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Cross-firm
A cross-firm analysis of corporate analysis
governance compliance and
performance in Indonesia
Miranda Tanjung 621
Graduate School of International Development (GSID), Nagoya University,
Nagoya, Japan and Bina Nusantara University, Jakarta, Indonesia Received 24 June 2019
Revised 17 September 2019
Accepted 23 January 2020

Abstract
Purpose – The study aims to construct a cross-firm corporate governance index to predict firm
performance. The index consists of 15 governance elements from a large sample of the Indonesian firms
covering the period from 2003 to 2013.
Design/methodology/approach – This study presents robust results as the findings are tested by
applying the generalized method of moments (GMM) estimator to eliminate endogeneity problems and
unobservable heterogeneity posed by the relationship between performance and firm-level governance practices.
Findings – The results indicate that the corporate governance index is associated with enhanced corporate
financial performance. Likewise, the findings reported under the pooled ordinary least squares and GMM also
indicate corporate governance sub-indexes (elements), which have significant effects on performance:
whistleblower mechanism, audit quality, board of director size and blockholders.
Research limitations/implications – In the emerging market context, this study supports the notion
that active and self-regulated governance practices are appreciated by the market and, in the end, can have a
positive impact on financial performance. The analysis adds to the empirical literature by providing insights
into how governance provisions are being actively implemented in the micro level. With regard to weak
governance practices, this study is consistent with previous studies, according to which, firms have the
opportunity to use corporate governance as a way of differentiating themselves from other players in
countries with poorly regulated investor protection and institutional settings.
Originality/value – This study makes a positive contribution, as it looks at the impact of Indonesia’s
corporate governance compliance on the basis of a set of 15 unique governance provisions, including the
findings of the positive influence of corporate governance in family business.
Keywords Indonesia, Firm performance, Family firm, Disclosures, Corporate governance index
Paper type Research paper

Introduction
Does corporate governance (CG) compliance drive higher corporate performance? This issue
has been widely discussed and examined by academic literature and public discussions.
Inconclusive answers and empirical findings, however, present challenges to scientifically
supply more consistent evidence to the question. An ample body of literature has discussed
the significant correlation of CG practices to firm performance and valuations (Bebchuk
et al., 2009; Gompers et al., 2003; Klapper and Love, 2004; Klein et al., 2005; Morey et al.,
2009). Nevertheless, various studies have tested the link between governance and superior
financial performance and firm values, but documents insignificant results (Core et al., 2006;
Garay and González, 2008; Gupta et al., 2013). Managerial Auditing Journal
Vol. 35 No. 5, 2020
pp. 621-643
The author would like to thank the Indonesia Endowment Fund for Education (LPDP Indonesia) for © Emerald Publishing Limited
0268-6902
providing the grant. DOI 10.1108/MAJ-06-2019-2328
MAJ CG principles are considered new for the Indonesian market, with no more than 20 years
35,5 passing since the early adoption of the Organization for Economic Co-operation and
Development (OECD) principles into the 2001 CCG. Some Asian economies (e.g. Malaysia,
Singapore and Thailand) have also shared relatively similar governance reforms to those of
Indonesia as the governments introduced the first governance principles in the early
2000s[1] (Leong, 2005). However, while sharing comparable governance initiatives,
622 Indonesia’s CG practice was still regarded weak relative to that of neighboring countries as
reported in earlier studies (ADB, 2017; Johnson et al., 2000; Klapper and Love, 2004),
including a more recent review by KPMG[2] that highlights issues of the country’s
ineffective “ethics-based” approach in enforcing the governance provisions.
While empirical studies on the Indonesian firm-level CG index are still limited, Cheung
et al. (2014) and Wahyudin and Solikhah (2017) find a strong link between CG and firm
financial performances, as well as the connection between governance and banks’ improved
performances (Utama and Musa, 2011). Other studies document the country’s poor
governance practices and reforms since the adoption of CG codes in the 1999. The key
challenging issues are including: concentrated ownership structure (Claessens et al., 2000;
Tanjung, 2019), agency conflict and harmful family control and weak regulatory
enforcement (La Porta et al., 1998; Tabalujan, 2001).
To add to the recent studies on this topic and to provide further evidence as to whether
governance practices have a sizeable positive impact on the Indonesian market, this study
attempts to test a possible sizeable impact of firm-level governance compliance in Indonesia.
In line with previous studies, Indonesia faces some governance problems such as poor
minority investor protection. Taking into account the setting of the poor compliance and
slow reform, this study questions the level of Indonesian governance practices and the
extent to which such compliance could influence firm operating performance and values.
For the construction of the governance index, this study uses panel data sets of
companies listed in the Indonesian market from 2003 to 2013. This study specifically
addresses concern of endogeneity while observing characteristics of CG adoption at the firm
level. The results of this study document that CG index has significant influence on
company performance, including several governance sub-indexes. With these findings, the
study contributes to the emergent governance literature in at least three ways. First, this
research examines firm-level governance practices in Indonesia by carefully choosing 15 key
CG provisions that are, nonetheless, poorly implemented by the firms. Second, the author
takes into account the specific context of Indonesian firms, wherein the most common
business entities are family businesses which are owned and controlled by families and their
descendants. Third, the study addresses concern for the endogenous and the causal
relationships between governance practices and firm performance.
The paper consists of five main sections. Section 2 represents previously relevant CG and
corporate performance literature. Section 3 provides a description of data samples, index
construction and the econometric models. In Section 4, the results of the tests are reported.
Section 5 provides an overview of the study’s statistical findings and conclusion.

Literature review and development of hypotheses

Corporate governance adoption in Indonesia
A well-functioning CG system is vital to the emerging market development. However,
because of the unique economic, cultural, political and social environment, the effective
implementation of and adherence to CG principles are particularly challenging. One of the
most important notes of CG development in Indonesia, possibly, is the poor compliance level
over the past decades. The poor firm-level CG practices are substantiated by the handful of Cross-firm
research and survey by the foreign research agencies and academic literature. analysis
The Indonesian government initially introduced the first CG codes in 1999, in response to
the 1998 economic crisis that severely affected the country. The crisis encouraged the
government to mitigate poor governance problems in Indonesia, which were diagnosed as
one of the main causes of the crisis. Since the introduction of the national governance codes
in 2006, publicly listed firms have been encouraged to comply with and voluntarily adopt
the codes; however, the mandated “comply or explain” regulations were later introduced by 623
the Financial Service Authority (FSA) in 2014. As a consequence, the self-governing
approach has created steep divergence and compliance gaps between firms.
Past studies and research identified the poor CG implementation of the Indonesian large
corporations (ACCA Singapore and KPMG, 2014; Asian Development Bank, 2017; Klapper
and Love, 2004). Indonesia ranked at the bottom in comparison with countries such as
Malaysia and Thailand. Low CG quality along with bleak outlook have been identified with
some implications including:

poor minority shareholders protection (Porta et al., 1999; Sato, 2004; Tabalujan, 2001);

insufficient corporate disclosure made available to the market (Rosser, 2003); and

weak legal institutions that lead to the economic and financial market instability
(Johnson et al., 2000; Mitton, 2002).

