Abstract
Supervisory board plays an essential role to implement good governance in firm. If this governance is implemented well, the increase in firm value will occur. Related to this statement, the main question that appears is about the number and independence rate of supervisory board members needed to enhance firm value. Besides supervisory board, debt policy holds an important role for firm because of bankruptcy issue. Firm with good governance tries to avoid this issue by decreasing the amount of its debt to create high value.The aim of this study is to test and analyze the effect of board governance, consisting of size and independence of supervisory board, and debt policy on value of non-financial firms forming the Kompas 100 Index on Indonesia Stock Exchange. To be able to generalize results on all non-financial firms forming this index, stratified random sampling method is used to take firms as the sample from the population. Method of data analysis used is fixed effect regression model.This study infers that the number of supervisory board members has no effect on firm value, whereas board independence and debt policy have the effect on firm value: firm with high portion of supervisory board independence and the amount of debt significantly tends to have low value.
Highlights
Governance is mandatory for capital market-listed firms to be implemented
This research intends to test the effect of supervisory board existence and debt policy on firm value
Based on the analysis conducted, it can be concluded that the number of supervisory board members has no effect on firm value, firm with high portion of independent supervisory board members and the amount of debt to finance total assets tends to create low value
Summary
Governance is mandatory for capital market-listed firms to be implemented. By implementing corporate governance well, creditors and investors will get that certainty that profits becoming their right will be fully back to them by stockholders acting as firm controller (LaPorta et al, 2000). One of implementations of corporate governance in listed firms on capital market can be shown by the existence of supervisory board. Besides the names of the countries mentioned before, Indonesia is one of the countries adopting double board system (FCGI, 2001; Sukamulja, 2002; Tjager et al, 2003). This condition happens, because Indonesia adopts Dutch law system (FCGI, 2001)
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