The Mediating Role of Board Size and Working Capital Management in Corporate Governance on Firm Performance

Abstract

Purpose: This study aimed to test the relationship between corporate governance and firm performance, as well as the mediating role of board size and working capital management in the relationship. The sample in this study are manufacturing companies listed on the Indonesia Stock Exchange for the period of 2017-2021. Methodology: The panel regression method was used to analyse research data. In this study, corporate governance was proxied by independent commissioners and ownership structure, while firm performance was measured by ROA and ROE. Meanwhile, the mediating variable, board size was measured by the number of board of directors and working capital management was measured by average payment period. Findings: The results showed that independent commissioners had a significant positive effect as measured by ROA and ROE. While ownership structure also had a significant positive effect as measured by ROA. In addition, working capital management was proven to have a partial mediating role in the relationship between independent commissioners and ROA. However, working capital management was not proven to have a mediating role in the relationship between ownership structure and firm performance, and board size was also not proven to have a mediating role. Practical Implications: This study helps companies understand the significance of corporate board structure and ownership in the effort of achieving a good corporate governance to maximize firm performance. Originality/Value: This study contributes to studies on the effect of corporate governance on firm performance, where the novelty lies in working capital management and board size as mediating variables in the relationship between corporate governance and firm performance.