Corporate governance theories for the index construction

Prior studies widely agreed that the broad pattern of links between CG mechanisms and firm
performance could not be explained by a single theory. The links between elements of CG and
corporate performance are complex and multifaceted than any single theory of governance can
explain (Nicholson and Kiel, 2007). Thus, by using three established CG theories, this present
study aims to examine the potential strong connection and develop the hypotheses. First, the
agency theory will be used to examine board composition and leadership, ownership structure
and concentration, quality audit and disclosure and how this mechanism of governance can
contribute to performance of the institution they run. Second, the stakeholder theory is tested to
investigate the connection between a firm’s corporate social involvement and performance.
This involves reviewing board size and board activity. Next approach is to use the resource
dependence theory to investigate the relationships between the firm and the boards’ critical
resources needed to maximize firm performance. The mixture of these theoretical perspectives
is necessary, as this project discusses a wider range of CG elements within the unique
institutions of Indonesia, a region where family businesses are commonplace. The literature
review addresses the findings of prior research for each of these key aspects of good
governance and refers, where applicable, to studies linked to CG in Indonesia.
To test the theories, the study constructs an aggregate CG index based on governance
perspectives of the OECD and the Indonesian codes[3]. The index is measured using 15
elements (or sub-indexes), which are considered as key provisions for the Indonesian
settings. To this point, this study is believed to be the first to explore the following
governance aspects in the literature:

anti-corruption and bribery;

insider trading;

