Abstract
Purpose - This study examines the impact of the influence of independent board of directors, executive compensation, and political connections on firm performance in one of the biggest democracy country in South East Asia. Methodology - Company performance is measured by return on assets (ROA), and firm value is measured by Tobin's Q. Meanwhile, as an independent variable we use several good coporate governance variables, namely the board of directors, executive compensation variable and political connections. Company data are from companies listed in LQ45 index which means the best stock performance in Indonesia capital market. Findings The finding found the crucial role of independent board of director and political connection for enhancing the firm value. Findings found an independent board of director can improve company performance. Meanwhile, executive compensation can provide motivation to increase company value, but has other motivations in improving company performance. Meanwhile, political connections can improve company performance and value. Thus, this study emphasize the crucial role of the experience and the connection of the board of directors in improving the value of the firm.
Highlights
Today, many studies have assembled the impact of good corporate governance on company performance and value (Azzahra & Yuliandari, 2014; Buchdadi & Chou, 2017; Fadillah, 2017; Pratama & Suputra, 2015; Suhadak, Mangesti Rahayu & Handayani, 2019; Veronica & Wardoyo, 2013)
This study examines the impact of independent board of directors, executive compensation, and political connections on firm performance in one of the biggest democracy countries in South East Asia
This study has discussed the effects of independent board of directors, executive compensation, and political connections on practice in companies listed on the LQ45 list
Summary
Many studies have assembled the impact of good corporate governance on company performance and value (Azzahra & Yuliandari, 2014; Buchdadi & Chou, 2017; Fadillah, 2017; Pratama & Suputra, 2015; Suhadak, Mangesti Rahayu & Handayani, 2019; Veronica & Wardoyo, 2013). The implementation of Good Corporate Governance (GCG) and executive compensation are corporate governance factors that are often used by researchers to determine their effects on company performance and value in recent years. The implementation of Good Corporate Governance (GCG) can protect investors and improve compliance with applicable regulations (Hamidah, Purwati, & Mardiyati, 2013). One application of Good Corporate Governance (GCG) that is often used is the composition of the Independent Board of director. Some studies found a significant positive relationship between independent board of directors and company performance (Klapper & Love, 2004; Pratama & Suputra, 2015). Previous studies found there was a significant negative effect on the board of directors on the value of
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