javed & Iqbal,
2006) However, gradually the domain of the agency theory was extended to
the management area for determining the cooperation between various people
with different goals in the organization, and attainment of goal congruence. In
1980s, agency theory was also appeared extensively in the managerial
accounting realms to determine the optimum-incentive contracting among
different individuals and establishing suitable accounting control mechanisms
to monitor their behaviors and actions (Namazi, 2013).
When compared to publicly traded firms, small businesses come closest to
the type of firms depicted in the stylized theoretical model of agency costs
developed by Jensen & Meckling (1976). Agency costs arise when the
interests of the firm's managers are not aligned with those of the firm's
owner(s), and take the form of preference for on the-job perks, shirking, and
making self-interested and entrenched decisions that reduce shareholder
wealth. The magnitude of these costs is limited by how well the owners and
delegated third parties, such as banks, monitor the actions of the outside
managers. (James et al. 2000)
11
Jensen & Meckling (1976) also define an agency relationship as a contract
under which one or more persons (the principals) engage another person (the
agent) to perform some service on their behalf which involves delegating
some decision making authority to the agent. If both parties to the relationship
are utility maximize there is good reason to believe that the agent will not
always act in the best interests of the principal. The principal can limit
divergences from his interest by establishing appropriate incentives for the
agent and by incurring monitoring costs designed to limit the aberrant
activities, of the agent. In addition, an agency operates under the condition of
risk and uncertainty. In effect, the basic agency theory usually assumes that
both individuals are risk averse. Under this circumstance, the amount and
content of the produced accounting information and other information sources
would become a significant issue in risk sharing and controlling the agent's
actions (Javed & Iqbal, 2006).
Good Corporate Governance (GCG) is a concept that is based on the
agency theory, which expected to serve as a tool to give confidence to
investors that they will receive a return on the funds they
had invested. GCG deals with how investors are confident that managers
will give you an advantage for them, convinced that the manager will not
be stolen or invest in projects which are not related to the funds or capital
which has been invested by investors and is concerned with how the investors
control the managers (Shleifer & Vishny, 1997 cited in Yasser, 2011). In other
12
words, corporate governance is expected to work to suppress or reduce the
cost of an agency.
2. Good Corporate Governance (GCG)
There is no single definition of corporate governance that can be applied to
all situations and jurisdictions. The various definitions that exist today largely
depend on the institution or author, country and legal tradition. IFC
(International Finance Corporation, 2014) defines corporate governance as
―the structures and processes for the direction and control of companies.‖ The
Organization for Economic Cooperation and Development (OECD, 2004),
Principles of Corporate Governance, offers a more detailed definition of
corporate governance as:
―The internal means by which corporations are operated and controlled
[…], which involved a set of relationships between a company’s management,
its board, its shareholders and other stakeholders. Corporate governance also
provides the structure through which the objectives of the company are set,
and the means of attaining those objectives and monitoring performance are
determined. Good corporate governance should provide proper incentives for
the board and management to pursue objectives that are in the interests of the
company and shareholders, and should facilitate effective monitoring; thereby
encouraging firms to use resources more efficiently.”
13
According to James (2009), corporate governance is concerned with ways
of bringing the interests of (investors and managers) into line and ensuring
that firms are run for the benefit of investors. Corporate governance is
concerned with the relationship between the internal governance mechanisms
of corporations and society‘s conception of the scope of corporate
accountability. In order to include the structures, processes, cultures and
systems that engenders the successful operation of organizations.‘ Corporate
governance is also seen as the whole set of measures taken within the social
entity that is an enterprise to favor the economic agents to take part in the
productive process, in order to generate some organizational surplus, and to
set up a fair distribution between the partners, taking into consideration what
they have brought to the organization (Klettner et al, 2014)
The principles of GCG are transparency, accountability, responsibility,
independency, and fairness and equity. In addition to these five principles, in
order to be effective, GCG management must work together to carry out the
principles of GCG regulations. There are six principles of GCG
implementation according to OECD (2004), namely:
a. Ensuring the basis of effective corporate governance framework
b. The rights of shareholders and principal owner
c. Equal treatment of shareholders
d. Role of stakeholders
e. Disclosure and transparency; and
f. The responsibility of the board.
14
The Basic Principles of Good Corporate Governance Various rules and
system as a regulator in management of company‘s need to be poured in
form of principles that must be adhered to the concept of Good
Corporate Governance. In generally, there are 5 (five) basic principles
(KNKG. 2006), namely:
1. Transparency
To maintain the objective of corporate must provide information, which
is material and relevant in a way that is easily accessible and
understood by stakeholders. Companies should take the initiative to reveal
not only the problem that required by law, but also the importance for
decision-making by shareholders, creditors and other stakeholders. The
corporate must provide the information timely, adequately, clearly,
accurately, and all the important events that may affect the condition of
corporate.
2. Accountability
Corporate must be accountable for their performance in a transparent and
fair. It must be properly managed, scalable, and in accordance with the
interests of the company to remain stakeholder‘s interests. Specify details of
duties and responsibilities of each organization and all employees.
Corporate must ensure that the organs of company and all employees have
competent accordance with the duties, responsibilities, and roles in
implementing Good Corporate Governance. Corporate needs to ensure an
15
effective system of internal control to be manage in the company.
3. Responsibility
The corporate must comply with laws and regulations and carry out
responsibilities for people and the environment. So, the business can be
maintained in the long run and gained recognition as the Good Corporate
Governance. The organization must adhere to the principle of prudence and
ensure compliance with regulatory laws, statutes and regulations. Corporate
should be carried out social responsibility. Corporate has to be responsible in
management to the principle of corporate, as well as existing of some
regulation.
4. Independency
The corporate should be managed independently, so the individual
companies do not dominate other organs and no intervention by other parties.
Each organ must avoid domination by any party, is not affected by particular
interests, independent of other interests, influence and pressure. Each organ
shall carry out the functions and duties in accordance with the statutes and
regulations, and not dominate the other, or passing the buck between each
other. Independency state whereas the corporate are managed by professional
without any conflict interest and pressure from any side, which will be
affected to the health of corporate. To accelerate the implementation of Good
Corporate Governance, the corporate should be managed independently, so
their organizations do not dominate to the other and no intervention other
16
parties. Each organization of corporate has to avoid the domination any party,
not influenced by special interest, free from conflict and pressure, so the
decision-making will be done objectively. Each organ must perform its
functions and duties in accordance with the statutes and regulations, do not
dominate others and passing the buck between each other to realize an
effective internal control.
5. Fairness
To carry out these activities, the company should pay attention to the
interests of stakeholders based on the principle of equality and fairness.
Corporate provide equal treatment to all stakeholders. Corporate provides the
opportunity for stakeholders to give advice and opinion for company‘s
performance and open access of information in accordance with the principles
of transparency within the scope of the position. Equality and fairness defined
as fair and equal treatment in fulfilling the right of stakeholder arising under
treaties and laws, which have applied. Fairness also includes fulfill the right of
investors, legal system and enforcement of regulations, which protect
investors. Fairness is expected to make the entire of company‘s assets are well
managed and prudent; also expect to protect all members. Corporate should
provide the opportunity for stakeholders to provide input and expression to the
interests of companies and open access to information in accordance
with the principle of transparency in their respective positions.
17
The implementation of corporate governance guidelines is meant to have a
purpose and benefits as follows (Forum Corporate Governance Indonesia (FCGI,
2001):
(1) Achieving a sustainable growth of the company through a management system
based on the principles of transparency, accountability, responsibility,
independence, and fairness.
(2) Encouraging the empowerment and independence of the functions of each
organ of the company, e.g., the board of commissioners, the board of
directors, and the general meeting of shareholders (GMS).
(3) Encouraging shareholders, the board of commissioners, and the board of
directors to take decisions and actions based on the value of high moral and
compliance with laws and regulations.
(4) Encouraging the emergence of awareness and corporate social responsibility
towards society and the environment.
(5) Optimizing shareholder value while considering other stakeholders, and
(6) Improving the competitiveness of enterprises, both nationally and
internationally, thereby increasing confidence in the market which can
encourage the flow of investment and sustainable economic growth.
a. Board of Commissioner Size (BOC)
Indonesia adopted two-tier board system. Companies incorporated under
the Indonesia Company Law (2007) must have two boards, supervisory board
that performs the monitoring role and management board that perform the
executive role. The supervisory board is clearly separated from and
18
independent of the executive or management board, consistent with the
characteristic of the continental European governance model. The two-tier
board makes a clear separation between the Board of Directors and Board of
Commissioners. Board of Commissioners has very important roles in the
company, especially in the implementation of good corporate governance. The
Board of Commissioners lies at the core of corporate governance-charged with
ensuring strategic guidance mechanism. Since management is responsible for
the firm‘s efficiency and competitiveness and Board of Commissioners is the
proper focal point of the corporation‘s perpetuation and success (Anitawati,
2011).
Board of Commissioners has responsibility to supervise the quality of
information in the financial statement. This is important to consider
management need on doing earning management, which could affect the
decreasing of investor belief. In order to overcome this problem, Board of
Commissioners has permitted to have an access on company information.
Board of Commissioners does not have authority in the company, so Board of
Director responsible to deliver the information that related to the company.
Additionally, the function of Board of Commissioners is to make sure a
company has done social responsibility and consider the stakeholder need as
good as monitoring the effectively of corporate governance practice (National
Code for Good Corporate Governance, 2001 cited in Febriyanto, 2013).
19
b. The Board of Director Size (BOD)
The board of directors is a party to a corporate entity tasked with carrying
out the operation and management of the company. According to the limited
liability company act, which can be appointed as a board member is an
individual who is able to carry out legal action and not been declared bankrupt
or become a member of the directors or commissioners who were found guilty
of causing the company to go bankrupt, or a person who never convicted of
committing adverse financial criminal state within five years prior to
appointment. (Paul, 2000).
The boards of directors are fully responsible for all operations and
management of the company in order to carry out the interests in achieving
company goals. The board of directors is responsible for the affairs of the
company with external parties such as suppliers, customers, regulators and
legal parties. With such a large role in the management of the company,
directors basically have a significant controlling interest in resource
management companies and funds from investors. Functions, powers, and
responsibilities of directors is expressly stipulated in Law no. 40 of 2007 on
Limited Liability Company. In this law, the board has the task, among others:
1.) A leading publishing company with corporate policies.
2.) Choose, assign, and supervise duties of the employee and the manager.
3.) Approve the annual budget of the company.
4.) Delivering a report to shareholders for the company performance.
20
Board size is the number of the board of director in the company which is
generally composed of inside and outside members and responsible to run the
company‘s business. Most of the researchers found that, the larger board size
negatively impacts the value of the firm. Literatures on board size and firm
value are firstly emerged in the early 1990s with the article of Lipton &
Lorsch (2009). The advocated small board since they believed that the board
would become ineffective when a group grows too large, thereby building on
the organizational behavior theory, Yusuf, (2013).
The Malaysian Code of Corporate Governance (FCGM, 2012) outlines the
principal responsibilities of the board of directors in public listed companies,
which are:
1) To review and adopt a strategic plan for the company
2) To oversee the conduct of the company‘s business to evaluate whether the
business is being managed properly
3) To identify principal risks and ensure the implementation of appropriate
systems to manage these risks
4) To undertake succession planning, including appointing, training, fixing
compensation, and replacing senior management (where applicable)
5) To develop and implement an investor relations program or shareholder
communication policy for the company; and
6) To review the adequacy and the integrity of the company‘s internal control
systems and management information systems, including systems for
compliance with applicable laws, regulations, rules, directives and guidelines.
21
The Board of Directors is also as the Corporate Governance guarantor.
Shareholders elect the Board of Directors to oversee management and to
assure that stakeholders‘ long-term interests are served. Through oversight,
review, and counsel, the Board of Directors establishes and promotes business
and organizational objectives. The Board oversees the company‘s business
affairs and integrity, works with management to determine the company‘s
mission and long-term strategy, performs the annual Chief Executive Officer
(CEO) evaluation, oversees CEO succession planning, establishes internal
controls over financial reporting, and assesses company risks and strategies
for risk mitigation. (Naciri, 2008 pg. 24)
c. The board of Independent Size (BOI)
The independent board is an important point in corporate governance
principles that repeatedly examined in many research. Nowadays, it is widely
recognized that independent board play an important role in a sound
governance structure (California Public Employees, 2010 cited in Yusuf,
2013). According to OECD GC Principles, the board should be comprised of
at least a majority of ―independent directors‖.