whistleblower mechanism; and

ultimate beneficiaries disclosure.
MAJ This research does not intend to take into account all of the national governance provisions,
35,5 as it considers some of the key elements and aims at finding a significant correlation
between the sub-indexes and firm performances. This approach has also been taken by
previous governance studies (Arcot and Bruno, 2012; Chen et al., 2007). The descriptions of
the governance provisions for the index are as follows.
Largest shareholders. Large shareholders can be regarded as a CG system’s most
624 important element. The focus on large shareholders is based on the principal–agent theory,
as it deals with control and monitoring roles (Jensen and Meckling, 1976; Shleifer and
Vishny, 1986). Past studies that test the impact of large shareholders on performance are
inconclusive. The results for the Indonesian firms provide empirical support that the intense
agency costs occur mostly among majority shareholders and weak minority shareholders,
where the majority shareholders have controlling stakes and power at the expense of the
minority owners (Prabowo and Simpson, 2009; Tanjung, 2019). For the construction of the
governance index, there is no generally accepted blockholder definition that exists, even
though previous literature used 5 per cent cut-off ratio as the proxy of blockholders. The
central bank of Indonesia defines controlling shareholder(s) as any party who holds at least
25 per cent of the firm’s voting rights. The present study gathers firms’ ownership
structures, and the data reveals that on average, the largest share ownership is 50 per cent.
Consistent with this finding, this study takes 50 per cent voting rights as theoretical
threshold for high controlling power. Thus, large ownerships of higher than 50 per cent of
the firm’s shares would be critical for better governance practices.
Public share ownerships. Indonesia regulates that public firms should have at least 7.5
per cent of the outstanding shares owned by the public. This policy targets two goals: higher
liquidity and more dispersed ownerships. Hence, this study suggests that a higher free float
ratio may generate positive influence to alleviate minority shareholding expropriation by
lowering the risk of increased cost of equity and dire investment (Stiglbauer, 2011; Wang
and Xu, 2004).
Employee stock ownership. Past studies document a positive link between employee
ownerships and firm performance. Pugh et al. (2000) find a short-term effect of employee
stock ownerships on financial performance. Blasi et al. (2016) document employee ownership
influencing higher returns on equity, minimizing turnover and encouraging positive
corporate culture. Employee ownership can reduce agency costs and monitoring costs. By
contrast, other research suggests that there is no clear evidence of a relationship between
employee ownership and enhanced performance (Blasi et al., 1996). This article proposes
that employee ownership has positive effects on governance and, therefore, leads to better
performance.
Disclosure of the ultimate beneficiary shareholders. A few decades ago, the mandatory
ownerships disclosures were nonexistent; however, the regulator start to initiate more strict
guidelines to request firms disclosing the controlling ultimate beneficiaries ownerships
(UBO). The measures were taken to ensure higher protection of the minority shareholders,
as well as to lower the risks from tax evasion and other abusive behaviors of the controlling
shareholders. In March 2018, the government issued Presidential Decree No. 13 Year 2018 on
disclosure of UBO. Under this regulation, corporations are encouraged to disclose their
ultimate shareholders in company’s documents. This paper follows previous studies and
suggests that quality disclosure of UBO is a good governance proxy.
Audit quality. A previous study provides evidence of the negative relationship between
fraudulent financial reporting and high audit quality by the top auditing agencies (Lennox
and Pittman, 2010) and the biggest five auditors are associated with better financial audit
quality (Francis, 2004). Darmadi (2012) concludes that the audit of the four largest auditing
agencies in Indonesia is less likely, which indicates that firms choose to maintain Cross-firm
opaqueness by hiring lower-quality auditors. To follow these arguments, this study’s proxy analysis
for audit quality is being financially audited by one of the largest auditing firms.
Independent director. Board independence is crucial in the agency theory (Fama and
Jensen, 1983). Board independence can help a firm to mitigate intense conflicting interests
between the owners and the managers while also functioning to serve as monitoring organ
to scrutinize the work of the executive boards. Market regulations demand that public firms
should hire a minimum of one non-affiliated (outside) director. This study follows this 625
guideline and requires higher thresholds for better governance whereby firms should
appoint at least one outside director.
Independent commissioner. The requirement for the independent commissioners is
somewhat different as the policies require at least one-third of the supervisory board
members to be independent commissioners. This study requires higher standards as a
minimum threshold for better governance; thus, the proportion of independent
commissioners to the board size should be higher than one-third or 30 per cent. Previous
works have identified the functions of independent commissioners of the Indonesian
companies (Ramdani and Witteloostuijn, 2010; Wahyudin and Solikhah, 2017).
Size of the board of director (BoD). The optimum size of the board is arguable; however,
prior studies agreed that the size and composition of the board are essential governance
mechanisms to warrant not only the agency roles but also firm’s needed resources. This
hypothesis is grounded on the stakeholder theory, as suggested by past empirical findings.
Prior literature argues that bigger board size is detrimental to firm values (Eisenberg et al.,
1998; Mak and Kusnadi, 2005; Yermack, 1996), while other research finds no evidence of
such influences (Bhagat and Black, 2002). Concerning board size, Lipton and Lorsch (1992)
suggest corporate board size should not exceed eight or nine members. This study follows
the argument of Chen et al. (2007) that board size should meet at least the industry or
market’s benchmarks or be larger than two standard deviations from the sample average.
This study argues that the five to nine board sizes are the most efficient, representing the
mean of the sample plus two standard deviations.
Size of the board of commissioners (BoC). Different from most of the Anglo-American
systems, Indonesia adopts two tier boards, hence leaving no room for board duality problems.
The executives belong to the board of directors, and the board of commissioners (supervisory
board) is responsible for overseeing the work of directors and managers. Board size should be
determined and tailored to firm-specific characteristics. The methodology applied to the board of
commissioner size is similar to that of the BoD size estimation. This study sets the appropriate
size for the board of commissioners equal to the mean plus two standard deviations.
Consequently, it leads to a requirement of four to eight commissioners assigned for the board.
Code of ethics. The stakeholder theory documented by past scholars (Donaldson and
Davis, 1991; Freeman and Reed, 1983; Jensen, 2001) posits that the broader goal of
stakeholders is to help company management in maximizing the value of their activities and
minimizing losses to stakeholders. It is expected that firms through its governance body will
incorporate ethical values in every planning and decision-making related to business
activities for the survival of the firm. The Indonesian 2006 governance codes required
publicly owned corporations to design and promote a set of basic firm values and ethical
conduct codes to govern the company in conducting its business. The introduction and
application of the firm’s code of conduct entails guidance for management, boards and
employees to act ethically (Law, 2011). A study by Donker et al. (2008) finds a positive
influence of company’s corporate ethics on performance, while Siregar and Tenoyo (2015)
identify that poor internal control and the absence of ethical values are central to fraud risk
MAJ management in large corporations. Following this research, this article seeks to find similar
35,5 results from the link between the ethical code and firm’s performance.
Anti-corruption and anti-bribery rules. Corruption and bribery offenses are a serious
threat to the economic growth, business and public sector. In the micro level, the damaging
consequences from corruption and bribery are associated with lower firm valuations and
higher investment costs (Ng, 2006), together with the excessive production costs and rising
626 business risks (Kuncoro, 2004, 2006). Hence, the Indonesian government established
Corruption Law No. 20 Year 2001 to deter the crimes. The FSA also released anti-corruption
and bribery policies for public companies. This study argues that the existence of internal
anti-corruption and bribery policies is essential to the firm, as it will give strong signals that
any misconduct and serious frauds will be punished under the rules and laws.
Restrictions of the insider trading. Law No. 8 Year 1995, Article 95 explicitly prohibits
insider trading. On many occasions, we have seen serious insider trading cases inflicting big
corporations and its executives. Insider trading harms minority stockholders the most and
distorts the market (Bushman and Smith, 2003; Maug, 2002). Trust and the good reputation
of the firm are at stake and should be protected from the misconduct of management and
employees. This study posits that the firm needs to set out specific rules to prevent
employee involvement in insider trading.
Whistleblower mechanism. The implementation of effective whistleblowing policies is
increasingly recommended by previous studies (Rachagan and Kuppusamy, 2013; Yeoh, 2014).
The protection of whistleblowers is regulated by the law; subsequently, firms should have
adequate means and mechanisms to receive complaints and protect informants. Employees and
public can make a secure or anonymous complaint to the firm regarding any breach of law and
firm regulations. The mechanism should enable the corporate actors to respond to the problem.
Disclosure of sanctions. Following Easterbrook et al. (1984) and Healy and Palepu (2001),
this study argues that better-governed firms disclose more information to shareholders and
investors, and firms, through their agents, will not violate any rules that could harm investors.
The FSA requires listed firms to disclose information regarding administrative sanctions
imposed by the regulators and to disclose important legal cases or litigations with other third
party. This study incorporates this compliance element by giving dummy “1” if the firm
discloses information about any administrative sanction imposed by the capital market authority
or another regulating authority or the status of litigation/legal case in the annual report.
Corporate social responsibility. Previous studies indicate the positive roles of socially
responsible business conducts on firm’s values (Luo and Bhattacharya, 2006; Mishra and
Suar, 2010; Wibowo, 2012) and in helping firm to minimize risks and damaging litigation
costs (McGuire et al., 1988). Similar implication was also recognized in the Indonesian setting as
past study identified positive influence of corporate social responsibility (CSR) for large firms
(Ronald et al., 2019). The present study posits that CSR, as part of the stakeholder’s roles’
provision set by the OECD and the Indonesian GCG codes, is critical for firms.
The findings from this study will be used to answer the following questions and hypotheses.
Does better CG compliance lead to higher firm performance? Past literature documents
inconclusive findings about the connection between CG practices and financial performance.
This article highlights the most important note taken from these studies: CG practices are
especially critical in a market with weak legal oversight and minority shareholders rights
(Claessens et al., 2002). Following Wahyudin and Solikhah (2017), this study expects to find
a positive link between governance compliance and performance in Indonesian firms. Thus,
the first hypothesis to be tested is:

H1. There is a positive association between the CG index and firm performance.
Which provisions or elements of the governance principles are the most relevant and highly Cross-firm
correlate with better firm performance? The most intriguing issue with the CG index is analysis
concern about important governance elements for a highly correlated proxy (Black et al.,
2012). G-Index by Gompers et al. (2003) comprises 24 provisions; however, the E-Index
introduced by Bebchuk et al. (2009) contains only six attributes. Both indexes document a
strong connection with firm values. With this in mind, then, which approach is more useful?
Should future studies design a broader index or select specific governance elements? 627
H2. There are positive associations between CG elements and firm performance.
Considering that family firms dominate Indonesian markets, do family businesses have
different CG qualities compared to non-family firms? Between these two groups, which group
shows more significant performance effects? Little attention has been spent on examining the
level of compliance between different firm types: family-controlled firms, non-family firms
and widely held firms. Considering family businesses’ domination in Indonesia, this article aims
to examine the structure and quality of governance between two different corporations and
identify which firm applies good governance more optimally. The hypotheses are as follows:

H3. Non-family firms are more in line with CG than family firms.
H4. In family firm, the magnitude of CG influence on firm performance will be higher.

