The Effect of Partnership and Community Development Program on Financial Performance and Firm Risk: Evidence from Indonesian State-Owned Enterprises

Jasman Jasman ,Sekar Mayangsari

doi:10.7176/rjfa/10-20-10

Abstract

The purpose of this paper is to analyze the realization of Partnership and Community Development Program as stipulated by the regulations of State-Owned Enterprises Minister and whether they have effect on financial performance and firm risk. The regulations require State-Owned Enterprises to allocate 2% of net income for each of the following programs: Partnership Program and Community Development Programs. The research design is quantitave method. Data are collected from Sustainability Reports and Annual Reports published by State-Owned Enterprises for the period of 2007 to 2017. The results of hypothesis test indicate that Partnership Program does not influence financial performance and firm risk. Meanwhile, Community Development Program has a significant and positive effect on financial performance. Furthermore, Community Development Program has a significant and negative effect on firm risk. Keywords: partnership program, community development program, state-owned enterprises, financial performance, firm risk DOI : 10.7176/RJFA/10-20-10 Publication date :October 31 st 2019

Highlights

State-Owned Enterprises (SOEs) is one of the national economic actors as stipulated by Law Number 19 of 2003 concerning State-Owned Enterprises (SOEs) in Indonesia
Considering the importance of the role of SOEs in improving the capability of small-scale enterprises and the empowerment of social conditions of society and the environment, this study aims to analyze whether SOEs have realized an allowance for 2% of net income as stipulated and mandated by Per-05 in 2007 for each program which www.iiste.org is the Partnership Program and its Community development program that the percentage is determined by the Minister and for the State-Owned Enterprise in the form of Limited Liability Company (Article 9 paragraph 3 Per-05/MBU 2007)
Dependent Variable is company financial performance which is proxied with Return On Asset (ROA) and Return On Equity (ROE) ratios as used by Nguyen & Nguyen (2013), and Luo and Bhattacharya (2009)

Summary

Introduction

State-Owned Enterprises (SOEs) is one of the national economic actors as stipulated by Law Number 19 of 2003 concerning State-Owned Enterprises (SOEs) in Indonesia. Partnership Program (PP) and Community Development Program (CDP) are mandated to SOEs as types of company’s contribution to society and environment. Per-05/MBU/2007, the partnership program of SOEs with Small Business is a program to increase the ability of small-scale enterprises to become tough and independent through the utilization of funds from the SOEs’ profit. The Community Development program is a program of environment social empowerment by state-owned enterprises through the utilization of funds from the share of SOE’s profit. The assisted partner companies as referred to Per in 2007 are small businesses that get loans from the Partnership Program. The small business is independent, not a subsidiary or branch of a company owned or affiliated either directly or indirectly with medium or large business. The characteristic of a business entity may be an individual business, a non-legal entity, or a legal entity

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