Board should consider assigning a sufficient number of independent board
members capable of exercising independent judgment to task where there is a
potential for conflict of interest (OECD, 2004). Examples of such key
responsibilities are ensuring the integrity of financial and non-financial
reporting, reviewing of related party transaction, nomination of board member
22
and key executives and board remuneration (OECD, 2004). When
investigating the composition of board of directors, we can see how different
the company describes the definition of ―independence‖ which is disclosed
and observed in its annual proxy statement. Then their compliance will be
evaluated if they follow the rule at least one third directors of the board are
independent directors.
d. Ownership Structure
The ownership structure is the shareholding in the company, particularly
the number of majors (either individually or together) will determine the
extent and intensity control to management. Ownership structure is the
percentage of shares held by the insider and the outsider shareholder. Insider
party, i.e. shareholders who are aligned as a director and commissioners.
Outsider party, i.e. shareholders that have by the institutions, individuals and
other outside the company. Company ownership can be seen from the point of
the concept of corporate governance, as the owner of an external mechanism,
which is strongly associated with the commissioners and directors (Anderson
et al 2003).
The firm‘s ownership structure can have a large impact on the firm‘s
control structure, innovation culture and resource allocation. If the firm has
shareholders, different existing or potential shareholders can have different
qualities as sources of capital and/or providers of ancillary services such as
control services or services designed to foster innovation. Ownership
concentration, for example, if the firm has a small number of entrepreneur-
23
shareholders each committed to innovation, the firm is more likely to have a
strong innovation culture. The firm is less likely to have a strong innovation
culture when it has a highly dispersed share ownership structure. Ownership
concentration is thus one of the factors that can bring benefits. Large
shareholders are better at fostering innovation compared with small
shareholders (Mantysaari, 2012)
Agency problem is problems arising from the parties involved have
different interests with each other. The ownership structure is a mechanism to
reduce the conflict between management and shareholders (Faisal, 2004). So
the agency problem can be mitigated by the presence of the ownership
structure, due to the presence of structured ownership structure, believed to
have the ability to influence the future course of the company that may affect
the agency costs incurred by the company. Ownership structure can be
individual investors, government, and private institutions. The ownership
structure is divided into several categories. Specifically ownership structure
category includes ownership by managerial ownership and institutional
ownership.
1) Managerial Ownership (MO)
Managerial ownership is ownership of shares that management receives in
other words the management as well as a shareholder (King & Santor, 2009)
According to Jansen & Meckling (1976) one way in order to reduce the
conflict between the principal and the agent can be done by increasing
managerial ownership of a company. That means that managerial ownership
24
in a company will encourage pooling of interests between principal and agent
so that managers act in accordance with the wishes of shareholders.
Managerial ownership can also align the interests between managers and
shareholders so that managers will be careful in taking decisions because they
directly share in the benefits and impact of the making the wrong decision
(Faisal, 2004).
The greater the proportion of managerial ownership in the company, the
managers tend to try harder and motivated to create the optimal company
performance because managers have an obligation to maximize the welfare of
the shareholders, yet on the other hand, managers also have an interest to
maximize their welfare (Faisal, 2004). The Manager will seek to reduce
conflicts of interest resulting in lower agency costs and can reduce the
tendency of managers to perform an opportunistic action.
2) Institutional Ownership (IO)
Institutional ownership is ownership of shares owned by domestic
institutions, foreign institutions, government institutions such as insurance
companies, banks, investment companies and other. Institutional ownership
may indicate the presence of institutional investors that strong corporate
governance mechanisms which can be used to monitor the management of the
company (Tarjo, 2008 cited in Febriyanto, 2013). The ownership structure of
public companies in Indonesia is concentrated in institutions. Institutions
which mean the owner of a public company in the form of institutions, not on
25
behalf of the owner of individual private (Anderson et al 2003). The majority
of institutions is a Limited Liability Company. It is the Ownership by
institutional investors is likely to encourage more optimal monitoring the
management performance, since share ownership represents a source of power
that can be used to support or otherwise of the management performance.
Jensen & Meckling (1976) suggest that institutional ownership has a very
important role in minimizing agency conflicts that occur between managers
and shareholders.
e. Firm Performance
The company's performance is a term used for part or all of the actions or
activities of an organization in a period with reference to a standard amount as
the cost of past or projected, on the basis of efficiency, accountability or the
accountability of management and the likes (Javed & Iqbal 2006). The
company is an entity formed the scene of a unity of the various functions and
operational performance work systematically to achieve a certain goal. The
goal of a company is an objective to be achieved all stakeholders in the
company. To achieve these objectives, the parties interested in the company
should cooperate systematic way to yield optimal performance. One way to
know whether a company in carrying out its operations in accordance with a
predetermined plan and in accordance with the objectives was to find out from
the company performance.
26
Performance is a picture of the level of achievement of the results of the
implementation of an operational activity. Assessment of performance here is
a method and process assessment task execution performance of a person or a
group of people or work units within a company or organization in accordance
with the performance standards or goals set. In realizing the vision and
mission of the organization, companies need to have a measure to gauge how
the achievement of goals and objectives within a specific time period.
(Abdifatah et al, 2014)
B. Previous Research
After collecting several reference and journal regarding the
implementation of Good Corporate Governance in the company, the
researcher found that there are several studies which are associated with this
study. Therefore, to see the differences between the study and it also can be as
the added information regarding the same issues, here there some conclusion
from the previous studies which is founded as the relevant study:
1. The impact of Corporate Governance on Firm Performance: Banking
Industries in Malaysia.
This study was examined the relationship of corporate governance and
firm performance of banking industries in Malaysia. Besides that, it were
highlight about the variables that used such as board size (BOS), Role and
Responsibilities board of director (BOD), Audit Committee (AC) and Boar
independence (BID) to relates with the return on assets (ROA). This study was
27
using the three methods of statistical analysis to analyze the impact of
corporate governance which are the descriptive analysis, correlation analysis
ad multivariate analysis which to view the significant that exits between ROA
and BOS, BOD, AC and BID. Besides that, they investigate the effectiveness
of banking industry in Malaysia through the annual report of each bank in
Malaysia that recorded from 2008 to 2011. And the result shows that, there is
a positive relationship between BOS, BOD, AC, and ROA. Therefore there is
a negative relationship between BID and ROA. (Ismail et al, 2014)
2. The Relationship between Corporate Governance Attributes and Firm
Performance before and after the revised code some Malaysian evidences.
This study was examined the impact of corporate governance attributes
and ownership structure patterns on corporate performance of Malaysian listed
companies following the revised code on corporate governance in 2007. To
provide an insightful assessment on the revised code‘s implications on firm
performance, data before (2006) and after (2009) the revised code in 2007
were analyzed. The study involves analyses of 170 observations in a two-year
period, 2006 and 2009. The sample of the study was selected on the basis of a
stratified random sampling procedure to allow a representative sample of the
various sectors listed on Bursa Malaysia. Based on data extracted from the
annual reports of 2006 and 2009, corporate performance was captured using
accounting performance indicators (return on assets and return on equity). In
addition to descriptive analyses, multiple regression analysis was used to
assess the influence of the governance and ownership structure attributes on
28
firm performance. The findings revealed a decreasing trend of the financial
performance of the sample companies over the two-year period which this
study attributes to the recent global financial meltdown. In terms of corporate
governance compliance, the results showed that there were cases of non-
compliance of the basic requirements of the corporate governance code in
Malaysia even after the revised code in 2007. In addition, the multiple
regression results showed that only board meetings had significant negative
association with firm performance following the revised code. None of the
other variables had significant impact on firm performance before and after
the revised code. Firm size and leverage, as control variables, however,
showed significant association with firm performance. (Abdifatah et al, 2014)
3. The Implementation of Good Corporate Governance and Its Impact on
Corporate Performance: The Mediation Role of Firm Size (Empirical
Study from Indonesia).
This research aims is to examine the effect of good corporate governance
implementation on corporate performance as measured by EVA. This research
use manufacture companies which are listed in Indonesian Stock Exchange
period 2006-2010 as the samples, purposive sampling was used to determine
sample criteria which are: go public manufacturing companies in period 2006-
2010 which consistently publish annual report and financial report on the
website of Indonesia Stock Exchange (IDX) of its own site: companies that
have selected as the 40 companies with the larger size. Path analysis was
conducted to shows its direct and indirect effect of each path. The result of
29
this research shows that implementation of GCG can effect directly on
corporate performance as measured by EVA, and it shows effect indirectly
through firm size. In other word, firm size has a mediation role in impact the
good corporate governance implementation on corporate performance.
(Nur‘ainy et al, 2013)
4. The Corporate Governance as a value driver for Firm Performance:
Evidence from India.
The study was examined the corporate governance issues India and
establish the relationship between corporate governance and financial
performance. The sample comprises 141 companies belonging to the ―A‖
group India, a composite measure of corporate governance is developed
comprising three indicators – legal, board and proactive indicators. Data on
the three indicators and financial performance were procured from secondary
sources. In the step-wise multiple regression analysis, the influence of these
three indicators and the composite measure of corporate governance was
examined on firm performance after controlling the confounding effects of
firm size. The board and the proactive indicators influence the firm
performance significantly whereas legal compliance indicator does not do so.
The composite corporate governance measure is a good predictor of firm
performance. (Mishra et al, 2014)
30
5. Corporate Governance and Firm Performance: A Study of Sri Lankan
Manufacturing Companies
Corporate governance is about putting in place the structure, processes and
mechanism that ensure that the firm is being directed and managed in a way
that enhances long term shareholder value through accountability of managers
and enhancing organizational performance. Corporate governance refers to a
set of rules and incentives by which the management of a company is directed
and controlled. Hence good corporate governance maximizes the profitability
and long term value of the firm for shareholders. There is a great awareness
among the researchers to carry out the researches in ―corporate governance‘.
Very little researches on ―corporate governance‖ are available in Sri Lanka
and need to be empowered companies to pay a special attention on corporate
governance. In a way, the present study is initiated on ―corporate governance
and firm performance‖ with the samples of 28 manufacturing companies using
the data representing the periods of 2007 – 2011. Board structure, board
committee, board meeting and board size including executive directors,
independent non-executive directors, and non-executive directors were used as
the determinants of corporate governance whereas return on equity (ROE) and
return on assets (ROA) were used as the measures of firm performance. The
study found that determinants of corporate governance are not correlated to
the performance measures of the organization. Regression model showed that
corporate governance don‘t affect companies‘ ROE and ROA. Further
recommendations are also put forwarded in the research. (Velnampy, 2013)
31
6. Corporate Governance and Firm Performance: Empirical evidence from
Vietnam
This empirical study, the first of its kind, seeks to quantify the relationship
between corporate governance and the performance of firms in Vietnam. As
part of this study, the authors undertook an intensive review of literature to
identify a range of elements that contribute to overall corporate governance. In
this study, corporate governance is considered to consist of the following
elements: (i) the size of the board; (ii) the presence of female board members;
(iii) the duality of the CEO; (iv) the education level of board members; (v) the
working experience of the board; (vi) the presence of independent (outside)
directors; (vii) the compensation of the board; (viii) the ownership of the
board; and (ix) block holders. Using the flexible generalized least squares
(FGLS) technique on 77 listed firms trading over the period from 2006 to
2011. The findings of this study indicate that elements of corporate
governance such as the presence of female board members, the duality of the
CEO, the working experience of board members, and the compensation of
board members have positive effects on the performance of firms, as measured
by the return on asset (ROA). However, board size has a negative effect on the
performance of firms. This study also presents that ownership of board
members has a nonlinear relationship with a firm‘s performance. (Duc Vo &
Thuy Phan, 2013).
32
Table 2.1
The Relevant Previous Research
No. Researcher
(Year)
Title
Variable Result (Summary)
Similarity Difference
1. Ismail, et al
(2014)
The impact of
Corporate
Governance on
Firm
Performance:
Banking
Industries in
Malaysia
Variable:
Board Size,
Audit
Committee,
Board of
Independent
and Firm
Performance
measured by
ROA,
Country
Observed:
Malaysia
Variable: Role
and
Responsibility
board of directors,
Sample: Bank Industries, Year
observed: 2008 - 2011
Based on this
study, it can be
extended and
modified in
several ways as to
make sure the
high of good
implication of
corporate
governance
structure that
could influence
the firm
performance.