Methodology
Previous studies on the CG index are somewhat inconclusive due to the selection of samples
being taken, construction of the index, observation periods, institutional settings and
differences in the application of econometric techniques. Hence, this article will test a
governance index based on a set of 15 governance indicators that are considered important and
still under-implemented. This study tests whether higher compliance or index scores positively
impact higher firm performance and valuation while addressing endogeneity issues in the
dynamic relations between firm’s governance practices and performance variables.

Data sample
Data consisted of a variety of sources, including annual corporate reports and filings,
Indonesian Stock Exchange (ISX) database and other publicly available documents. In 2013,
total listed firms were 483. Financial-related companies (e.g. banks and insurance) in
accordance with previous studies are excluded from the samples, including firms with
incomplete reports. To the end, this generates a total of 135 firms and the observation period
spans from 2003 to 2013. This study follows previous CG literature that uses no particular
weight when calculating each indicator or components into the final index. This justification
was made to avoid a bigger error or bias when assigning specific weights for each index’s
components. Previous studies of the Indonesian CG index are also limited; hence, it is
difficult to find a good benchmark or similar empirical method to compare the findings.
CG elements or provisions are dichotomous variables, with a score of “1” if the firm
fulfills the required governance compliance, and “0” otherwise. Table I lists all definitions of
the index. With this model, the construction of the Indonesia CG Index (ICGI) is completed
by adding the total scores of the governance elements and dividing it by 15. As scores for
each element are either “1” or “0,” the ICGI scores will vary from 0 to a maximum of 1. Thus,
the estimation of the governance index is presented as follows:
MAJ Sub-indexes Acronym Description
35,5
1. Code of ethics ETHIC A dummy variable that equals 1 if a firm has formal
code of ethics, 0 otherwise
2. Anti-corruption ANTICOR A dummy variable that equals 1 if a firm has anti-
corruption and anti-bribery policy, 0 otherwise
3. Insider trading INSIDER A dummy variable that equals 1 if a firm has policy
628 against insider trading, 0 otherwise
4. Largest shareholder LSHARE A dummy variable that equals 1 if a firm’s largest
shareholder owns less than 50% voting rights, 0
otherwise
5. Free float PUBLIC A dummy variable that equals 1 if minority
shareholders (public investors) own more than 7.5% of
the total voting rights, 0 otherwise
6. Employee share ESOP A dummy variable that equals 1 if a firm issues
ownerships employee stock option program, 0 otherwise
7. CSR CSR A dummy variable that equals 1 if a firm discloses CSR
programs in the annual report, 0 otherwise
8. Whistleblowing WSB A dummy variable that equals 1 if a firm has internal
whistleblowing mechanism, 0 otherwise
9. Sanctions SANCTION A dummy variable that equals 1 if a firm disclose
information about breach any stock market regulations
or rules, 0 otherwise
10. Big 4 auditors AUDIT A dummy variable that equals 1 if a firm hires one of the
Biggest 4 international auditing company, 0 otherwise
11. Disclosure of the ultimate DISCLOSURE A dummy variable that equals 1 if a firm discloses
beneficiary shareholders ultimate beneficiary share owner, 0 otherwise
12. Independent director IDIR A dummy variable that equals 1 if a firm has more than
one (1) independent director, 0 otherwise
13. Independent commissioner ICOM A dummy variable that equals 1 if independent
commissioners are more than 30% of the total board, 0
otherwise
14. Size of the board of director BODSIZE A dummy variable that equals 1 if a firm has 5 to 9
directors in the board, 0 otherwise
15. Size of the board of BOCSIZE A dummy variable that equals 1 if a firm has 4 to 8
commissioner commissioners in the board, 0 otherwise

Table I. Notes: This table describes the definition of the CG index and sub-indexes used in the study. The
requirement for BODSIZE is a board which consists of five to nine members. This represents mean of the
Definition of data sample plus two standard deviations. The requirement of the BOCSIZE is a board of commissioner
governance index which consists of four to eight members. This represents mean of the data sample plus two standard
indicators deviations

ICGI ¼ ðcode of ethics þ anti–corruption policies þ insider trading rules

þ whistleblower mechanism þ disclosure on the ultimate beneficiary shareholders
þ sanctions þ CSR disclosure þ largest shareholders þ public share ownerships
þ audit by the largest audit agencies þ independent director
þ independent commissioner þ employee ownerships þ board of directors size
þ board of commissioners sizeÞ=15
Econometric model Cross-firm
By incorporating panel data from 135 firms, this study applied two econometric models to analysis
test the relation between CG compliance indexes and firm performance. The hypothesis will
be tested using the fixed-effect regression and the Arellano–Bond first difference
generalized method of moments (GMM) estimator. The GMM estimator is used to address:

autocorrelation;

heteroscedasticity; and 629

the endogeneity issue of performance and governance (Schultz et al., 2010).

To deal with concern about lagged firm performance’s possible influence on current firm
governance compliance level and performance (Hermalin and Weisbach, 1988; Wintoki et al.,
2012), this study incorporates the following model:
X
n
ICGI ð IndexÞit ¼a þ b 1 Firm Performancet1 þ b i ControlVariablest1 þ « it (1)
i¼1

Firm variables include the ICGI and six firm-specific control variables: SIZE, AGE, SALESGR,
TATO, DER and OPEX. Performance is measured by Tobin’s q. The model also includes year
and industry dummy to control influences from fixed effect and lagged index scores and
performances. By testing the model, the endogeneity problem of dynamic relationships
between the current and lagged performances with ICGI could also be identified.

