Effect of Board Characteristics, Capital Structure on Firm Performance and Value

Wahyu Febri Ramadhan Sudirman, Anggun Pratiwi, Ravi Adams

Abstract


The board of directors is one of the components of corporate governance used by the company to improve the firm's performance both in the long and short term so that the characteristics of the board become one of the key factors to running a good governance system for the company, even though having a good board composition is not always makes the company have a good performance because of the conflict of interest that occurs between the principal and the manager of the company so that there is a need for an in-depth study of the impact of capital structure on company performance. This study attempts to assess specifically the characteristics of the board (board size, board diversity, and audit committee) owned by the company to capital structure, then confirmed the effect of capital structure on firm performance and firm value by using ROE for performance and Tobin’s Q for firm value. Was used in the study sample 25 a company that had always entered into the LQ45 index within a time frame of 2015-2019. The technique of analysis that was used in this study was Path Analysis. The results of the testing of hypotheses found that board size and audit committee had a positive impact on capital structure, while board diversity had a negative effect on capital structure, then capital structure had a positive effect on firm performance, otherwise, the capital structure had a negative effect on firm value


Keywords


Board Size; Board Diversity; Audit Committee; Capital Structure; Firm Performance; Firm Value

Full Text:

PDF

References


Abdullah, H., & Tursoy, T. (2019). Capital structure and firm performance: evidence of Germany under IFRS adoption. Review of Managerial Science. https://doi.org/10.1007/s11846-019-00344-5

Ahmed, A., Monem, R. M., Delaney, D., & Ng, C. (2017). Gender diversity in corporate boards and continuous disclosure: Evidence from Australia. Journal of Contemporary Accounting and Economics, 13(2), 89–107. https://doi.org/10.1016/j.jcae.2017.05.004

Alves, P., Couto, E. B., & Francisco, P. M. (2015). Board of directors’ composition and capital structure. Research in International Business and Finance, 35, 1–32. https://doi.org/10.1016/j.ribaf.2015.03.005

Asri, M. (2013). Keuangan Keprilakuan. (fist). BPFE.

Ayuba, H., Bambale, A. J., Ibrahim, M. A., & Sulaiman, S. A. (2019). Effects of Financial Performance, Capital Structure and Firm Size on Firms’ Value of Insurance Companies in Nigeria. Journal of Finance, Accounting and Management, 10(1), 3–5.

Berglof, E. (2011). A European Perspective on the Global Financial Crisis. Corporate Governance: An International Review, 19(5), 497–501. https://doi.org/10.1111/j.1467- 8683.2011.00872.x

Bhabra, G. S. (2007). Insider ownership and firm value in New Zealand. Journal of Multinational Financial Management, 17, 142–154. https://doi.org/ 10.1016/j. mulfin.2006.08.001

Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of Corporate Finance, 14(3), 257–273. https://doi.org/10.1016/j.jcorpfin.2008.03.006

Brigham, E. F., & Ehrhardt, M. C. (2014). Financial Management: Theory and Practice (14th ed.). Cengage Learning.

Campbell, J. L. (2007). Why would corporations behave in socially responsible ways? An institutional theory of corporate social responsibility. Academy of Management Review, 32(3), 946–967. https://doi.org/10.5465/AMR.2007.25275684

Campbell, K., & Mínguez-Vera, A. (2008). Gender diversity in the boardroom and firm financial performance. Journal of Business Ethics, 83(3), 435–451. https://doi.org/10.1007/s10551-007-9630-y

Carter, D. A., D’Souza, F., Simkins, B. J., & Simpson, W. G. (2010). The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Governance: An International Review, 18(5), 396–414. https://doi.org/10.1111/j.1467-8683.2010.00809.x

Chadha, S., & Sharma, A. K. (2016). Capital Structure and Firm Performance: Empirical Evidence from India. Vision: The Journal of Business Perspective, 19(4), 295–302. https://doi.org/10.1177/0972262915610852

Chen, P. F., He, S., Ma, Z., & Stice, D. (2016). The information role of audit opinions in debt contracting. Journal of Accounting and Economics, 61(1), 121–144. https://doi.org/10.1016/j.jacceco.2015.04.002

Cheng, E. C. M., & Courtenay, S. M. (2006). Board composition, regulatory regime and voluntary disclosure. International Journal of Accounting, 41(3), 262–289. https://doi.org/10.1016/j.intacc.2006.07.001

Coles, J. L., Daniel, N. D., & Naveen, L. (2008). Boards: Does one size fit all? Journal of Financial Economics, 87(2), 329–356. https://doi.org/10.1016/j.jfineco.2006.08.008

Dao, B. T. T., & Ta, T. D. N. (2020). A meta-analysis: capital structure and firm performance. Journal of Economics and Development, 22(1), 111–129. https://doi.org/10.1108/jed-12- 2019-0072

Detthamrong, U., Chancharat, N., & Vithessonthi, C. (2017). Corporate governance, capital structure and firm performance: Evidence from Thailand. Research in International Business and Finance, 42(June), 689–709. https://doi.org/10.1016/j.ribaf.2017.07.011

Duru, A., Iyengar, R. J., & Zampelli, E. M. (2016). The dynamic relationship between CEO duality and firm performance: The moderating role of board independence. Journal of Business Research, 69, 4269–4277. https:// doi.org/ 10.1016/ j.jbusres.2016.04.001

Estélyi, K. S., & Nisar, T. M. (2016). Diverse boards: Why do firms get foreign nationals on their boards? Journal of Corporate Finance, 39, 174–192. https:// doi.org/ 10. 1016/j.jcorpfin.2016.02.006

Fodio, M. I., & Oba, V. C. (2012). Gender Diversity in the Boardroom and Corporate Philanthropy: Evidence from Nigeria. Research Journal of Finance and Accounting, 3(8), 63–69. https://doi.org/10.2139/ssrn.2166544

Ghosh, C., Giambona, E., Harding, J. P., & Sirmans, C. F. (2011). How Entrenchment, Incentives and Governance Influence REIT Capital Structure. Journal of Real Estate Finance and Economics, 43(1), 39–72. https://doi.org/10.1007/s11146-010-9243-6

Grinblatt, M., & Titman, S. (2016). Financial Markets & Corporate Strategy. McGraw- Hill/Irwin.