2. Abdifatah et
al (2014)
The relationship
between
corporate
governance
attributes
and firm
performance
before and after
the revised code
Some Malaysian
evidence
Variable:
Board Size,
Firm
Performance
Measured by
ROA
Country
Observed:
Malaysia
Variable:
Family members
in the boards,
independent non-
executive director,
Numbers of the
board meetings in
relation to
corporate
performance
following the
revised code.
Method:
Spearman test.
Data: analyses of
170 observations
in a two-year
period, 2006 &
2009.
The results showed
that only board
meetings had
significant negative
association with
firm performance
following the
revised code. None
of the other
variables had
significant impact
on firm
performance before
and after the
revised code. Firm
size and leverage,
as control
variables, however,
showed significant
association with
firm performance.
33
No. Researcher
(Year)
Title
Variable
Result
(Summary) Similarity Difference
3. Nur‘ainy et al
(2013)
Implementati
on of Good
Corporate
Governance
and Its
Impact on
Corporate
Performance:
The
Mediation
Role of Firm
Size
(Empirical
Study From
Indonesia)
Variable:
Firm
performanc
e, Sample:
Manufactur
ing
Companies
Variable:
Firm Size
Sample:
44 companies
with larger size,
Firm
Performance
Measured by
EVA, period
2006-2010
Country
Observed:
Indonesia
.
The Result of
this research
shows that
implementation
of good
corporate
governance can
affect directly on
corporate
performance as
measured by
EVA, and also
shows affect
indirectly
through firm
size. In other
words, firm size
has a mediation
role in the impact
of good
corporate
governance
implementation
of corporate
performance.
4. Mishra et al
(2014)
Corporate
governance as a
value driver for
firm
performance:
evidence from
India
Variable:
board of
directors, audit
committee,
firm
performance
Variable:
shareholders‘
grievance
committee,
remuneration
committee, board
procedure,
management,
shareholders; and
report on CG,
Sample: The
sample comprises
141 companies
belonging to the
‗‗A‘‘ group
stocks listed in
the Mumbai
Stock Exchange
of India.
The board and the
proactive
indicators
influence the firm
performance
significantly
whereas legal
compliance
indicator does not
do so. The
composite
corporate
governance
measure is a good
predictor of firm
performance.
34
No. Researcher
(Year)
Title
Variable
Result
(Summary) Similarity Difference
5. Velnampy,
(2013)
Corporate
Governance
and Firm
Performance:
A Study of
Sri Lankan
Manufacturin
g Companies
Variables:
Board size
including
executive
directors,
independent
non-
executive
directors,
and non-
executive
directors
and Firm
Performanc
e (ROA).
Sample:
Manufacturi
ng
Companies
Variables:
Board
structure,
board
committee,
board
meeting and
Firm
Performance
(ROE).
Period
Year:2007 -
2011
Country:
Srilanka
The study found
that determinants
of corporate
governance are
not correlated to
the performance
measures of the
organization.
Regression model
showed that
corporate
governance don‘t
affect companies‘
ROE and ROA.
6. Duc Vo &
Thuy Phan
(2013)
Corporate
Governance and
Firm
Performance:
Empirical
evidence from
Vietnam
Variables: The
size of the
board and firm
performance
(ROA)
Variables:
The
presence of
female
board
members,
the quality
of the CEO,
the
education
level of the
board
members,
the working
experience
of the board
and etc.
Period
2006-2011.
Country:
Vietnam
The presence of
female board
members, the
duality of the
CEO, the working
experience of
board members,
and the
compensation of
board members
have positive
effects on the
performance of
firms, as
measured by the
return on asset
(ROA). However,
board size has a
negative effect on
the performance
of firms
performance.
35
C. Theoretical Frameworks
Theoretical framework is the feminist theories and the feminist movements
have vehemently demonstrated that knowledge cannot be considered neutral or
objective. Traditionally, researchers have engendered knowledge on the basis of
the dominant perspective and behavior in society, which was the male one
(androcentrism). As a consequence, knowledge has been blind to the specific
historical, political, social and personal conditions on which it was reported,
making invisible gender differences. Feminist epistemologies have claimed that
knowledge is dynamic, relative and variable and that it cannot be considered an
aim itself but a process. (Camarasa, 2007)
Corporate governance is the process on which organizations are managed and
controlled. Good corporate governance and firm involvement are two factors that
related to the firm performance, usually the better good corporate governance
and firm involvement of the company the better performance will be. One of the
ways to measure firm performance is by firm value. Firm value is a
measurement of company performance on the implementation of financial
functions. After passing through some processes, it has been found the theoretical
framework for this research. Please refer to (Figure 2.2)
36
Figure 2.2
Theoretical Framework
The Influence of GCG Implementation towards The Firm Performance: The Study
on Manufacturing Companies Listed in Malaysian Stock Exchange
Period (2010-2014)
Independent Variable Dependent Variable
Board of Directors Size (BOD) X1
The Board of Independent (BOI) X2
Managerial Ownership (MO) X3
FIRM PERFORMANCE
(ROA)
Institutional Ownership (IO) X4
v
Background:
The issue that arises regarding corporate governance emerged as a reaction to
various corporate failures due to poor corporate governance. Weak
implementation of corporate governance principles believed to be the main cause
of economic insecurity which led to deteriorating economic conditions in several
Asian countries. Therefore, the researcher choose one of the Developed Country
in Asia and try to investigates how the influence of GCG in Malaysia.
Theory:
(GCG) is a concept that is based on the agency theory, which expected to serve
as a tool to give confidence to investors that they will receive a return on the
funds they had invested. (Shleifer & Vishny, 1997 cited in Yasser, 2011)
v
v
37
Hypothesis Test
Test result and analysis
Classical Assumptions Test
Multiple Regressions
Conclusion, Implication, Recommendation
38
D. Hypothesis Development
Hypothesis is considered as a tentative statement that proposes a possible
explanation to some phenomenon or event. Based on the literature review
previously, the hypothesis development can be describes as:
1. Board of Director Size (BOD) to Firm Performance
Board size is the number of board of directors of the company
which is generally composed of inside and outside members and responsible
to run company‘s business. The total member of director must be adjusted
with the complexity of firm, but still considering the effectiveness of decision
making. The previous studies conducted by Jensen (1993), Lipton & L'orsch
(1992) found that there is no significant influence between board of directors
size on firm performance. It is because the company that has a large of board
of director size cannot do the coordination, communication, and decision-
making better than the company that has a smaller board of director.
Other than that there also research conducted by Febriyanto (2013) &
Amyulianthy (2012), they find that Board of Directors size has influence the
Firm Performance. This is because having a large size of the board of directors
will be able to improve the firm performance in a way that more members can
contributes to positive things. Therefore, the board‘s facilities will be better in
monitoring the operation of the firm. According to Velnampy. (2013), An
effective board is one that facilitates the effective discharge of the duties
imposed by law on the directors and adds value in a way that is appropriate to
the particular Company‘s circumstances. The board should be structured in
39
such way that it: (1) has a proper understanding of the role and
responsibilities, and competence to deal with the current and emerging issues
of the business. (2) Exercises independent judgment. (3) Encourages enhanced
performance of the company. (4) Can effectively review and challenge the
performance of management.
H1: The Board of Director Size influence the Firm Performance
2. The Board of Independent to Firm Performance
An Independent director (also sometimes known as an outside director) is
a director (member) of a board of directors who does not have a material or
pecuniary relationship with company or related persons, except sitting fees.
Independent Directors do not own shares in the company. (Some sources
state non-executive directors are different from independent ones in that non-
executive director are allowed to hold shares in the firm while independent
directors are not. In the study by Shukeri et al, (2012) found that there is
negative effect between boards of independent towards the firm performance.
Different with the research done by Gani & Jermias (2006) found that
board independence is tied to company performance by looking at different
strategies. They find that board independence has a significantly more
positive effect on performance for firms pursuing a strategy of cost efficiency
than for those pursuing a strategy of innovation.
H2: The Board of Independent influence the Firm Performance
40
3. Managerial Ownership to Firm Performance
There also research has done by Haryani et al. (2011) they find that the
managerial ownership does not influence on firm performance in Indonesia
caused by the structure of managerial ownership in Indonesia is still very
small compared to the institutional ownership of corporations listed on the
Indonesia Stock Exchange. With small holdings, the managers do not feel they
have the company so that the company's performance. Thus, managerial
ownership has not been able to be a mechanism that increases the company
performance.
Different with the results that done by Ali, Salleh & Hassan (2008)
investigated the factor influencing firm performance by considering only non-
financial companies based on the reason that the financial sector is subject to
certain regulation and different from other industry. The study analyzed 1000
Bursa listed companies from 2000 to 2003 and proved positive relationship
between managerial ownership and firm performance. Furthermore,
Amyulianthy (2012) also found that the managerial ownership has influenced
firm performance.
H3: The Managerial Ownership influence the Firm Performance
41
4. Institutional Ownership to Firm Performance
These findings from Hapsoro (2008) & Wulandari (2006) which found
that institutional ownership does not affect the company performance because
the majority owner of the institution involved in the control of companies that
tend to act in their own interests although sacrifice the minority owners.
According To Modigliani (1958:290) existence asymmetries information
between the shareholders with manager and cause that the company manager
will be able to control of the company because it has information that the
financial statements more than the shareholders, it will be easier for the
manager to control the company in making a policy. So, with high institutional
ownership it cannot guarantee full monitoring managers with maximum
performance.
These results are also consistent with research conducted by Erkens et al.
(2012) & Sabrinna (2010) that institutional ownership does not affect the
company performance. But some other previous studies conducted by
Yonnedi & Yulia (2011), Zeitun & Tian (2007), Mahoney & Roberts (2007)
found that the institutional ownership has influenced the firm performance
measure by Return on Assets. Crutchley & Hansen (1999), concluded that the
larger institutional ownership can make an effect a higher company
performance.
H4: The Institutional Ownership influence the Firm Performance
42
CHAPTER III
RESEARCH METHODOLOGY
A. Scope of Research
This research is empirical study of hypothesis testing with using
causalities research method to determine the effect between the independent
variables (variables that effect) and the dependent variable (the variable that is
effected). The independent variable in this research is The Size of Board
Director (BOD), The Size of Board of Independent (BOI), Managerial
Ownership (MO) and Institutional Ownership (IO). The dependent variable in
this research is The Firm Performance as measured by Return on Assets
(ROA). This study aimed to examine the influence of Good Corporate
Governance implementation towards the Firm Performance, the study on
manufacturing companies listed in the Malaysian Stock Exchange period
2010-2014. This is because the researchers wanted to try to determine how the
application of good corporate governance in other countries, especially
developed country.
This research is a quantitative research. It takes place in Malaysian Stock
Exchange (MDX) with the manufacturing company as the research object.
The type of data used in this research is secondary data. The Size of Board of
Director (BOD), The Size of Board of Independent (BOI), Managerial
Ownership (MO) and Institutional Ownership (IO) and The Firm Performance
(ROA) are taken from the financial report of the manufacturing company
listed in Malaysian Stock Exchange period 2010-2014.
43
B. Sampling Method
According Sugiyono (2009:61) states that "the population is a region
consisting of generalization objects or subjects that have certain qualities and
characteristics are determined by the investigator to be studied and then drawn
conclusions: The population in this study are all manufacture companies listed
on the Indonesian stock exchanges. The number listed on the Malaysian Stock
Exchange during the period 2010-2014 is as much as 300 issuers. "The sample
is part of the number and characteristics possessed by the population"
Sugiyono (2009:68). The sampling technique is using purposive sampling
technique. Purposive sampling technique is non-random sample election
where the information acquired, sorted with specific consideration and criteria
(Indriantoro & Supomo, 2009).
The criteria for consideration or determination of the sample in this study
are as follows:
1) Manufacturing companies consistently publish an annual report in 2010-2014.