Generalized method of moments estimator

The objective of the study is to contribute to previous literature by using a more robust
econometric model to address the endogeneity issues in connections between firm
performances and self-regulated governance provisions of the Indonesian firms. Therefore,
the following model uses the Arrelano–Bond GMM as a comparison to the ordinary least
squares (OLS) regression as follows:

Performancei;t ¼ a þ k1 Performancei;t1 þ b 1 ICGIi;t þ g x ControlVariablesi;t þ m i

(2)

Performancei;t ¼ a þ k1 Performancei;t1 þ b 1 CG Provisioni;t þ g x ControlVariablesi;t

þmi
(3)

where Performance represents Tobin’s q; ICGI is the proxy for the index; CG Provision is the
15 governance elements contained in the ICGI; Control Variables represent a set of the firm’s
financial variables. Another advantage of using the GMM estimator is a chance to address
reverse causality and the time-invariant omitted variables that might not be fully solved by
running a fixed-effect regression. By using a set of instrumental variables, including the
lagged values of the endogenous variable, this study aims to get a valid and consistent
result from regression model (Durnev and Kim, 2005). The study also takes into account a
year dummy variable in the regression models to control time or trend effects including the
2008 financial crisis.
MAJ Results and empirical findings
35,5 Statistics descriptive of the index
Tables II and III outline the ICGI and sub-index descriptive statistics. The sample mean
of the ICGI is 0.35, whereas sample firms have compliance levels around 35 per cent or
only one-third of the governance provisions. The lowest score is from five provisions,
namely: insider trading, anti-corruption, whistleblower, independent director and
630

Variables (no. of observations: 1,485) Mean SD Minimum Maximum

TQ 1.33 0.89 0.14 4.46

INDPDIR 0.13 0.53 0 7
INDPCOM 1.54 1.05 0 7
DER 1.61 2.53 0.00 27.54
SGROWTH 0.24 2.50 0.86 95.38
OPEX 0.25 2.33 0.00 89.40
TATO 1.02 0.73 0.00 5.80
AGE 33.98 19.45 4.00 154.00
SIZE 5.57 14.95 0.02 213.99
BODSIZE 4.92 2.10 2 13
BOCSIZE 4.42 1.94 2 14
FAMFIRMDUMMY 0.53 0.49 0 1

Notes: TQ represents firm performance. INDPDIR and INDPCOM represent firm independent director(s)
and commissioner(s), respectively. DER, SGROWTH, OPEX, TATO, AGE and SIZE are a firm’s leverage
(debt to equity ratio), sales growth, operating expense ratio, assets turnover, age since inception and total
assets, respectively. BODSIZE and BOCSIZE represent total number of the board of directors and
commissioners, respectively. FAMFIRMDUMMY is dichotomous variable that equal “1” if the firm is
Table II. family firm where the controlling shareholder is a family with share ownerships of at least 5% and the
Summary statistics family member(s) involve in the boards either as director or commissioner

Period 2003-2013
Index/Sub-index Observation Mean SD Minimum Maximum

ICGI (equal weight) 1485 0.35 0.15 0 0.92

1. ETHIC 1485 0.33 0.47 0 1
2. INSIDER 1485 0.03 0.18 0 1
3. ANTICOR 1485 0.06 0.23 0 1
4. WSB 1485 0.09 0.28 0 1
5. SANCTION 1485 0.23 0.42 0 1
6. AUDIT 1485 0.53 0.49 0 1
7. LSHARE 1485 0.48 0.49 0 1
8. PUBLIC 1485 0.90 0.3 0 1
9. DISCLOSURE 1485 0.17 0.37 0 1
10. ICOM 1485 0.78 0.41 0 1
11. IDIR 1485 0.02 0.14 0 1
12. BOCSIZE 1485 0.47 0.49 0 1
13. BODSIZE 1485 0.45 0.49 0 1
14. ESOP 1485 0.09 0.29 0 1
15. CSR 1485 0.67 0.47 0 1
Table III. Note: The table summarizes statistics for the ICGI, an aggregate index comprises of 15 governance
Summary statistics provisions (sub-indexes)
employee share ownerships plan (ESOP). Table IV provides a summary of the Cross-firm
frequency of the ICGI by quartile distribution. It shows that 58 per cent of the samples analysis
have compliance scores below 0.30. With this figure, we may conclude that most
Indonesian companies have not yet fully adhered to the good governance codes.

Non-family firm and family firm governance scores

The third research question of the study is whether family business has a different 631
compliance quality to non-family firms. This article defines family firms as any business
that is owned, managed and controlled by the founding family and close family members.
To test this question, Table V documents results of t-test for widely held and family-owned
companies. Three different ownerships level are used: 5, 20 and 30 per cent voting rights. By
using three different family firm criteria and control in the boards, the t-test presents a
consistent result of the superiority of non-family firms’ governance and considerable
compliance gap between family- and non-family owned firms.

Test of endogeneity and impact of lagged performance and governance

Table VI documents the finding that ICGI was strongly influenced by past governance
index and past performance. This finding led to two important issues of reverse causality
and omitted variable bias of the OLS model. The first concern of reverse causality brings us
to question whether performance controls firm-level compliance, but not vice versa. With
evidence of endogeneity, this study runs the GMM estimator model to get a valid and
nonbiased result.
Table VII presents findings of relationships between ICGI and performance. Column 1
presents the OLS static model estimates of significant impact of ICGI on performance.

Quartile Observation % of sample Quartile index Quartile group share of total index

1st 167 11.24 0.214 14.43

2nd 505 34.00 0.357 28.43
3rd 449 30.23 0.429 16.68 Table IV.
4th 364 24.51 > 0.429 40.46 Frequency of the
Total 1485 100 100 compliance index

Ownership types Observation ICGI score means SD Significance

5% cut-off ownership
Family-owned 791 0.324 0.140 t = 10.206
Non-family 693 0.411 0.186 p = 0.00
20% cut-off ownership
Family-owned 686 0.320 0.125 t = 9.714
Non-family 798 0.403 0.169 p = 0.00
30% cut-off ownership Table V.
Family-owned 606 0.318 0.121 t = 9.112
Means test between
Non-family 878 0.397 0.166 p = 0.00
family firm and non-
Note: Family firm defined as firm with at least 5, 20 or 30 percent controlling stakes owned by the family firm
founding family and family members’ representation in the boards governance index
 35,5

632
MAJ

Table VI.

lagged variables
impacts on the ICGI
Test for endogeneity:
OLS
2003-2013
Dependent variable: ICGI

ICGI (t1) 0.896*** (0.0146) 0.893*** (0.0147) 0.893*** (0.0148)

