Abstract
Corporate governance is an interesting topic to discuss recently. Governance builds trust and predictability, hence generating comfort to investors. Companies that implement good corporate governance are expected to have a good financial performance to minimize agency problems and provide more benefits to shareholders. A corporate governance framework can determine the agency problem and its effect on shareholders' value. This study uses a random effect model estimation method. Good corporate governance in this study is measured with the corporate governance index (CGI) score and formed based on five sub-indexes. The company's market value is calculated by Tobin's Q ratio. The results of statistical tests show a positive relationship between the implementation of good corporate governance and its market value. Furthermore, this research shows how Indonesian banks listed in IDX from 2010 to 2019 implement good corporate governance practices as the index continues to increase every year.
Highlights
Many shocking financial scandals such as Barings Bank, Enron and Arthur Anderson from the big five of the public accountants, Worldcom, Cirio, and many others make investors and stakeholders interested in corporate governance
The same case of lacking good corporate governance exists in Indonesia, one of which is the case of Jiwasraya insurance company
[26] conducts a study of financial sector companies listed on the Indonesia Stock Exchange (IDX) in 2004, explaining that there is no relationship between the implementation of good corporate governance using the corporate governance index to the company's market value as a proxy for Tobin's Q
Summary
Many shocking financial scandals such as Barings Bank, Enron and Arthur Anderson from the big five of the public accountants, Worldcom, Cirio, and many others make investors and stakeholders interested in corporate governance. [26] conducts a study of financial sector companies listed on the IDX in 2004, explaining that there is no relationship between the implementation of good corporate governance using the corporate governance index to the company's market value as a proxy for Tobin's Q. It is hoped that over time the implementation of good corporate governance in Indonesia would improve to explain the relationship between the company's market value represented by Tobin's Q and GCG in financial sector companies listed on the IDX during the 2010 2019 period. Previous research uses the score results from the Corporate Governance Index as a basis for seeing the extent to which the level of company compliance with good corporate governance is associated with the company's market value. It can be concluded that the implementation of good corporate governance can increase firm value through Tobin's Q
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