2) Companies disclose information on corporate governance in the annual report
such as The Size of Board Director (BOD), The Size of Board of Independent
(BOI), Managerial Ownership (MO) and Institutional Ownership (IO)
3) The financial report of the companies should experience the profit in their net
income after tax, this is because in this research to calculate the firm
performance by ROA/ Return on Assets. According to Darsono & Ashari
(2005) in Purwanto, (2011), by knowing the company ROA, it can assess
44
whether the company is efficient in utilize assets on operations company.
Furthermore, it is explained that the ROA provides a better measure on
profitability the company because it shows effectiveness assets under
management in use efforts to generate revenue. ROA is obtained by
comparing the net income by total assets.
C. Data Collection Method
Data collected in this study is the quantitative data measured in a
numerical scale. The data source of this research is secondary data, such as
company‘s website, financial statements and annual reports published in
Malaysian Stock Exchange website (www.bursamalaysia.com). Secondary
data is data that has been processed and presented again. According Sugiyono
(2009:193), "Secondary source is a source that is not directly provides data to
data collectors, for example, through the document and the others‖.
In this study, data were collected in two phases. In the first phase, the
researchers will conduct a documented research, which to find literature
related to the research to be conducted. In the second stage the researchers
collected data by downloading from the Malaysian Stock Exchange website
(www.bursamalaysia.com) to obtain financial statements and annual report of
the company.
45
D. Analysis Method
The analysis method used in this research is a model of multiple linear
regression analysis with the help of software SPSS 18 for Windows7. Data
analysis was performed by Descriptive Statistical Analysis, Classical
Assumptions Test, Hypothesis Test, Coefficient Determination Test (R2-test).
Classical assumptions test include Multicollonearity Test, Heteroscedasticity
Test, Autocorrelation Test and Normality Test. Hypothesis Test include
Partial Significance Test (T-test) and Simultaneous Significance Test (F-test).
1. Descriptive Statistical Analysis
Descriptive analysis is used to provide an overview of the study variables.
Descriptive statistics were used, among others, mean, median, minimum,
maximum, and standard deviation. (Ghozali, 2013:19). Statistical analysis was
used to test the quality of the data and testing hypotheses. Statistical analyzes
were performed was the classic assumption test and hypothesis test.
The data in this study were analyzed with descriptive statistics.
Descriptive statistical testing in this research basically is a process
transformation research data in a form of tabulation in order that can be easier
to be understood and interpreted. Tabulation in generally is used by researcher
to obtain information about characteristics of primary variable in research. The
measurement applied in this descriptive statistical testing depends on the type
of scale of measurement. The descriptive statistical testing obtains a picture or
46
describes data that can be seen from median, mean, mode, standard deviation,
variance, maximum and minimum.
2. Classical Assumption Test
Classical test assumption is aims to determine the relationship between the
variables in the data. Before conduct the regression analyzes, firstly the tested
classical assumptions need to determine whether there is a relationship
between the variables. In the Classical Assumption Test it is include:
Multicollonearity Test, Heteroscedasticity Test, Autocorrelation Test and
Normality Test.
a. Normality Test
Normality test aims to test whether the regression model or residual
confounding variable has a normal distribution. There are two ways to detect
whether or not residual normal distribution, i.e. the graph analysis and
statistical tests (Ghozali, 2013: 160). Normality test can use the tools such as
statistical tests to Kolmogorov-Smirnov Z (1 - Sample KS), the basic decision-
making (Ghozali, 2013: 164):
1.) If the value Asymp. Sig. (2-tailed) less than 0.05, then H0 is rejected. This
means that the data are not normally distributed residuals.
2.) If the value Asymp. Sig. (2-tailed) of more than 0.05, then H0 is accepted.
This means that the data were normally distributed residuals.
47
b. Multicollinearity Test
Multicollinearity test aims to test whether the regression model found a
correlation between the independent variables (Ghozali, 2013:105). A good
regression model should not happened correlation between the independent
variables. To detect the presence or absence of multicollinearity in the
regression model can be seen from the value of tolerance and the Variance
Inflation Factor (VIF). Multicollinearity the tolerance value <0.10 or VIF> 10.
Both of these measurements indicate each independent variable which is
explained by the other independent variables.
c. Autocorrelation Test
Autocorrelation test aims to test something, in a linear regression model.
There is a correlation between the error of a bug in the period t to bug errors t-
1 period or previous period (Ghozali 2013:110). Diagnose the autocorrelation
done through testing to test the value of Durbin Watson (DW test) by (Ghozali
2013:111). Basis for decision-making as follows:
1) If 0 < Dw < DL there is any positive autocorrelation.
2) If DL < Dw < Du or 4-Du < D < 4-DL uncertain conclusion.
3) If Du < Dw < 4-Du there is no autocorrelation.
4) If 4-DL < Dw < 4 there is any negative autocorrelation.
d. Heteroscedasticity Test
According to Ghozali (2013: 139), the aim from heteroscedasticity test is
to test whether the regression model occur the variance inequality of the
48
residual from one observation to another observation. If the variance from
residual of one observation to other observations is fixed, it is called
homocedasticity and if it different called heteroscedasticity.
3. Coefficient Determination R2
The coefficient of determination (R2) essentially measures how far the
ability of the independent variable [The Size of Board of Director (BOD), The
Size of Board of Independent (BOI), Managerial Ownership (MO) and
Institutional Ownership (IO)] in explaining the dependent variable [Firm
Performance (ROA)]. Determination coefficient value is between (0) zero and
(1) one. Means that the value near to (1) one, the independent variable provide
nearly all the information required to predict the dependent variable (Ghozali,
2013: 97)
The fundamental weakness of the use of coefficient determination is
biased against the number of independent variables included in the model.
Every additional one variable, then R2 must have increased does not matter,
whether these variables significantly influence the dependent variable.
Therefore, this study uses the Adjust value R2, which the value may vary if the
independent variables are added into the model.
If Adjust R2 value 1, it is mean that the dependent variable fluctuations
should be explained by the independent variable and there is no other factors
that cause fluctuations in the dependent variable. Adjusted R2
ranges between
0 and 1. If approaching 1 means that the stronger ability of independent
49
variables can explain the dependent variable. Vice versa, if the value of
Adjusted R2 closer to the number 0 means that the weak capability of
independent variables can explain the fluctuations of dependent variable
(Ghozali, 2013: 97). The criteria of correlation according to Sarwono (2014:
100) are:
Table 3.1
Criteria of Correlation Coefficient
VALUE INFORMATION
0 No correlation between variable
> 0 – 0.25 Very weak correlation
> 0.25 – 0.5 Fairly strong correlation
> 0.5 – 0.75 Strong correlation
> 0.75 – 0.99 Very strong correlation
1 Perfectly correlation
Sources: Sarwono (2014: 100)
4. Multiple Regression Analysis
Multiple regression analysis is used to test the effect of two or more
independent variables toward the dependent variable (Ghozali, 2013: 96).
Regression analysis divided into two kinds, simple regression analysis (if
there is only one independent variable) and multiple regression analysis (if
there is more than one independent variable). Multiple regression analysis can
be measured partially (indicated by the coefficient of partial regression) jointly
50
indicated by the coefficient of multiple determination or R2
(Indriantoro and
Supomo, 2009).
This research will show us about the influence of independent variables,
The Size of Board of Director (BOD), The Size of Board of Independent
(BOI), Managerial Ownership (MO) and Institutional Ownership (IO)
concerning dependent variable, Firm Performance (ROA).
The formula of the multiple linear regression equation as follows:
ROA = β0 + β1X1+ β2X2+ β3X3 + β4X4+ e
Where: ROA = Return on Asset to measure the firm performance
β0 = Constanta
X1 = The Size of Board of Directors (BOD)
X2 = The Size of Board of Independent (BOI)
X3 = Managerial ownership (MO)
X4 = Institutional ownership (IO)
β1 = Regression coefficient of X1
β2 = Regression coefficient of X2
β3 = Regression coefficient of X3
β4 = Regression coefficient of X4
e = Error
51
5. Hypothesis Testing
a. Partial Significance Test (t-test)
Partial Significance Test or t-test basically has purposed to know how far
and how much the influence independent variables on the dependent variables
(Ghozali, 2013:98). In this research, t-test is done to know the influence of
good corporate governance as independent variables toward the firm
performance as the dependent variable. Assumption used for this test are if the
significance value of t more than α (significance value > α), then the
hypothesis is rejected, but if on the contrary the significance value of t less
than α (significance value < α), so hypothesis is accepted. Level of
significance (α) use in this research is 0.05 (5%).
b. Simultaneous Significance Testing (f-test)
Essentially, F-test has purposed to know whether among independent
variables simultaneously has a significant influence toward dependent variable
(Ghozali, 2013: 98). Independent variables in this research are good corporate
governance indicator and ownership structure, whereas dependent variable is
the firm performance. So, F-test has a function to know the influence of good
corporate governance toward the firm performance. α used for this research is
0.05 ( 5%) with the assumption:
1.) If sig ≥ 5%, ho is accepted.
2.) If sig < 5%, ho is rejected.
52
6. Operational Variable
Operational variable is a way to set up a concept and how the concept
should be measured so that there are variables that can lead to other problems
of a variable depends on the situation and the condition of other variables.
Operational variables based on the nature of the attributes of the object
observed in the study, can form both qualitative and quantitative researchers
made merely for the purpose of research, after understanding the attributes
based on the support of various runways. The variables used in this study are
divided into two, namely, the independent variable and the dependent
variable. The Independent variables are The Size of Board Director (BOD),
The Size of Board of Independent (BOI), Managerial Ownership (MO) and
Institutional Ownership (IO) while the dependent variable is the firm
performance measured by Return on Assets (ROA).
a. Independent Variable
The independent variable is the type of variables that influence another
variable or variables suspected as the cause of the dependent variable
(Indriantoro and Supomo, 2009). The independent variables used in this
research are:
1. Board of Directors (BOD) is fully responsible for the management of the
company effective and efficient in order to achieve the company's goals.
Therefore, According to Linck et al (2008) Board of Directors size measured
by the number of Board of Directors member in the company.
53
2. The Board of Independent (BOI) is defined as who have no position in the
management team and no direct business or benefit links within the firm (Ma
& Tian, 2009). According to Jenny Jung-wha Lee & Zhihua Zang (2010) the
independent director are measures by the number of independent directors
divided by the total number of board members.
3. Managerial ownership is the ownership by the shareholders who have a
management position in the company like directors and commissioners.
According to Setyawan, (1999) cited in Faisal, (2004) The Managerial
ownership measured by the total percentage of managerial ownership in a
company.
4. Institutional Ownership is ownership by the government, financial institutions,
incorporated institutions, foreign institutions, and other institutions in a
company. According to Muwaningsari (2007) stated that the Institutional
ownership is measured by the total percentage of institutional ownership in a
company.
b. Dependent Variable
The dependent variable is type of variables that explained or influenced by
other variables or variable expected as a result of the independent variable
(Indriantoro & Supomo, 2009). Dependent variable used in this research is the
firm performance. The firm performance is measured by Return on Assets
(ROA). This is aims to examine the amount of the net income after tax that
can be earned for every profit / assets in the company. So that ROA is an
important as the profitability ratio because it measures the efficiency with
54
which the companies manage the investments in assets and use them to
generate a profit. According to Clarkson et al cited in Ismail & Shukeri
(2014) the result shows that it is not surprise there are many past of
international studies have used ROA to represent the organization‘s
performance including in Malaysian context.
ROA measures the amount of profits relative to the firm-level investment
in total assets. Returns the ratio of assets related to the category of financial
asset management ratios. Net profit was taken from the income statement and
total assets were taken from the balance sheet. The formula of return on assets
equals with the percentage of company net income divided by the value of the
total assets for the accounting period. (Clarkson et al cited in Ismail & Shukeri
2014) the greater the value of the ratio, the better a company is performing.
However, merely determining a company‘s return on asset ratio is insufficient
to get a good understanding on how a business is doing.
55
Table 3.2
Summary of The Operational Variables in This Research
NO VARIABLES INDICATOR SCALE
1 Board of Directors (BOD) The number of Board of
Directors members
Ratio
2 The Board of Independent
(BOI)
The number of independent
directors divided by the total
number of board members.
Ratio
3 Managerial ownership (MO) The percentage of managerial
ownership in a company.