TQ(t1) 0.00535** (0.00245) 0.0197** (0.00837) 0.000527 (0.00339)
Size 0.000315** (0.000154) 0.00330*** (0.000562) 0.000393 (0.000842)
DER 0.000178 (0.000598) 0.000851 (0.00130) 0.000431 (0.000910)
OPEX 0.00110*** (0.000108) 0.00216*** (0.000187) 0.000398 (0.000776)
PBV 0.000118 (0.000157) 0.000498 (0.000334) 0.000152 (0.000149)
TATO 0.00351 (0.00289) 0.0218*** (0.00622) 0.00176 (0.00397)
SALESGR 0.000124 (0.000197) 0.00173*** (0.000221) 0.00464 (0.00577)
TQ(t1) 0.0316*** (0.00881) 0.00707** (0.00284) 0.00762* (0.00397)
Size(t1) 0.000340* (0.000175) 0.000103 (0.000969)
DER(t1) 0.000138 (0.000700) 0.000393 (0.00102)
OPEX (t1) 0.000382** (0.000169) 0.00519 (0.00616)
PBV(t1) 9.66e-06 (0.000214) 2.64e-05 (0.000189)
TATO (t1) 0.00323 (0.00266) 0.00193 (0.00369)
SALESGR (t1) 0.000603*** (0.000161) 0.000515*** (0.000167)
Year dummy Yes Yes Yes Yes
Industry dummy Yes Yes Yes Yes
Constant 0.0458** (0.0200) 0.312*** (0.0225) 0.0430** (0.0199) 0.0431** (0.0200)
Observations 1,350 1,350 1,350 1,350
R2 0.874 0.515 0.874 0.874

Notes: The table presents results of the influences of the past index (lagged index scores) and lagged values of independent variables on the ICGI. Dependent
variables include: firm performance represents by Tobin’s q, size of the firm, debt to equity ratio (DER), operating expense ratio (OPEX), price-to-book value
(PBV), total asset turnover, TATO and the annual sales growth (SALESGR). In parentheses are robust standard errors. Asterisks denote significance at the 1
(***), 5 (**) or 10 (*)
 Dependent variable: TQ
(1) (2) (3) (4) (5) (6)
Variables OLS OLS OLS OLS GMM GMM

Constant 0.306 (0.218) 0.220 (0.215) 0.306 (0.218) 0.287 (0.207)

ICGI 0.754*** (0.196) 0.468*** (0.111) 0.754*** (0.196) 0.736*** (0.190) 2.166*** (0.533) 1.208*** (0.396)
TQ t1 0.594*** (0.0532) 0.587*** (0.0528) 0.594*** (0.0532) 0.603*** (0.0461) 0.591*** (0.0661) 0.559*** (0.0661)
ICGIt1 0.369* (0.193) 0.369* (0.193) 0.334* (0.182) 0.256 (0.319)
Size 0.000336 (0.000743) 0.000112 (0.000738) 0.000336 (0.000743) 0.00173 (0.00169) 0.00452** (0.00210) 0.000311 (0.000949)
Age 0.000338 (0.00148) 0.000324 (0.00148) 0.000338 (0.00148) 0.000727 (0.00147) 0.00135 (0.00209) 0.000184 (0.00222)
DER 0.00234 (0.00622) 0.00226 (0.00628) 0.00234 (0.00622) 0.00255 (0.00755) 0.00307 (0.0122) 0.0157 (0.0106)
PBV 0.0316 (0.0207) 0.0318 (0.0208) 0.0316 (0.0207) 0.0316 (0.0213) 0.0275 (0.0194) 0.0604 (0.0380)
OPEX 0.00231** (0.00093) 0.00250*** (0.00092) 0.00231** (0.00093) 0.0125 (0.00825) 0.187 (0.164) 0.0668 (0.0730)
TATO 0.0674** (0.0315) 0.0672** (0.0317) 0.0674** (0.0315) 0.0782** (0.0330) 0.231* (0.133) 0.191** (0.0914)
SALESGR 0.00240 (0.0042) 0.00257 (0.00427) 0.00240 (0.00420) 0.116* (0.0614) 0.344 (0.252) 0.0237 (0.0309)
Size(t21) 0.00179 (0.00189)
DER(t21) 0.00832* (0.00475)
PBV(t21) 0.00280 (0.00557)
OPEX(t21) 0.124* (0.0654)
TATO(t21) 0.0412 (0.0399)
SALESGR(t21) 0.000391 (0.00120)
Year dummy Yes Yes Yes Yes Yes Yes
Industry dummy Yes Yes Yes Yes
Observation 1,484 1,484 1,484 1,484 1,484 1,484
R2 0.708 0.707 0.708 0.712
Number of firms 135 135 135 135 135 135
AR1 z =–1.00 z =–1.74
p = 0.317 p = 0.082
AR2 z = 0.70 z=–1.53
p = 0.483 p = 0.126
Hansen test – overidentify p = 1.00 p = 0.115
Hansen test – exogeneity p = 1.00 p = 0.063

Notes: The table presents results of the impacts of ICGI on firm performance (TQ). Dependent variable is the Tobin’s q. In parentheses are robust standard errors
corrected for clustering at the firm level. Asterisks denote significance at the 1 (***), 5 (**) or 10 percent (*)

Table VII.
CG index effect on
633
analysis
Cross-firm

performance
MAJ Columns 2-4 summarize the OLS dynamic model with the incorporation of lagged values of
35,5 performance and past ICGI score. This is similar with Gompers et al. (2003) both in
magnitude and the signs of the coefficients.
GMM results are shown in Columns 5 and 6 of Table VII. As there was concern over the
potential endogeneity problem in governance–performance relations, the results of
Table VII demonstrate that the econometric problem can be controlled. Coefficients of ICGI
634 in Columns 5 and 6 are still consistent in showings robust significant impact of CG practices
on superior performance. With this result, it is important for future studies to specify the
dynamic relationship in the models to control endogeneity problems between governance
compliance and performance. Hence, this result implies that we can accept H1 that firm CG
index has a significant and positive influence on corporate performance. We can conclude
that firm-level adoption of CG provisions are associated with superior firm performance.
This study helps the existing governance literature because it addresses potential biases of
endogeneity that may results from simultaneity, dynamic relationships between governance
and performance and unobservable heterogeneity (omitted variable bias). The combined
regression results from Table VII highlight the possibility of reverse causality when
performance determines and influences firm’s decision to comply with governance
provisions. Taking into account the characteristic of the “comply or explain” rules of the
Indonesian CG, firms might decide to comply or not to comply. Firms might opt for certain
level of governance practices in response to internal firm characteristics, resources,
capacities as well as business environment. With this consideration in mind, changes in the
performance could significantly influence improved firm’s CG compliance.

Corporate governance indicators and performance: what actually matters?

