Is the Implementation of Good Corporate Governance Principles Capable of Improving Company Performance? (Study at Sharia Commercial Banks in Bandung City, Indonesia)

Rini Lestari ,Diamonalisa Sofianty ,Ririn Srikuntorini

doi:10.7176/ejbm/11-6-10

Abstract

The implementation of Good Corporate Governance (GCG) principles which includes: transparency, accountability, independence, responsibility and fairness are expected to improve company performance. Various problems that are related to the weak implementation of GCG principles have led to a decline in company performance.The purpose of this study is to analyze how far the implementation of GCG principles and how the company performance is measured by using Balanced Scorecard (BSC) method at Sharia Commercial Banks in Bandung City and then to analyze how the implementation of GCG principles is able to improve the company performance which is measured by using BSC method. In this study,the research method is descriptive with a qualitative approach. This study was conducted on nine Sharia Commercial Banks in Bandung City. Data collection techniques were carried out by distributing questionnaires to 45 operational managers at Sharia Commercial Bank in Bandung City and by interviews.The sampling technique is non probability sampling with the type of convenience sampling.The study results indicate that the implementation of GCG principles in Sharia Commercial Banks in Bandung City is very good. The company performance in Sharia Commercial Banks in Bandung City which are measured using BSC method is in very good category.Furthermore, the implementation of GCG principles in Sharia Commercial Banks in Bandung City is able to improve the company performance which is measured by using BSC method, as it is evidenced by one of them when Sharia Commercial Banks apply the responsibility principle in their operational activities, the level of customer trust will increase. With the increasing of customer trust, it will result in a higher level of financial return as an indicator in the increasing of company performance as it is measured by BSC method. Keywords : good corporate governance principles, company performance and balanced scorecard. DOI : 10.7176/EJBM/11-6-10

Highlights

The monetary crisis in Indonesia which was occurred around 1997-1998 impacted the business of banking institutions, resulting in a decrease in the level of public trust in the institution. Zarkasyi (2008) explains that "efforts to restore trust to the banking world through restructuring and recapitalization can only have a long-term impact if it is accompanied by the implementation of Good Corporate Governance principles"
The problems related to the weak implementation of Good Corporate Governance (GCG) principles at sharia banks have occurred in PT Bank SyariahMandiri (BSM) as it is disclosed by the Indonesian Anti-Corruption Society (MAKI, 2018) that PT BSM channeled fictitious financing worth 1.1 trillion
Based on the discussion in the previous chapter, the conclusions are as follows: 1) The implementation of the Good Corporate Governance (GCG) Principles at Sharia Commercial Banks in Bandung City is in very good category

Summary

Introduction

The monetary crisis in Indonesia which was occurred around 1997-1998 impacted the business of banking institutions, resulting in a decrease in the level of public trust in the institution. Zarkasyi (2008) explains that "efforts to restore trust to the banking world through restructuring and recapitalization can only have a long-term impact if it is accompanied by the implementation of Good Corporate Governance principles". The problems related to the weak implementation of GCG principles at sharia banks have occurred in PT Bank SyariahMandiri (BSM) as it is disclosed by the Indonesian Anti-Corruption Society (MAKI, 2018) that PT BSM channeled fictitious financing worth 1.1 trillion. It was fictitious because the financing from debtors is not used according to the proposal when the money is disbursed.There is even an indication that disbursed financing is used for personal purposes. From the poor implementation of GCG principles in sharia banks, it can lead to a decline in public distrust so that the performance of sharia public banks has become worse due to losses, due to irregularities in financing distribution

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Conclusion