Ratio
4 Institutional Ownership (IO) The percentage of institutional
ownership in a company.
Ratio
5 Firm Performance (ROA) Return on assets equals the
company net income divided
by the value of the total assets
times 100 percent.
Ratio
56
CHAPTER IV
RESULT AND ANALYSIS
A. General Description of Research Object
Before a discussion on the influence of good corporate governance
indicator such as board of director, board of independent, managerial
ownership and institutional ownership on the company performance, first
considered data from each company. Data from each company transferred into
statistics. There are manufacturing companies listed on Bursa Malaysia in the
year 2010-2014. In this study has determined that a sample of 300 companies
in the period 2010-2014 because it has met the criteria. The company then
sought a sample of board of director, board of independent, managerial
ownership, institutional ownership and return on assets of each company.
Companies that become the sample are the companies that fulfill the
criteria of the sample in this research:
4) Manufacturing companies consistently publish an annual report in 2010-2014.
5) Companies disclose information on corporate governance in the annual report
such as The Size of Board of Director (BOD), The Size of Board of
Independent (BOI), Managerial Ownership and Institutional Ownership (IO)
6) The financial report of the companies should experience the profit in their net
income after tax, this is because in this research to calculate the firm
performance by ROA/ Return on Assets.
57
TABLE 4.1
Sample Selection Process
NO Criteria Number
1. Manufacturing companies listed in Malaysian Stock
Exchange.
300
2. Manufacturing companies that consistently publish
an annual report in 2010-2014.
(93)
3. Companies disclose information on corporate
governance in the annual report such as The Board
Director Size (BOD), The Board of Independent
(BOI), Managerial Ownership (MO) and
Institutional Ownership (IO)
(88)
4. The financial report of the companies should
experience the profit in their net income after tax
(62)
Total Sample 57
Companies
Number of Years 5
Total annual report on this research
from 2010-2014
285
Sample
58
B. Analysis and Discussion
1. Descriptive Statistics
Descriptive statistics provide an overview of the minimum value,
maximum value, average value (mean) and standard deviation of the data used
in the study.
Table 4.2
Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
BOD 285 3 13 7.58 1.565
BOI 285 1 9 3.26 1.013
MO 285 .0000 .3857 .086459 .0960302
IO 285 .0691 .9618 .581421 .1851924
ROA 285 .0013 .4360 .092264 .0742378
Source: Secondary Data Output From SPSS 18
a. Dependent Variable
1. Return On Assets (ROA)
According analysis data from Table 4.2 it is shows the variable ROA has
an average 0.92264. The minimum value is 0.0013. The name of the company
is SMIS Corporation BHD and the maximum value is 0.4360. That is Kossan
Rubber Industries BHD, whereas the standard deviation value is 0.742378.
59
b. Independent Variable
1. Board of Directors (BOD)
According analysis data from Table 4.2 that shows the variable BOD has
an average 7.58. The minimum value is 3 which the name of the company is
Yokohama Industries BHD and the maximum value is 13 which the name of
the company is Three-A Resources BHD, whereas the standard deviation
value is 1.565.
2. Board of Independent (BOI)
According analysis data from Table 4.2 that shows the variable Board of
Independent has an average 3.26. The minimum value is 1 which the name of
the company is Thong Guan Industries BHD and Can-One BHD. The
maximum value is 9 which the name of the company is APM Automotive
Holdings BHD whereas the standard deviation value is 1.013.
3. Managerial Ownership (MO)
According analysis data from Table 4.2 that shows the variable managerial
ownership as an average 0.086459 the minimum value is 0.0000 which the
name of the company is P.I.E Industrial BHD and the maximum value is
0.3857 which the name of the company is Supermax Corporation BHD,
whereas the standard deviation value is 0.0960302.
4. Institutional Ownership (IO)
According analysis data from Table 4.2 that shows the variable
Institutional Ownership as an average 0.581421 the minimum value is 0.0691
which the name of the company is Advanced Packaging Technology BHD and
60
the maximum value is 0.9618 which the name of the company is Petronas Gas
BHD, whereas the standard deviation value is 0.1851924.
2. Classical Assumption Test
a. The Result of Normality Test
The statistical test that can be used to test whether the residuals are
normally distributed non-parametric test statistic Kolmogorov-Smirnov (KS)
by making hypotheses:
H0: the data were normally distributed residuals
Ha: the data not normally distributed residuals.
The result is shown in.
Figure 4.3
Source: Secondary Data Output From SPSS 18
61
Based on Figure 4.1 it can be seen that the points spread around the
diagonal line follow the direction of a diagonal spread. Thus, it can be
stated that the distribution of the data close to normal or have met the
assumptions of normality.
If the significance value greater than 0.05 then H0 is accepted and Ha
rejected, otherwise if the significance value is less than 0.05 then H0 rejected
and Ha accepted.
Table 4.4
Normality Test by One-Sample Kolmogorov-Smirnov Test
Source: Secondary Data Output From SPSS 18
Based on the results of statistical tests with models such as the
Kolmogorov-Smirnov contained in table can be concluded that the data were
normally distributed. It can be seen from the significance value of 0.125 is
greater than 0.05.
N
Kolmogorov-Smirnov Z
Asymp. Sig. (2-tailed)
Unstandardi
zed Residual
285
1.177
.125
62
b. The Result of Multicollinearity Test
Detection of multicollinearity can be seen, that if the value of Variance
Inflation Factor (VIF) of not more than 10 and the value of tolerance is no less
than 0.1, it can be said to be free of multicollinearity. VIF values and tolerance
of other research variables can be seen from the following table.
Table 4.5
Results Multicollinearity Test
Model Collinearity Statistics
Tolerance VIF
1 (Constant)
BOD .766 1.306
BOI .752 1.329
MO .871 1.148
IO .819 1.221
a. Dependent Variable: ROA
Source: Secondary Data Output From SPSS 18
Based on table 4.4 above, it can be concluded this research free of
multicollinearity. All independent variables have VIF values less than 10. In
addition, each independent variable have a tolerance value is greater than 0.1.
Thus there is no multicollinearity in this regression model.
c. The Result of Autocorrelation Test
How that can be done to detect the presence or absence of autocorrelation
is the Durbin-Watson test (DW). Here is the Durbin-Watson test result:
63
Table 4.6
Result Autocorrelation (Durbin Watson test)
MODEL DURBIN WATSON
1 2.011
Source: Secondary Data Output From SPSS 18
The criteria for the assessment of the autocorrelation are:
1) If 0 < Dw < DL there is any positive autocorrelation.
2) If DL < Dw < Du or 4-Du < D < 4-DL uncertain conclusion.
3) If Du < Dw < 4-Du there is no autocorrelation.
4) If 4-DL < Dw < 4 there is any negative autocorrelation.
From the table 4.5 above, note that the value obtained for DW 2.011 which
these score will be compared to the table of significant 5%. The sample
chosen is 285 and the total of independent variable is 4 (k=4), so that in the
Durbin Watson table it can be obtain with the value.
64
Table 4.7
Durbin Watson Test Bound a = 5%
N
k=1 k=2 k=3 k=4 k=5
dL dU dL dU dL dU dL dU dL dU
10 0.8791
1.3197
0.6972
1.6413
0.5253
2.0163
0.3760
2.4137
0.2427
2.8217
20 1.2015 1.4107 1.1004 1.5367 0.9976 1.6763 0.8943 1.8283 0.7918 1.9908
. . . . . . . . . . .
200 1.7584
1.7785
1.7483
1.7887
1.7382
1.7990
1.7279
1.8094
1.7176
1.8199
Sources: http://www.standford.edu
After refers to the table above, the value means including the third criteria,
(Du= 1.8094 < Dw 2.011 < 4-Du=2.1906) so it can be concluded that the
regression model free from autocorrelation.
d. The Result of Heteroscedasticity Test
This test is done by observing certain chart patterns scatterplot, where if
there is a point-point spread above and below the 0 on the Y axis and does
not constitute that it does not happen heteroscedasticity (Ghozali, 2013 :
139). Scatterplot graphs can be seen in figure below.
65
Figure 4.8 Source: Secondary Data Output From SPSS 18
From figure 4.3 shown that there is no clear pattern, as well as the dots
spread above and below zero (0) on the Y axis. So it can be concluded that
there is no heterocedastisity.
3. Coefficient of Determination (R2)
Coefficient of determination used in this study to see the influence of the
independent variable (board of director, board of independent, managerial
ownership and institutional ownership) of the dependent variable (return on
assets). Value of the correlation coefficient (R) shows how much correlation
or relationship between the independent variables with the dependent variable.
66
Table 4.9
Coefficient Determination
Source: Secondary Data Output From SPSS 18
Table 4.8 shows that the correlation coefficient (R) for 0.183, which
means that the correlation between the dependent variable with the
independent variables are fairly strong correlation based on the criteria
correlation coefficient value ( > 0 – 0.25 ) is very weak correlation. Adjusted
R Square value or coefficient of determination is equal to 0.020. These figure
shows that the four independent variables in the study of Board of director,
Board of independent, Managerial ownership and Institutional ownership can
explain 2% of the amount of return on assets. While rest of them (100% - 2%
= 98%) is explained by other variables that are not investigated in this study
such as the company size (Sembiring, 2008). The total assets which indicates
the size of the companies is an important factor in the formation of profit. The
large firms are considered more stable so as to produce profits than the small
firms. Thus, size of the company estimated to have the big influence to the
company performance. Another variable is that the audit committee size,
according to Ismail, et al & Shukeri, et al (2014), there is a significant
relationship between the existence of an effective audit committee and the
firm performance as measured using the return on assets, it is true because the
R R Square Adjusted R
Square
Std. Error of the
Estimate
.183a .033 .020 .0735103
67
increase of number the audit committee in the company will influence to the
increased of their performance also especially in banking industries. And the
rest of the variables that usually used by the researchers are board of
commissioner‘s size, the type of industries, earning management and so on.
4. Multiple Regression Analysis
This research showed that the effect of good corporate governance
indicator on company performance (ROA). Here is the result of multiple
regression analysis:
Table 4.10
Regression Analysis
Model
Unstandardized Coefficients
Standardized
Coefficients
B Std. Error Beta
1 (Constant) .064 .027
BOD .007 .003 .138
BOI -.008 .005 -.113
MO -.062 .049 -.080
IO .019 .026 .048
Source: Secondary Data Output From SPSS 18
From table 4.10 above stated that the size of board of directors (BOD) and
Institutional Ownership (IO), positively influence the Return on Assets (ROA)
while the size of board of independent (BOI) and managerial ownership (MO)
negatively influences the return on assets (ROA).
Based on the table 4.10, it can be seen the influences between BOD, BOI, MO
and IO to ROA:
68
ROA = - 0.064 + 0.007 BOD - 0.008 BOI - 0.062 MO + 0.019 IO + e
From the multiple linear regression equation above, it can be explained for each
variable as follows:
1) Constant at -0.064 units stated that if there is influences or unchanged in
X1, X2, X3, and X4 (BOD, BOI, MO and IO) then the value of return on
the asset will be - 0.064.
2) Regression coefficient of variable X1 (BOD) marked positive +0.007 it
shows that the influences of the size of board of directors on the return on
assets is positive or parallel, which means that if the value of the size of
board of directors variables change increased by one point, then the value
of return on assets will increase by +0.007, with assumption variables X2,
X3 and X4 (BOI, MO and IO) remain or unchanged.
3) Regression coefficient of variable X2 (BOI) marked negative -0.008 it
shows that the influences of the size of board of independent on return on
assets is negative or opposite direction, meaning that if the value of the
size of board of independent variable change increase by one point, then
the value of return on assets will decrease by -0.008 assuming variables
X1, X3 and X4 (BOD, MO and IO) remain or unchanged.
4) Regression coefficient of variable X3 (MO) marked negative -0.062 it
shows that the influences of the managerial ownership on return on assets
is negative or opposite direction, meaning that if the value of the
managerial ownership variable change increase by one point, then the
69
value of return on assets will decrease by -0.062 assuming variables X1,
X2 and X4 (BOD, BOI and IO) remain or unchanged.