Table VIII summarizes regression results of the fifteen governance indicators. Under the
OLS model, seven indicators have significant influence on TQ. After controlling for
endogeneity of the panel data characteristics, Table VIII presents the GMM regression
results of the elements that strongly influence performance: WSB, ESOP, AUDIT, BODSIZE
and LSHARE. The consistent and robust results from the OLS and GMM confirm four
important CG provisions for the Indonesian market environment, as well as confirming H2
of this study. The implementation of a quality audit by a top auditor agency, an efficient
board structure and block holder ownerships are beneficial for firms, as higher compliance
might lead to better operation and higher financial values. This finding is similar to Cheung
et al. (2007) and Garay and González (2008) because their findings identify that only some of
the index elements significantly influence higher performance and valuations. Again,
supporting both H1 and H2, these results demonstrate the influence of CG adoption by the
firm.
Apart from this positive note, implementation of CG also does not always bring an
immediate benefit for financial performance, as we can see from the results of the two
indicators: whistleblower and the disclosure of sanctions. The application of these
governance mechanisms is not yet appreciated by the market. A company-implanted
whistleblower system brings intriguing aspects of the company’s punitive and anti-fraud
initiative within the firm and the ethical, psychological and enforcement concerns,
particularly with regard to issues of loyalty and confidentiality, including how the
companies should respond to each misconduct report. Descriptive statistics presented in
Tables II and III show that the application of whistleblowing system and disclosures of
sanctions in the Indonesian firms is still minor, only 9 per cent, and 17 per cent of total firm-
year observations (Figure 1).
 Dependent variable: TQ
Cross-firm
Variables (1) OLS (2) GMM analysis
Constant 0.244 (0.223) 0.134 (0.654)
ETHIC 0.0582 (0.0413) 0.0204 (0.269)
WSB 0.130* (0.0665) 0.549* (0.328)
CSR 0.0813** (0.0331) 0.349 (0.238)
DISCLOSURE 0.0257 (0.0430) 0.120 (0.307) 635
ESOP 0.0295 (0.0714) 0.714* (0.424)
SANCTION 0.0870** (0.0409) 0.268 (0.278)
ANTICOR 0.0120 (0.0811) 0.383 (0.384)
AUDIT 0.0565* (0.0312) 0.694* (0.370)
BODSIZE 0.129*** (0.0285) 0.380* (0.203)
BOCSIZE 0.0450 (0.0286) 0.227 (0.278)
PUBLIC 0.0687* (0.0400) 0.238 (0.512)
LSHARE 0.0779** (0.0331) 0.718* (0.370)
IDIR 0.0198 (0.0754) 1.368 (1.274)
ICOM 0.00356 (0.0334) 0.274 (0.244)
INSIDER 0.0783 (0.112) 0.110 (0.383)
TQt1 0.580*** (0.0521) 0.576*** (0.0725)
Size 0.000604 (0.000857) 0.000117 (0.00333)
Age 0.000136 (0.00156) 0.00141 (0.00380)
DER 0.00154 (0.00653) 0.0565 (0.0718)
PBV 0.0316 (0.0208) 0.0243 (0.0201)
OPEX 0.00221** (0.000899) 0.293 (0.350)
TATO 0.0703** (0.0323) 0.0892 (0.173)
SALESGR 0.00258 (0.00420) 0.250 (0.221)
Observations 1,484 1,484
R2 0.714
Number of no 135 135
AR1 z = –0.37
p = 0.715
AR2 z = –0.87
p = 0.384
Hansen test – overidentify p = 0.085
Table VIII.
Difference in Hansen – exogeneity p = 0.091
Regression results of
Notes: The table presents regression results for each of the sub-indexes. Dependent variable is the Tobin’s q. In sub-indices impacts
parentheses are robust standard errors. Asterisks denote significance at the 1 (***), 5 (**) or 10 percent (*) on performance

Family and non-family firms: which firm complies the most?

Table IX presents the parallel models for the two firm categories: family and non-family
firms. Columns 1 and 3 of the table summarizes the findings of positive relationships
between performance and governance practices in the family business. There is,
however, no comparable strong correlation in the non-family settings. This finding also
is identified in prior governance literature (Garay and González, 2008). GMM results in
Columns 3 and 4 show evidence of the link between ICGI and performance after
addressing the econometric issues of endogeneity and reverse causality. It can be
concluded that family firms have effectively used their governance practices and
market’s governance mechanisms to benefit firms; supporting the views of the
superiority of non-family firm in terms of compliance. These outcomes provide
evidence to support both H3 and H4 that non-family firms are in greater compliance
MAJ Corporate Governance Sub-Indices 2003-2013
35,5 1
0.9
0.8
0.7
0.6

636 0.5
0.4
0.3
0.2
0.1
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Figure 1. Ethics CSR WSB Disclosure ESOP
Sub-indexes Sancons Ancor Big4 Insider BODSIZE
historical growth BOCSIZE PUBLIC LSHARE IDIR ICOM

Dependent variable: Tobin’s q

OLS GMM
Variables (1) Family firm (2) Non-family firm (3) Family firm (4) Non-family firm

Constant 0.688 (0.549) 0.540*** (0.202) 0.164 (0.262) 0.302* (0.179)

ICGI 0.599** (0.285) 0.0542 (0.236) 1.701*** (0.404) 0.480 (0.502)
Performance (t-1) 0.602*** (0.0595) 0.462*** (0.0471) 0.512*** (0.0797) 0.605*** (0.0627)
ICGI(t-1) 0.298 (0.315) 0.0608 (0.228) 0.606 (0.369) 0.119 (0.492)
SIZE 0.000860 (0.00135) 0.00228** (0.000894) 0.000187 (0.00209) 0.000200 (0.00139)
AGE 0.00148 (0.00233) 0.00193 (0.00139) 0.00270 (0.00307) 0.00390* (0.00208)
DER 0.00691 (0.00599) 0.0221*** (0.00728) 0.00923 (0.00861) 0.0172** (0.00711)
PBV 0.0157 (0.0101) 0.0806*** (0.0153) 0.0155 (0.0207) 0.0202 (0.0152)
OPEX 0.0825 (0.147) 0.00565*** (0.00117) 0.276 (0.360) 0.0300 (0.0307)
TATO 0.0415 (0.0366) 0.107** (0.0527) 0.183 (0.112) 0.0514 (0.102)
SALESGR 0.205** (0.102) 0.00264* (0.00154) 0.118 (0.0791) 0.0198 (0.0183)
Year dummy Yes Yes Yes Yes
Industry dummy Yes Yes
Observations 791 692 791 692
R2 0.669 0.780
AR1 z = –2.42 z = –4.12
p = 0.016 p = 0.000
AR2 z = –1.64 z = –1.21
p = 0.101 p = 0.225
Hansen test – overidentify p = 1.00 p = 1.00
Table IX. Difference in Hansen – exogeneity p = 1.00 p = 1.00
CG impact on
Notes: The table presents the OLS regression results for ICGI and the controlling variables. Columns 1 and
performance: family- 3 represent the results for the family-owned firms, while Columns 2 and 4 non-family firms. Family firm
owned versus non- definition is firm with at least 5 percent stakes owned by the controlling family. In parentheses are robust
family firms standard errors. Asterisks denote significance at the 1 (***), 5 (**) or 10 percent (*)

