Public dan Corporate Governance serta
Pengaruhnya terhadap Kinerja
Perusahaan
Simposium Nasional Akuntansi
Manado, 26 September 2013
SIDHARTA UTAMA
FEUI
Objectives
2
 To provide evidences of public and corporate
governance practices in Indonesia,
 To explain the effect of public governance on
corporate governance
 To explain the effect of public and corporate
governance on firm performance
 To suggest future research on the relation between
governance and financial reporting quality in
Indonesia
Evidences on CG and PG
Practices
ACGA – CLSA CG COUNTRY AND COMPANY
ASSESSMENT
ASEAN CG SCORECARD CG ASSESSEMENT ON
PLCS
WORLDWIDE GOVERNANCE INDICATORS
Corporate Governance: Aligning Corporate,
Shareowner, Public
Interests
4
“An effective system of corporate governance must strive to
channel the self-interest of managers, directors and the
advisors upon whom they rely into alignment with the
corporate, shareholder and public interest.”
Ira Millstein
Senior Partner, Weil Gotshal & Menges, LLP
Senior Associate Dean, Corporate Governance,
Yale School of Management
Chair Emeritus, the Forum’s Private Sector Advisory Group
4
IICD
OECD Corporate Governance Principles
5
Ensuring the basis for an effective corporate governance
framework
Protecting Rights of Shareoweners
Equitable Treatment of Shareholders
Respecting Rights of Stakeholders
Disclosure and Transparency
Responsibilities of the board
IICD
CLSA - ACGA CG Watch 2012
6
 CLSA – ACGA conduct an CG assessment at country




and company level every two years.
Environmental and social issues are also addressed.
Twelve countries (including Indonesia) are surveyed.
The assessment primarily is based on questionnaires
sent to to institutional investors in the Asia region.
Results are widely publicized and cited.
IICD
CG Watch market scores: 2007 to 2012
7
(%)
2007
2010
2012
1. Singapore
65
67
69
Improving, but culture needs to open more
2. Hong Kong
67
65
66
Static, but reinvigorated regulator positive
3. Thailand
47
55
58
Improving, but corruption a major issue
4. = Japan
52
57
55
Government stalling, companies opening
4. = Malaysia
49
52
55
Culture at last showing signs of openness
6. Taiwan
54
55
53
Rules improving, but still behind the curve
7. India
56
48
51
Enforcement up, Delhi an obstacle
8. Korea
49
45
49
Government more open, chaebols closed
9. China
45
49
45
Rules improve, but culture still weak
10. Philippines
41
37
41
Improving, but will it be sustained?
11. Indonesia
37
40
37
Regressing, but new regulator may help
Source: Asian Corporate Governance Association
IICD
Trend of CG reform
CG Watch: Market Category Scores 2012
8
Market category scores
(%)
Total
1. Singapore
2. Hong Kong
CG Rules &
Practices
Enforcement
Political &
Regulatory
IGAAP
CG
Culture
3. Thailand
4. = Japan
4. = Malaysia
6. Taiwan
7. India
8. Korea
9. China
10. Philippines
69
66
58
55
55
53
51
49
45
41
68
62
62
45
52
50
49
43
43
35
64
68
44
57
39
35
42
39
33
25
73
71
54
52
63
56
56
56
46
44
87
75
80
70
80
77
63
75
70
73
54
53
50
53
38
46
43
34
30
29
11. Indonesia
37
35
22
33
62
33
Source: Asian Corporate Governance Association
IICD
ASEAN Capital Market Forum: Raising CG Practices with
ASEAN CG Scorecard
9
ASEAN CG
Scorecard
Enhancing CG
Rules/Standards
I I C D, Please do not distribute without IICD's
permission
Improving
Compliance with
Rules/Standards
Encouraging
Voluntary
Adoption of CG
Practices
ASEAN CG Scorecard
10
Regionally
Developed
Globally Based
• OECD CG
Principles
• Other
International
and Regional
Standards
• Six participating
countries
• Move beyond
local
rules/standards
I I C D, Please do not distribute without IICD's
permission
Public
Information
• English
• Easily
Accessible
CG Scorecard: Results for Indonesia
11
120
100
80
60
40
20
0
I I C D, Please do not distribute without IICD's
permission
Maximum
Average
Minimum
Mengapa perlu Good Public Governance (GPG)?
 Mengurangi masalah keagenan di sektor publik
dengan meningkatkan transparansi serta
pengawasan yang efektif pada:




Eksekutif
Legislatif
Yudikatif
Badan Pengawas dan Pemeriksa
 Memastikan tercapainya tujuan pemerintah:
 Memajukan kesejahteraan umum, keadilan sosial,
mencerdaskan kehidupan bangsa, menjamin keamanan
GPG Principles (WGI)
 Voice and Accountability: The extent to which a country's
citizens are able to participate in selecting their government, as
well as freedom of expression, freedom of association, and a free
media.
 Political Stability and Absence of Violence: The likelihood that
the government will be destabilized or overthrown by
unconstitutional or violent means, including politically-motivated
violence and terrorism.
 Government Effectiveness: The quality of public services, the
quality of the civil service and the degree of its independence
from political pressures, the quality of policy formulation and
implementation, and the credibility of the government's
commitment to such policies.
GPG Principles
(Worldwide Governance Indicators)
 Regulatory Quality: The ability of the government to formulate
and implement sound policies and regulations that permit and
promote private sector development.
 Rule of Law: The extent to which agents have confidence in and
abide by the rules of society, and in particular the quality of
contract enforcement, property rights, the police, and the courts,
as well as the likelihood of crime and violence.
 Control of Corruption: The extent to which public power is
exercised for private gain, including both petty and grand forms
of corruption, as well as "capture" of the state by elites and
private interests.
Worldwide Governance Indicators, 2012
 The Worldwide Governance Indicators (WGI):
 A research dataset summarizing the views on the quality of
governance provided by a large number of enterprise, citizen
and expert survey respondents in industrial and developing
countries.
 Data are gathered from a number of survey institutes, think
tanks, non-governmental organizations, international
organizations, and private sector firms.
 The WGI do not reflect the official views of the World Bank, its
Executive Directors, or the countries they represent. The WGI
are not used by the World Bank Group to allocate resources.
Overall: Average Rank of Governance Indicators
Rank (%)
100
90
80
70
60
50
40
30
20
10
0
Rank (%)
Indonesia: Rank (%) of Governance Indicators
over time
50.0
Voice and
Accountability
Political stability and
Absence of violence
Government
Effectiveness
Regulatory Quality
45.0
40.0
35.0
30.0
25.0
20.0
Rule of Law
15.0
10.0
Control of Corruption
5.0
Average
0.0
Year 1998
Year 2005
Year 2011
Public Governance, Corporate
Governance and Firm Performance
18
PUBLIC GOVERNANCE AND CORPORATE
GOVERNANCE ON FIRM PERFORMANCE
Corporate
Governance
Public
Governance
Firm
performance
19
IICD
20
Government Quality and Corporate Governance
(Fan et al.2011)
21
 “...the extent to which government officials' and politicians'
decisions benefit the citizen they serve, and whether the
decisions are made and executed in a legally and socially
acceptable manner.” (p. 209)
 Low quality government results in firms (in Fan et al. 2011):
 conducting bribery and political connection building
(Charumilind et al., 2006; Claessens et al., 2008; Fan et al.,
2008).
 having complex organizational structures, poor transparency
and weak corporate governance (e.g., Leuz and OberholzerGee, 2006; Fan et al., 2009; Jiang et al., 2010).
Why do countries matter so much for corporate governance?
(Doidge et al. 2004)
22
 Country characteristics (investor protection,
economic and financial development, institutional
infrastructure) are more important than company
characteristics in determining the level of corporate
governance.
 Investor protection at country level is an important
determinant of corporate governance.
Legal System and CG (Klapper and Love, 2004)
23
 Legal system (Efficiency of the Judiciary, Rule of
Law, Corruption, Risk of Expropriation, and Risk of
Contract Repudiation) has a positive relation with
firm-level CG.
 CG has a positive relation with firm value and
performance and the relation is stronger in countries
with weak shareholder protection and poor judicial
efficiency.
Moderating Effect of PG on the Impact of CG on
Loan Contracting
24
 Ge et al. (2012): “favorable effect of firm-level
governance on some loan contracting terms is
stronger in countries with strong legal
institutions....”
Research Opportunities in the
Relation between Governance and
Accounting
25
CG as a Determinant of Earnings Management:
Evidences in Indonesia*








Voluntary Disclosure
CG Index (n.s)
% of Independent Commissioner (n.s)
Related Party Transactions (mixed)
Managerial Ownership (mixed)
Institutional Ownership (mixed)
Existence of Audit Committee (n.s)
Number of board members (n.s)
*Based on articles published during 2009-2011 in 6 journals: Jurnal akuntansi dan Auditing
Indonesia, Jurnal Bisnis dan Akuntansi, Jurnal Ekonomi dan Bisnis, Jurnal Akuntansi dan
Manejemen, Jurnal Akuntansi dan Keuangan, Jurnal Akuntansi dan Keuangan Indonesia
CG as a Determinants of Earnings Quality:
Evidences in Indonesia*