5) Regression coefficient of variable X4 (IO) marked positive +0.019 it
shows that the influences of the institutional ownership on the return on
assets is positive or parallel, which means that if the value of the
institutional ownership variables change increased by one point, then the
value of return on assets will increase by +0.019, with assumption
variables X1, X2 and X3 (BOD, BOI and MO) remain or unchanged.
5. Hypothesis Testing Result
a. Significant Partial Test (T-Test)
Statistical t-test performed to further investigate which of the independent
variables in influencing the dependent variable. The hypothesis that will be
tested as follows:
Table 4.11
Partial Test Results (T-Test)
Model
t Sig.
1 (Constant) 2.352 .019
BOD 2.054 .041
BOI -1.661 .098
MO -1.272 .204
IO .735 .463
a. Dependent Variable: ROA
70
Source: Secondary Data Output From SPSS 18
Refer to Table 4.11, the results of significant test partial (t-test) are as follows:
1. The size of board of director (BOD)
Variable (H1) has a significance level 0.041 less than the significance
standard level 0.05. This shows that the board of director size has a significant
influence on return on assets. Thus, the five hypotheses (H1) which states that
the influence of the size board of director on the return on assets can be
accepted.
These results are supported by the results of research Pearce & Zahra
(1992) cited in Faisal (2004) which states that an increase in the size of the
board of directors will provide benefits for the company, since the creation of
networks with parties outside the company and ensure the availability of
resources, the board of directors of the company monitoring the the companies
the best possible way to establish the purpose of the company, which
ultimately can help to improve the company's performance. These results also
consistent with Febriyanto (2013), Amyulianthy (2012), Dalton et. al. (1999)
finds the influence between Board of Directors size and company
performance. According to the result research by Salleh et al. (2005). There
are evidence that larger board size tends to ensure that the management
control of the company is strong. Consequently, it generates a positive
influence on the managers to mitigate the conflict of interest and personal
interest and thus, able to ensure that the managers are strive to work for the
betterment of firm performance.The result are contrast with various previous
71
studies, including those conducted by Jensen (1993), Lipton and L'orsch
(1992) found that there is no significant influence of board of directors size on
company performance.
2. The Board of Independent (BOI)
Variables (H2) has a significance level 0.098 greater than the significance
standard level 0.05. This shows that the board of Independent proved does
not has a significant effect on the return on assets. Thus, the five hypotheses
(H2) which states that the influence of board of director size on the return on
assets cannot be accepted.
The result was supported by the research from Wijayanti & Mutmainah
(2012) which states that the board of independent directors are people who
come from outside the company, this allows the knowledge of the board of
independent directors on the conditions and circumstances the company is
also relatively limited, this causes the ineffective role of the board of
independent directors in improving corporate performance. And probably
occur a situation where the board of directors and board of commissioners
that comes from inside the company are not overly considering the inputs
given by the board of directors from outside the company, thereby causing
the lack of influence of the board of independent directors to the company
performance. The result also consistent with various previous studies,
including those conducted by (Francis, et al 2012; Mehran, 1995; Bhagat &
Black, 2001). They found that there is no significant effect between board of
independent and firm performance. But the result was contrast with research
72
done by Gani & Jermias (2006) they found that board independence is tied to
company performance by looking at different strategies. It is well known that
corporate performance and its relationship to the board need to be studied
within the broader picture of the corporate structure and governance of a
country. One possibility is the institutional and corporate structure differences
among the countries studied. For example, the level of ownership
concentration may influence the effectiveness of independent directors in
monitoring firm performance (Lawrence & Stapledon 1999).
3. The managerial ownership
Variable (H3) has a significance level 0.204 greater than the significance
standard level 0.05. This shows that the managerial ownership does not have a
significant influence on return on assets. Thus, the five hypotheses (H4),
which states that, the influence of Managerial ownership on the return on
assets are rejected.
The result was consistent with research done by Haryani et al. (2011)
result, they find there is no effect between managerial ownership on company
performance in Indonesia caused by the structure of managerial ownership in
Indonesia is still very small compared to the institutional ownership of
corporations listed on the Indonesia Stock Exchange. With small holdings, the
managers do not feel they have the company so that the company's
performance. Thus, managerial ownership has not been able to be a
mechanism that increases the company performance. There is another support
research result by Puspitasari & Ernawati (2010) they found that, the increased
73
of managerial ownership in the company has a negative influence on the
financial performance, this is because part of the manager who have a small
percentage of the share (minorities) will make the other shareholders
(majorities) trying to monitor and influence the decision making by managers,
therefore, the decision becomes inflexible and slow. But the result was
contrasted with research done by Ali, Salleh & Hassan (2008) investigated the
factor influencing firm performance by considering only non-financial
companies based on the reason that the financial sector is subject to certain
regulation and different from other industry.
4. The institutional ownership
Variable (H4) has a significance level 0.204 is greater than the
significance standard level 0.05. This shows that the institutional ownership
does not have a significant influence on return on assets. Thus, the five
hypotheses (H4), which states that, the influence of Institutional ownership on
the return on assets are rejected.
The result was consistent with results from Ardy (2013), Hapsoro (2008)
and Wulandari (2006) which found that institutional ownership does not affect
the company performance because the majority owner of the institution
involved in the control of companies that tend to act in their own interests
although sacrifice the minority owners. According To Modigliani (1958:290)
existence asymmetries information between the shareholders with manager
and cause that the company manager will be able to control of the company
because it has information that the financial statements more than the
74
shareholders, it will be easier manager control of the company in making a
policy. So, with high institutional ownership cannot guarantee full monitoring
managers with maximum performances. The result was contrast with research
conducted by Yonnedi and Yulia (2011), Zeitun and Tian (2007), Mahoney
and Roberts (2007) found that the institutional ownership has influence the
firm performance measure by Return on Assets. Crutchley and Hansen (1999),
concluded that the larger institutional ownership can make effect a higher
company performance. According to Shleifer and Vishny (1999) it is
suggested that institutional shareholders have an incentive to monitor the
corporate decision-making. This will be positive for the company, both in
terms of improving the value of the company as well as improved
performance business.
b. Simultaneous Significant Test (f-test)
The F test of hypothesis testing is used to see whether the overall
independent variables have a significant effect on the dependent variable.
From the test results simultaneously obtained as follows:
Table 4.12
Simultaneous Test Results (f-test)
Model Sum of Squares Df Mean Square F Sig.
1 Regression .052 4 .013 2.412 .049a
Residual 1.513 280 .005
Total 1.565 284
a. Predictors: (Constant), IO, BOD, MO, BOI
b. Dependent Variable: ROA
75
Source: Secondary Data Output From SPSS 18
From the table 4.12, the results of the calculation of the F test statistic of
2.412 with probability 0.049. Because the probability is smaller than 0.05,
which means all independent variables board of directors, board of
independent, managerial ownership and institutional ownership have
influenced the return on assets. Thus, the five hypothesis (H5) which states
that board of directors, board of independent, managerial ownership and
institutional ownership have influence the company performance can be
accepted.
The results of this research successfully supported by the results research
conducted by Herawaty (2008) who found a positive relationship between
corporate governance on firm performance. Corporate governance is a system
that regulates and control of a company that is expected to provide and
improve the company performance to the shareholders. Dey Report (1994) in
Febriyanto (2013) points that corporate governance effective in the long term
can improve the performance of the company and benefit the shareholders.
Means the control functions have been implemented efficiently on companies
are being sampled in this study. Therefore, the implementation of good
corporate governance believed to increase company performance.
76
e. Hypothesis Test Result
Table 4.13
The Hypothesis Test Result
No Hypothesis The Result
1 The Size of Board of Director influences the
company performance.
ACCEPTED
2 The Size of Board of Independent
influences the company performance.
REJECTED
3
The Managerial Ownership influences the
company performance.
REJECTED
4
The Institutional Ownership influences the
company performance. REJECTED
5
Board of directors, board of independent,
managerial ownership and institutional
ownership influences the company
performance can be accepted.
ACCEPTED
77
CHAPTER V
CONCLUSION AND RECOMMENDATION
A. Conclusion
From the results of research conducted on The Influence of Good Corporate
Governance Implementation towards Firm Performance: The Study on
Manufacturing Companies Listed in Malaysian Stock Exchange Period (2010-
2014) by use multiplier linear regression it can be concluded as follows:
1. These results indicate that the size of board of directors have influenced
the firm performance.
2. These results indicate that the size of board of independent does not
influence the firm performance
3. These results indicate that managerial ownership does not influence the
firm performance.
4. These results indicate that the institutional ownership does not influence
the firm performance.
5. These results indicate that board of directors, board of independent,
managerial ownership and institutional ownership simultaneously or
together have the ability to influence the firm performance on
Manufacturing Companies Listed in Malaysian Stock Exchange Period
(2010-2014)
78
B. Recommendation
Based on the limitations of the study, the authors put forward some
suggestions as follows:
1. For future researcher, we recommend using the entire sample of
companies listed on the Malaysian Stock Exchange, in order to represent
all companies in Malaysia, for instance service industry, food and
beverages companies, banking companies and so forth.
2. For future researcher, it is better to conduct the special research regarding
the comparison of the good corporate governance on company
performance or maybe can include certain information regarding the
investment, business operation between the other developed Countries
with Indonesia, so it would be very useful for the future economy growth
in Indonesia to see how the developed country can managed their
economic, investment even their business operation not only in the from
Malaysian country.
3. For future researcher, the researcher recommend to increase the
independent variables to explain the good corporate governance indicator,
for instance audit committee size, family ownership, company size and
other financial ratio, like return on equity, return on investment and
earning per-share.
4. For further research, we recommend adding the research periods. More
research period will be better, more support variables revealed like type of
industry, company profile, audit committee and etc.