with the governance provisions. Although, considering this as part of the possible
interpretations of this result, the effect from higher compliance in the non-family
settings is not necessarily and immediately reflected in the Tobin’s q as in non-family
firms.
Discussion and implications Cross-firm
The positive influence of CG practices in the firm-level documented in this study was analysis
consistent with previous CG literature. In summary, this article supports similar findings as
reported by the Indonesian CG research (Siagian et al., 2013; Wahyudin and Solikhah, 2017)
as well the other emerging market settings such as seeing that this study discovers evidence
of the strong connection between CG compliance and performance, there are implications for
the effective CG implementation in the market. Previous findings suggest that CG practices
would be beneficial to firms as they mitigate agency conflicts between owners and 637
managers of a firm, and, in return, improve performance. The findings, in conjunction with
the family business, suggest that family businesses would be beneficial in adopting more
CG provisions and providing more transparent and quality disclosures to the shareholders.
As compliance level only reaches one-third of the maximum ICGI score, this data
indicates the urgency for greater adherence with the national governance provisions and
recommendations set by the regulator, particularly concerning the policies of:

insider trading;

corruption and bribery regulations;

whistleblower protection mechanism; and

independent (non-affiliated) director’s appointment.

As previously explained in this paper, poorly regulated and implemented laws and good
governance were one of the hurdles identified in the Indonesian market. Examples include
low governance and bleak business transparency ratings issued by the Asian CG
Association (ACGA), World Bank (World Governance Indicator), Transparency
International (Corruption Perception Index) and past studies (Cheung et al., 2007). To add,
other implications for firm management are at least threefold. First, firms to designate and
appoint appropriate personnel to represent the boards, as the findings indicate that a certain
level of BoD is critical to influence firm performance. Second, higher block shares are linked
to better performance for the Indonesian firms’ institutional settings. Possibly, the potential
argument is relevant on the premise that concentrated ownerships will alleviate agency
conflict in the family-owned companies; however, higher risk of minority shareholders
expropriation risks could reduce the impact. With this in mind, thirdly, it is important for
the firms to ensure that independent boards and the supervisory boards function well in
monitoring and assessing the work of the executive boards and management. These three
implications are considered to be important implications derived from this empirical study.
As compliance with market regulations and good governance provisions is sufficiently
effective to improve performance, market regulators should continue their efforts to monitor
and enforce regulations. In response to this issue, market and regulators should decide to
devise stringent regulation and stricter control mechanisms to encourage higher compliance
in the near future as there are chances for corporations to use CG to enhance market
interests and shareholders confidence. Yet, this is a daunting task, because it is inevitable
for any business entity to initiate costly changes on its own, unless the actions are backed
and enforced by the external forces and compensated further in the longer run. The study
use firm-by-firm data to construct a composite index consists of unique governance
indicators set for the Indonesian settings, which inherently possesses limitations regarding
its applicability for the other nations. The limitation concerns about governance provisions
that focus solely on the specific 15 indicators and research method used in the study.
Regarding that limitation, this study did not include or explore the element of risk
management in the ICGI construction, e.g. by incorporating the role of audit committee. Past
MAJ study suggests that CG should also deal further with the potential and complex risks the
35,5 firm may face, either financial risks or non-financial risk exposures and mitigation (Sobel
and Reding, 2004). In this way, the CG mechanism can be integrated into risk management
by ensuring the existence of the audit or risk committee in the institution’s organ (Aebi et al.,
2012; Bhimani, 2009; Brown et al., 2009).
Concerning methodology, the author specifically recommends future studies to consider
638 other methodologies, such as survey, observations and case studies, to better capture
governance–performance dynamic relationships. Additional suggestion is to use of wider
CG indicators and recent observation periods, e.g. by selecting data after 2015 when
regulator issued the first “comply-or-explain” policies for the listed companies. A more
recent database can be used to examine the country’s CG reform as well as to examine
whether the issuance of the formal “comply-or-explain” regulation has had any effect on
firm performance.

Conclusion
This study constructs a firm-by-firm basis index comprising 15 governance sub-indexes
covering the implementation in 2003-2013. This study finds that governance compliance
affects firm performance. There was sufficient evidence to ascertain that the level of CG in
this study was quite effective in predicting firm values. Yet, it is also clear that the levels of
compliance are still in the very early stage of development as the average governance score
is below 50 per cent. This article argues that this weak governance might be influenced by:

concentrated ownerships in the hands of a controlling family;

poor legal enforcement; and

an ineffective governance awareness program introduced by market regulators.

In summary, this study reveals that active and self-regulating governance practices are
valued by the market and would have a positive impact to financial performance of firms. In
light of the country’s poor governance quality, these investigations are consistent with past
studies that posit that in countries where investor protection and institutional settings are
weak, firms have an opportunity to use good governance implementation and send positive
message to the market, signifying the finding that market could discipline or reward
companies in exchange for good compliance However, in view of the limitations of this
study, the author suggests future research should be carried out in ways that more CG
aspects and its determinants can be explored, as there are reasons to believe that the current
debate on CG will continue to grow in the future. A more rigorous research is needed to
establish a better approach to fully analyze the dynamics of firm-level characteristics and
rapid CG adoption and convergence in different institutional contexts. To conclude, the
study offers some implications for regulators, policy-makers and market participants, amid
the mixed impacts of different family ownership and control features on CG mechanisms.

Notes
1. See for more information in Leong (2005, p. 89, p. 246, p. 212).
2. ACCA 2014 Abridge Report: Balancing Rules and Flexibility and “OJK – Corporate
Governance Guideline for Public Companies: Summary of Recommendations” released in
April 2016. Report can be accessed from https://home.kpmg/id/en/home/insights/2016/04/
OJK-corporategovernanceguidelineforpubliccompanies.html
 3. The OECD CG Codes (2006, 2012) are developed based on principles of: the protection of Cross-firm
shareholders’ rights, the role and function of the boards, stakeholders’ participation and analysis
disclosures.

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pp. 1445-1468.

Corresponding author
643
Miranda Tanjung can be contacted at: tanjung.miranda.hotmadia@a.mbox.nagoya-u.ac.jp

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