Size of BOC (+)
Independence of BOC (+)
Number of members of audit committee (n.s)
% of independent members in audit committee (n.s)
Existence of audit committee (mixed)
Managerial ownership (n.s.)
Institutional ownership (n.s)
Composition of BOC (n.s.)
Audit Quality (size and specialization) (n.s)
*Based on articles published during 2009-2011 in 6 journals: Jurnal akuntansi dan
Auditing Indonesia, Jurnal Bisnis dan Akuntansi, Jurnal Ekonomi dan Bisnis, Jurnal
Akuntansi dan Manejemen, Jurnal Akuntansi dan Keuangan, Jurnal Akuntansi dan
Keuangan Indonesia
Why most governance variables are not
significant?
 Suitability of governance mechanism in Indonesia
 Ownership structure and group affiliation are not
adequately be considered
 Drawbacks in research design
Suitability of governance
mechanism in Indonesia
 US & UK: Dispersed ownership structure:
management expropriates wealth of shareholders
(Type 1 Agency Costs)





Shareholders appoint members of BOD
Board of Directors: Majority should be independent (from key
executives)
Members of Audit Committee appointed by BOD
Managerial ownership: Employed to align management’s
interest with shareholders’ interest.
Insitutional ownership: Have the capacity and incentive to
monitor management.
Suitability of governance mechanism in Indonesia

Indonesia:
Concentrated ownership with control right of controlling
shareholders exceeding their cash-flow right.
 More concentrated ownership reduces type 1 agency costs
 Controlling shareholders effectively determine members of BOC
(including independent commissioner) and BOD.
 Management is under control of controlling shareholders (Type
I agency costs not an issue)
 Group affiliations are common.

Suitability of governance mechanism in Indonesia
However, it increases the likelihood of
controlling shareholders expropriate the wealth
of non-controlling shareholders (Type 2 agency
costs)
 Can BOC be effective in overseeing BOD to
prevent type 2 agency costs?

Suitability of governance mechanism in
Indonesia
 Managerial ownership:
The measure may actually represent ownership of
controlling shareholders
 Maybe useful to reduce agency costs if managers are all
professionals (i.e. Not related to controlling
shareholders)

 Institutional ownership:

Its role under concentrated ownership is different from
its role under dispersed ownership
Areas to Research: Corporate Governance and
Financial Reporting Quality
 Impact of corporate governance variables on financial
reporting quality:







Divergence of Control Rights and Cash Flow Rights
Representation of controlling owners and government officials in
BOC and BOD
Family controlled firms; Group affiliation
Related party transactions: efficient vs abusive
Qualification of BOC: Financial literacy, Independency, Diversity,
Competency
Competency, Independency, Duties and authorities of Internal Audit
Qualification of Audit Committee (input, process)
 Moderating effect of PG variables on the impact of CG on
financial reporting quality
FUTURE RESEARCH: MODERATING EFFECT OF
PUBLIC GOVERNANCE ON THE RELATION
BETWEEN CG AND FINANCIAL REPORTING
QUALITY
Corporate
Governance
Public
Governance
Quality of
Financial
Report
34
References
35
 ACMF-ADB, ASEAN Corporate Governance Scorecard: Country Report and







Assessments 2012-2013,
ACMF, ASEAN Corporate Governance Scorecard - template,
www.theacmf.org/ACMF/upload/asean_cg_scorecard.pdf
CLSA, 2012, CG Watch 2012: Corporate Governance in Asia, http://www.acgaasia.org/loadfile.cfm?SITE_FILE_ID=658
Doidge, C., G. A. Karolyi, and R. M. Stulz, 2007, Why do countries matter so much
for corporate governance?, Journal of Financial Economics 86, 1-39.
Fan, J.P.H, K.C.J. Wei, and X. Xinzhong, 2011, Corporate finance and governance in
emerging markets: A selective review and an agenda for future research, Journal of
Corporate Finance 17, 207-214.
Ge , W., J. B. Kim, B.Y. Song, 2012, Internal governance, legal institutions and bank
loan contracting around the world, Journal of Corporate Finance 18, 413-432.
Klapper, L.F. And I. Love, 2004, Corporate governance, investor protection, and
performance in emerging markets, Journal of Corporate Finance 10, 703-728.
Worldwide Governance Indicators,
http://info.worldbank.org/governance/wgi/index.aspx#home
TERIMA KASIH