79
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LIST OF APPENDICES
Appendix I
2010
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
ADVANCED PACKAGING TECH BHD 2010 9 5 0.12
0.12
0.09
APM AUTOMOTIVE HOLDINGS BHD 2010 10 9 0.03
0.77
0.01
BOX-PAK MALAYSIA BHD 2010 9 2 0.04
0.69
0.06
BP PLASTICS HOLDING BHD 2010 6 3 0.18
0.45
0.12
CAHYA MATA SARAWAK BHD 2010 9 6 0.09
0.57
0.03
CAN-ONE BHD 2010 7 2 0.05
0.63
0.04
CHOO BEE METAL INDUSTRIES BHD 2010 9 3 0.05
0.72
0.05
COASTAL CONTRACT BHD 2010 6 3 0.09
0.46
0.18
DAIBOCHI PLASTIC AND PACKAGING INDUSTRY BHD 2010 7 3 0.19
0.22
0.08
EP MANUFACTURING BHD 2010 6 3 0.06
0.74
0.05
FAVELLE FAVCO BHD 2010 8 3 0.10
0.75
0.25
86
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
GUH HOLDINGS BHD 2010 9 4 0.06
0.38
0.07
HEVEABOARD BHD 2010 6 2 0.00
0.84
0.13
HILL INDUSTRY BHD 2010 9 3 0.15
0.59
0.04
HOCK HENG STONE INDUSTRIES BHD 2010 7 3 0.12
0.46
0.06
JOHORE TIN BHD 2010 6 3 0.19
0.38
0.05
KARYON INDUSTRIES BERHAD 2010 9 3 -
0.27
0.13
KECK SHENG MALAYSIA BHD 2010 11 3 0.21
0.47
0.21
KIAN JOO CAN FACTORY BHD 2010 9 5 0.05
0.53
0.09
KIM HIN INDUSTRY BHD 2010 8 3 0.26
0.66
0.02
KKB ENGINEERING BHD 2010 10 3 0.02
0.70
0.27
KOSSAN RUBBER INDUSTRIES BHD 2010 9 3 0.00
0.78
0.18
LAFARGE MALAYAN CEMENT BHD 2010 12 5 -
0.81
0.11
LYSAGHT GALVANIZED STEEL BHD 2010 9 3 0.01
0.71
0.04
MASTER-PACK GROUP BHD 2010 6 4 0.01
0.60
0.05
MERCURY INDUSTRIES BHD 2010 4 3 0.12
0.13
0.14
87
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
METROD HOLDINGS BHD 2010 8 3 -
0.69
0.05
MUAR BAN LEE GROUP BHD 2010 8 3 0.08
0.58
0.13
MUDA HOLDINGS BHD 2010 6 2 0.10
0.63
0.08
ORNAPAPER BHD 2010 6 3 0.02
0.46
0.02
P.I.E INDUSTRIAL BHD 2010 7 3 0.00
0.73
0.15
PETRONAS GAS BHD 2010 8 4 -
0.96
0.01
PMB TECHNOLOGY BHD 2010 8 3 0.06
0.53
0.15
PRESS METAL BHD 2010 9 4 0.34
0.43
0.13
PRESTAR RESOURCES BHD 2010 9 4 -
0.11
0.03
PUBLIC PACKAGES HOLDINGS BHD 2010 8 3 0.04
0.56
0.09
SARAWAK CABLE BHD 2010 9 3 0.23
0.77
0.05
SEACERA GROUP BHD 2010 5 3 0.04
0.71
0.04
SIG GASES BHD 2010 6 3 0.05
0.47
0.05
SLP RESOURCES BHD 2010 7 2 0.28
0.40
0.12
SMIS CORPORATION BHD 2010 8 4 0.11
0.50
0.09
88
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
SUCCESS TRANSFORMER CORPORATION BHD 2010 8 2 0.00
0.74
0.02
SUPERMAX CORP BHD 2010 7 4 0.39
0.28
0.15
TA ANN HOLDINGS BHD 2010 7 3 0.13
0.71
0.09
TASEK CORPORATION BHD 2010 7 3 0.24
0.76
0.14
TECNIC GROUP BHD 2010 7 2 0.00
0.69
0.16
THONG GUAN INDUSTRIES BHD 2010 7 2 0.03
0.57
0.06
THONG HERR RESOURCES BHD 2010 8 3 0.02
0.71
0.06
THREE-A RESOURCES BHD 2010 13 4 0.14
0.61
0.06
TIEN WAH PRESS HOLDINGS BHD 2010 8 3 -
0.74
0.04
TOMYPAK HOLDINGS BHD 2010 8 6 0.31
0.27
0.13
UCHI TECH BHD 2010 7 2 0.00
0.69
0.19
UNITED U-LI CORPORATION BHD 2010 8 5 0.07
0.56
0.09
WAH SEONG CORPORATION BHD 2010 8 3 0.05
0.63
0.05
WHITE HORSE BHD 2010 10 3 0.19
0.49
0.02
YI-LAI BHD 2010 5 2 0.01
0.37
0.07
89
2011
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
ADVANCED PACKAGING TECH BHD 2011 9 6 3 0.12
0.09
APM AUTOMOTIVE HOLDINGS BHD 2011 9 3 3 0.03
0.12
BOX-PAK MALAYSIA BHD 2011 8 2 3 0.04
0.08
BP PLASTICS HOLDING BHD 2011 6 3 3 0.18
0.11
CAHYA MATA SARAWAK BHD 2011 9 5 3 0.09
0.06
CAN-ONE BHD 2011 7 2 3 0.05
0.06
CHOO BEE METAL INDUSTRIES BHD 2011 9 3 3 0.05
0.08
COASTAL CONTRACT BHD 2011 6 3 3 0.15
0.17
DAIBOCHI PLASTIC AND PACKAGING INDUSTRY BHD 2011 7 3 3 0.20
0.08
EP MANUFACTURING BHD 2011 6 3 4 0.06
0.13
FAVELLE FAVCO BHD 2011 8 3 4 0.09
0.34
GUH HOLDINGS BHD 2011 9 4 3 0.03
0.10
90
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
HEVEABOARD BHD 2011 7 2 3 0.01
0.02
HILL INDUSTRY BHD 2011 7 3 3 0.15
0.04
HOCK HENG STONE INDUSTRIES BHD 2011 7 3 3 0.12
0.06
JOHORE TIN BHD 2011 6 3 3 0.18
0.06
KARYON INDUSTRIES BERHAD 2011 10 3 3 0.00 0.12
KECK SHENG MALAYSIA BHD 2011 11 3 3 0.21
0.07
KIAN JOO CAN FACTORY BHD 2011 8 4 2 0.06
0.08
KIM HIN INDUSTRY BHD 2011 8 3 2 0.26
0.02
KKB ENGINEERING BHD 2011 10 3 3 0.02
0.15
KOSSAN RUBBER INDUSTRIES BHD 2011 9 3 3 0.00
0.19
LAFARGE MALAYAN CEMENT BHD 2011 9 4 3 0.00 0.12
LYSAGHT GALVANIZED STEEL BHD 2011 9 3 5 0.01
0.03
MASTER-PACK GROUP BHD 2011 6 4 3 0.01
0.02
91
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
MERCURY INDUSTRIES BHD 2011 4 3 3 0.12
0.14
METROD HOLDINGS BHD 2011 9 3 3 0.00 0.03
MUAR BAN LEE GROUP BHD 2011 8 3 3 0.10
0.18
MUDA HOLDINGS BHD 2011 6 2 3 0.12
0.04
ORNAPAPER BHD 2011 6 3 3 0.02
0.06
P.I.E INDUSTRIAL BHD 2011 7 3 3 0.00
0.22
PETRONAS GAS BHD 2011 8 4 4 0.00 0.01
PMB TECHNOLOGY BHD 2011 8 3 2 0.06
0.33
PRESS METAL BHD 2011 9 4 3 0.00
0.13
PRESTAR RESOURCES BHD 2011 9 4 4 0.15
0.03
PUBLIC PACKAGES HOLDINGS BHD 2011 8 3 3 0.05
0.18
SARAWAK CABLE BHD 2011 9 3 3 0.23
0.13
SEACERA GROUP BHD 2011 5 3 4 0.19
0.02
92
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
SIG GASES BHD 2011 5 2 3 0.06
0.02
SLP RESOURCES BHD 2011 7 2 3 0.29
0.08
SMIS CORPORATION BHD 2011 8 4 3 0.11
0.00
SUCCESS TRANSFORMER CORPORATION BHD 2011 8 2 3 0.00
0.01
SUPERMAX CORP BHD 2011 7 4 3 0.39
0.09
TA ANN HOLDINGS BHD 2011 7 3 3 0.13
0.17
TASEK CORPORATION BHD 2011 7 3 3 0.30
0.11
TECNIC GROUP BHD 2011 7 2 3 0.00
0.18
THONG GUAN INDUSTRIES BHD 2011 7 2 3 0.03
0.07
THONG HERR RESOURCES BHD 2011 7 3 3 0.02
0.09
THREE-A RESOURCES BHD 2011 9 5 3 0.03
0.06
TIEN WAH PRESS HOLDINGS BHD 2011 7 3 3 0.00
0.08
TOMYPAK HOLDINGS BHD 2011 8 6 3 0.32
0.10
93
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
UCHI TECH BHD 2011 7 2 3 0.00
0.30
UNITED U-LI CORPORATION BHD 2011 8 5 3 0.07
0.08
WAH SEONG CORPORATION BHD 2011 7 3 3 0.05
0.08
WHITE HORSE BHD 2011 9 4 3 0.19
0.05
YI-LAI BHD 2011 5 2 3 0.01
0.05
YOKOHAMA INDUSTRIES BHD 2011 5 3 3 0.00 0.04
94
2012
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
ADVANCED PACKAGING TECH BHD 2012 9 5 3 0.12
0.10
APM AUTOMOTIVE HOLDINGS BHD 2012 9 3 3 0.03
0.11
BOX-PAK MALAYSIA BHD 2012 8 3 3 0.04
0.09
BP PLASTICS HOLDING BHD 2012 6 3 3 0.28
0.06
CAHYA MATA SARAWAK BHD 2012 10 5 4 0.09
0.06
CAN-ONE BHD 2012 8 2 3 0.06
0.18
CHOO BEE METAL INDUSTRIES BHD 2012 9 3 3 0.05
0.36
COASTAL CONTRACT BHD 2012 6 3 3 0.15
0.10
DAIBOCHI PLASTIC AND PACKAGING INDUSTRY BHD 2012 7 3 3 0.19
0.11
EP MANUFACTURING BHD 2012 8 4 4 0.06
0.01
FAVELLE FAVCO BHD 2012 8 3 4 0.08
0.32
GUH HOLDINGS BHD 2012 8 4 3 0.04
0.07
95
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
HEVEABOARD BHD 2012 7 2 3 0.01
0.07
HILL INDUSTRY BHD 2012 7 3 3 0.15
0.02
HOCK HENG STONE INDUSTRIES BHD 2012 7 3 3 0.12
0.02
JOHORE TIN BHD 2012 6 3 3 0.21
0.10
KARYON INDUSTRIES BERHAD 2012 9 3 3 0.00 0.10
KECK SHENG MALAYSIA BHD 2012 11 5 3 0.21
0.05
KIAN JOO CAN FACTORY BHD 2012 9 4 3 0.02
0.09
KIM HIN INDUSTRY BHD 2012 8 3 2 0.28
0.04
KKB ENGINEERING BHD 2012 10 3 3 0.02
0.07
KOSSAN RUBBER INDUSTRIES BHD 2012 8 3 3 0.00
0.20
LAFARGE MALAYAN CEMENT BHD 2012 9 4 3 0.00 0.14
LYSAGHT GALVANIZED STEEL BHD 2012 9 3 5 0.01
0.09
MASTER-PACK GROUP BHD 2012 6 4 3 0.01
0.02
96
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
MERCURY INDUSTRIES BHD 2012 4 3 3 0.12
0.11
METROD HOLDINGS BHD 2012 8 4 4 0.00 0.13
MUAR BAN LEE GROUP BHD 2012 8 3 3 0.09
0.20
MUDA HOLDINGS BHD 2012 6 2 3 0.15
0.02
ORNAPAPER BHD 2012 6 3 3 0.02
0.08
P.I.E INDUSTRIAL BHD 2012 7 3 3 0.00
0.23
PETRONAS GAS BHD 2012 8 4 3 0.00 0.01
PMB TECHNOLOGY BHD 2012 8 3 2 0.06
0.21
PRESS METAL BHD 2012 9 4 3 0.00
0.18
PRESTAR RESOURCES BHD 2012 9 4 4 0.14
0.02
PUBLIC PACKAGES HOLDINGS BHD 2012 8 3 3 0.05
0.07
SARAWAK CABLE BHD 2012 9 3 3 0.39
0.01
SEACERA GROUP BHD 2012 5 3 4 0.06
0.18
97
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
SIG GASES BHD 2012 5 2 3 0.06
0.02
SLP RESOURCES BHD 2012 7 2 3 0.29
0.11
SMIS CORPORATION BHD 2012 5 3 3 0.05
0.01
SUCCESS TRANSFORMER CORPORATION BHD 2012 8 2 3 0.00
0.04
SUPERMAX CORP BHD 2012 7 4 3 0.39
0.10
TA ANN HOLDINGS BHD 2012 8 4 3 0.12
0.06
TASEK CORPORATION BHD 2012 8 4 3 0.31
0.10
TECNIC GROUP BHD 2012 8 2 4 0.00
0.17
THONG GUAN INDUSTRIES BHD 2012 5 2 3 0.03
0.07
THONG HERR RESOURCES BHD 2012 8 3 3 0.02
0.04
THREE-A RESOURCES BHD 2012 9 5 3 0.03
0.05
TIEN WAH PRESS HOLDINGS BHD 2012 7 3 3 0.00
0.09
TOMYPAK HOLDINGS BHD 2012 9 6 3 0.18
0.15
98
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
UCHI TECH BHD 2012 8 2 4 0.00
0.30
UNITED U-LI CORPORATION BHD 2012 8 5 3 0.07
0.08
WAH SEONG CORPORATION BHD 2012 7 3 3 0.06
0.04
WHITE HORSE BHD 2012 9 4 3 0.19
0.02
YI-LAI BHD 2012 5 3 3 0.01
0.05
YOKOHAMA INDUSTRIES BHD 2012 5 2 3 0.00 0.05
99
2013
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
ADVANCED PACKAGING TECH BHD 2013 9 6 3 0.12
0.10
APM AUTOMOTIVE HOLDINGS BHD 2013 9 3 3 0.03
0.10
BOX-PAK MALAYSIA BHD 2013 8 3 3 0.04
0.04
BP PLASTICS HOLDING BHD 2013 6 3 3 0.18
0.07
CAHYA MATA SARAWAK BHD 2013 9 4 4 0.09
0.07
CAN-ONE BHD 2013 6 1 3 0.05
0.07
CHOO BEE METAL INDUSTRIES BHD 2013 8 3 3 0.05
0.07
COASTAL CONTRACT BHD 2013 6 3 3 0.15
0.10
DAIBOCHI PLASTIC AND PACKAGING INDUSTRY BHD 2013 7 3 3 0.16
0.09
EP MANUFACTURING BHD 2013 8 4 4 0.06
0.02
FAVELLE FAVCO BHD 2013 9 3 4 0.07
0.33
GUH HOLDINGS BHD 2013 8 4 3 0.02
0.06
100
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
HEVEABOARD BHD 2013 7 2 3 0.00
0.10
HILL INDUSTRY BHD 2013 7 3 3 0.15
0.03
HOCK HENG STONE INDUSTRIES BHD 2013 7 3 3 0.12
0.03
JOHORE TIN BHD 2013 8 4 3 0.19
0.09
KARYON INDUSTRIES BERHAD 2013 9 3 3 0.00 0.07
KECK SHENG MALAYSIA BHD 2013 11 4 3 0.24
0.09
KIAN JOO CAN FACTORY BHD 2013 8 4 3 0.02
0.08
KIM HIN INDUSTRY BHD 2013 8 3 2 0.23
0.04
KKB ENGINEERING BHD 2013 10 3 3 0.02
0.10
KOSSAN RUBBER INDUSTRIES BHD 2013 9 4 3 0.00
0.44
LAFARGE MALAYAN CEMENT BHD 2013 9 4 3 0.00 0.15
LYSAGHT GALVANIZED STEEL BHD 2013 8 5 5 0.01
0.11
MASTER-PACK GROUP BHD 2013 6 3 3 0.01
0.06
101
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
MERCURY INDUSTRIES BHD 2013 4 3 3 0.09
0.10
METROD HOLDINGS BHD 2013 7 4 4 0.00
0.04
MUAR BAN LEE GROUP BHD 2013 8 3 3 0.09
0.08
MUDA HOLDINGS BHD 2013 6 2 3 0.03
0.03
ORNAPAPER BHD 2013 6 3 3 0.01
0.08
P.I.E INDUSTRIAL BHD 2013 7 3 3 0.00
0.29
PETRONAS GAS BHD 2013 8 6 3 0.00 0.02
PMB TECHNOLOGY BHD 2013 8 3 2 0.06
0.16
PRESS METAL BHD 2013 9 4 3 0.00
0.01
PRESTAR RESOURCES BHD 2013 9 4 4 0.14
0.04
PUBLIC PACKAGES HOLDINGS BHD 2013 8 3 3 0.05
0.04
SARAWAK CABLE BHD 2013 9 3 3 0.23
0.01
SEACERA GROUP BHD 2013 5 3 4 0.00 0.04
102
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
SIG GASES BHD 2013 5 2 3 0.06
0.02
SLP RESOURCES BHD 2013 7 2 3 0.29
0.13
SMIS CORPORATION BHD 2013 5 3 3 0.05
0.04
SUCCESS TRANSFORMER CORPORATION BHD 2013 8 2 3 0.01
0.04
SUPERMAX CORP BHD 2013 7 4 3 0.38
0.09
TA ANN HOLDINGS BHD 2013 7 3 3 0.11
0.09
TASEK CORPORATION BHD 2013 5 3 3 0.29
0.10
TECNIC GROUP BHD 2013 5 2 3 0.00
0.12
THONG GUAN INDUSTRIES BHD 2013 7 2 3 0.03
0.06
THONG HERR RESOURCES BHD 2013 8 3 3 0.02
0.04
THREE-A RESOURCES BHD 2013 9 5 3 0.04
0.04
TIEN WAH PRESS HOLDINGS BHD 2013 7 3 3 0.00 0.08
TOMYPAK HOLDINGS BHD 2013 7 4 3 0.00
0.14
103
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
UCHI TECH BHD 2013 7 2 3 0.00
0.27
UNITED U-LI CORPORATION BHD 2013 8 5 3 0.07
0.06
WAH SEONG CORPORATION BHD 2013 7 3 3 0.06
0.03
WHITE HORSE BHD 2013 10 3 3 0.19
0.05
YI-LAI BHD 2013 7 3 3 0.01
0.06
YOKOHAMA INDUSTRIES BHD 2013 5 2 3 0.00 0.08
104
2014
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
ADVANCED PACKAGING TECH BHD 2014 9 6 3 0.12
0.08
APM AUTOMOTIVE HOLDINGS BHD 2014 9 3 3 0.03
0.07
BOX-PAK MALAYSIA BHD 2014 7 3 3 0.04
0.02
BP PLASTICS HOLDING BHD 2014 6 3 3 0.29
0.07
CAHYA MATA SARAWAK BHD 2014 8 3 3 0.09
0.08
CAN-ONE BHD 2014 6 1 3 0.05
0.06
CHOO BEE METAL INDUSTRIES BHD 2014 8 3 3 0.05
0.03
COASTAL CONTRACT BHD 2014 6 3 3 0.16
0.06
DAIBOCHI PLASTIC AND PACKAGING INDUSTRY BHD 2014 7 2 3 0.16
0.08
EP MANUFACTURING BHD 2014 9 5 4 0.06
0.01
FAVELLE FAVCO BHD 2014 8 3 4 0.07
0.41
GUH HOLDINGS BHD 2014 8 4 3 0.04
0.04
105
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
HEVEABOARD BHD 2014 7 2 3 0.00
0.11
HILL INDUSTRY BHD 2014 7 3 3 0.16
0.03
HOCK HENG STONE INDUSTRIES BHD 2014 7 3 3 0.12
0.02
JOHORE TIN BHD 2014 6 3 3 0.22
0.04
KARYON INDUSTRIES BERHAD 2014 10 3 3 0.00 0.09
KECK SHENG MALAYSIA BHD 2014 13 5 4 0.21
0.07
KIAN JOO CAN FACTORY BHD 2014 7 4 3 0.02
0.07
KIM HIN INDUSTRY BHD 2014 8 3 2 0.23
0.00
KKB ENGINEERING BHD 2014 10 3 3 0.26
0.06
KOSSAN RUBBER INDUSTRIES BHD 2014 10 4 3 0.00
0.09
LAFARGE MALAYAN CEMENT BHD 2014 8 3 2 0.00 0.10
LYSAGHT GALVANIZED STEEL BHD 2014 8 5 5 0.01
0.38
MASTER-PACK GROUP BHD 2014 6 4 3 0.02
0.06
106
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
MERCURY INDUSTRIES BHD 2014 4 3 3 0.09
0.08
METROD HOLDINGS BHD 2014 7 4 4 0.00
0.02
MUAR BAN LEE GROUP BHD 2014 8 3 3 0.08
0.05
MUDA HOLDINGS BHD 2014 7 3 4 0.03
0.01
ORNAPAPER BHD 2014 6 3 3 0.06
0.10
P.I.E INDUSTRIAL BHD 2014 7 3 3 0.00
0.30
PETRONAS GAS BHD 2014 8 6 3 0.00
PMB TECHNOLOGY BHD 2014 8 3 2 0.06
0.14
PRESS METAL BHD 2014 9 4 3 0.00
0.14
PRESTAR RESOURCES BHD 2014 9 4 4 0.13
0.04
PUBLIC PACKAGES HOLDINGS BHD 2014 8 3 3 0.05
0.05
SARAWAK CABLE BHD 2014 9 3 3 0.33
0.01
SEACERA GROUP BHD 2014 5 3 4 0.07
0.05
SIG GASES BHD 2014 6 3 4 0.06
0.06
107
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
SLP RESOURCES BHD 2014 8 3 4 0.27
0.13
SMIS CORPORATION BHD 2014 5 3 3 0.05
0.03
SUCCESS TRANSFORMER CORPORATION BHD 2014 8 2 3 0.01
0.14
SUPERMAX CORP BHD 2014 6 3 3 0.39
0.06
TA ANN HOLDINGS BHD 2014 8 4 3 0.11
0.12
TASEK CORPORATION BHD 2014 5 3 3 0.29
0.13
TECNIC GROUP BHD 2014 5 2 3 0.00
THONG GUAN INDUSTRIES BHD 2014 7 2 3 0.03
0.03
THONG HERR RESOURCES BHD 2014 7 3 3 0.02
0.06
THREE-A RESOURCES BHD 2014 10 5 3 0.03
0.07
TIEN WAH PRESS HOLDINGS BHD 2014 6 2 3 0.00 0.03
TOMYPAK HOLDINGS BHD 2014 10 5 4 0.00
0.11
108
NAME OF THE COMPANY YEAR BOD BOI MO IO ROA
UCHI TECH BHD 2014 7 2 3 0.00
0.28
UNITED U-LI CORPORATION BHD 2014 8 5 3 0.07
0.10
WAH SEONG CORPORATION BHD 2014 6 2 3 0.06
0.07
WHITE HORSE BHD 2014 10 3 3 0.19
0.12
YI-LAI BHD 2014 8 4 3 0.00
0.06
YOKOHAMA INDUSTRIES BHD 2014 3 2 2 0.00 0.04
107
Appendix II
DATA SPSS 18
Table 4.2 Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
BOD 285 3 13 7.58 1.565
BOI 285 1 9 3.26 1.013
MO 285 .0000 .3857 .086459 .0960302
IO 285 .0691 .9618 .581421 .1851924
ROA 285 .0013 .4360 .092264 .0742378
Valid N (listwise) 285
Table 4.3 Normal P-P Plot of Regression Standardized Residual
108
Table 4.4 Normality Test by One-Sample Kolmogorov-Smirnov Test
One-Sample Kolmogorov-Smirnov Test
Unstandardized
Predicted Value
N 285
Normal Parametersa,b
Mean .0922639
Std. Deviation .01354985
Most Extreme Differences Absolute .070
Positive .031
Negative -.070
Kolmogorov-Smirnov Z 1.177
Asymp. Sig. (2-tailed) .125
a. Test distribution is Normal.
b. Calculated from data.
Table 4.5 Results Multicollinearity Test
Model
Unstandardized Coefficients
Standardized
Coefficients Collinearity Statistics
B Std. Error Beta Tolerance VIF
1 (Constant) .064 .027
BOD .007 .003 .138 .766 1.306
BOI -.008 .005 -.113 .752 1.329
MO -.062 .049 -.080 .871 1.148
IO .019 .026 .048 .819 1.221
a. Dependent Variable: ROA
109
Table 4.6 Result Autocorrelation (Durbin Watson test)
Model Summaryb
Model
R R Square
Adjusted R
Square
Std. Error of the
Estimate Durbin-Watson
d
i
m
e
n
s
i
o
n
0
1 .183a .033 .020 .0735103 2.011
a. Predictors: (Constant), IO, BOD, MO, BOI
b. Dependent Variable: ROA
Table 4.7 Durbin Watson Test Bound
n
k=1 k=2 k=3 k=4 k=5
dL dU dL dU dL dU dL dU dL dU
10 0.8791
1.3197
0.6972
1.6413
0.5253
2.0163
0.3760
2.4137
0.2427
2.8217
20 1.2015 1.4107 1.1004 1.5367 0.9976 1.6763 0.8943 1.8283 0.7918 1.9908
. . . . . . . . . . .
. . . . . . . . . . .
200 1.7584
1.7785
1.7483
1.7887
1.7382
1.7990
1.7279
1.8094
1.7176
1.8199
110
Table 4.8 Scatter Plot
Table 4.11 Partial Test Results (T-Test)
Model
Unstandardized Coefficients
Standardized
Coefficients
t Sig. B Std. Error Beta
1 (Consta
nt)
.064 .027
2.352 .019
BOD .007 .003 .138 2.054 .041
BOI -.008 .005 -.113 -1.661 .098
MO -.062 .049 -.080 -1.272 .204
IO .019 .026 .048 .735 .463
a. Dependent Variable: ROA
Table 4.12 Simultaneous Test Results (F-Test)
111
ANOVAb
Model Sum of Squares df Mean Square F Sig.
1 Regression .052 4 .013 2.412 .049a
Residual 1.513 280 .005
Total 1.565 284
a. Predictors: (Constant), IO, BOD, MO, BOI
b. Dependent Variable: ROA