Gyapong, E., Monem, R. M., & Hu, F. (2016). Do Women and Ethnic Minority Directors Influence Firm Value? Evidence from Post-Apartheid South Africa. Journal of Business Finance and Accounting, 43(3–4), 370–413. https://doi.org/ 10.1111/ jbfa.12175

Harris, M., & Raviv, A. (2008). Capital structure - firm performance relationship: Empirical evidence from African countries. The Review of Financial Studies, 21, 1797–1832. https://doi.org/10.1093/rfs/hhl030

Hermalin, B. E., & Weisbach, M. S. (2003). Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature. Economic Policy Review, 9(1), 7–26. https://doi.org/10.1080/14767058.2016.1228104

Hoobler, J. M., Masterson, C. R., Nkomo, S. M., & Michel, E. J. (2016). The Business Case for Women Leaders: Meta-Analysis, Research Critique, and Path Forward. Journal of Management, 44(6), 2473–2499. https://doi.org/10.1177/0149206316628643

Huang, M., Li, P., Meschke, F., & Guthrie, J. P. (2015). Family firms, employee satisfaction, and corporate performance. Journal of Corporate Finance, 34, 108–127. https://doi.org/10.1016/j.jcorpfin.2015.08.002

Isidro, H., & Sobral, M. (2015). The Effects of Women on Corporate Boards on Firm Value, Financial Performance, and Ethical and Social Compliance. Journal of Business Ethics, 132(1), 1–19. https://doi.org/10.1007/s10551-014-2302-9

Jensen, M. C., & Meckling, W. H. (1976). Theory Of The Firm: Managerial Behavior, Agency Costs And Ownership Structure. Journal of Financial Economics, 3, 305–360. https://doi.org/10.1177/0018726718812602

Jouida, S. (2018). Diversification, capital structure and profitability: A panel VAR approach. Research in International Business and Finance, 45, 243–256. https://doi.org/10.1016/j.ribaf.2017.07.155

Kanakriyah, R. (2021). The Impact of Board of Directors’ Characteristics on Firm Performance: A Case Study in Jordan. Journal of Asian Finance, Economics and Business, 8(3), 341–350. https://doi.org/10.13106/jafeb.2021.vol8.no3.0341

Kaplan, R. S. (2001). Strategic performance measurement and management in nonprofit organizations. Nonprofit Management and Leadership, 11(3), 353–370. https://doi.org/10.1002/nml.11308

Krechovská, M., & Procházková, P. T. (2014). Sustainability and its integration into corporate governance focusing on corporate performance management and reporting. 24th DAAAM International Symposium on Intelligent Manufacturing and Automation, 69, 1144–1151. https://doi.org/10.1016/j.proeng.2014.03.103

Li, Q., Zhou, W., Zhou, H., & Chen, J. (2021). Do Board Characteristics Matter for Growth Firms? Evidence from China. Journal of Risk and Financial Management, 14(8), 380. https://doi.org/10.3390/jrfm14080380

Margaritis, D., & Psillaki, M. (2010). Capital structure, equity ownership and firm performance. Journal of Banking and Finance, 34(3), 621–632. https://doi.org/10.1016/j.jbankfin.2009.08.023

Mehmood, R., Hunjra, A., & Chani, M. (2019). The Impact of Corporate Diversification and Financial Structure on Firm Performance: Evidence from South Asian Countries. Journal of Risk and Financial Management, 12(1), 49. https://doi.org/10.3390/jrfm12010049

Mishra, A. K., Jain, S., & Manogna, R. L. (2021). Does corporate governance characteristics influence firm performance in India? Empirical evidence using dynamic panel data analysis. International Journal of Disclosure and Governance, 18(1), 71–82. https://doi.org/10.1057/s41310-020-00098-7

Modigliani, F., & Miller, M. H. (1963). Corporate Income Taxes and the Cost of Capital: A Correction. The American Economic Review, 53(3), 433–443.

Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0

Noor, M. A. M., & Fadzil, F. H. (2013). Board Characteristics and Performance From Prespective of Governance Code in Malaysia. World Review of Business Research, 3(3), 191–206.

Olajide, O. ., Funmi, S. R., & Olayemi, S. O. (2017). Capital structure - firm performance relationship: EMpirical evidence from African countries. Journal of Emerging Trends in Economics and Management Sciences, 8(2), 82–95.

Ross, S. A. (1977). The Determination of Financial Structure: The Incentive-Signalling Approach. Journal of Economics, 8(1), 23–40. https://doi.org/10.2307/3003485

Strom, R. O., D’Espallier, B., & Mersland, R. (2014). Female leadership, performance, and governance in microfinance institutions. Journal of Banking and Finance, 42(1), 60– 75. https://doi.org/10.1016/j.jbankfin.2014.01.014

Stulz, R. M. (1990). Managerial discretion and optimal financing policies. Journal of Financial Economics, 26(1), 3–27. https://doi.org/10.1016/0304-405X(90)90011-N

Stulz, R. M. (2000). Does Financial Structure Matter for Economic Growth? A Corporate Finance Perspective. http://mitpress.mit.edu/catalog/item/default.asp?ttype= 2&tid=10366%5 Cnciteseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.18.9116

Terjesen, S., Aguilera, R. V., & Lorenz, R. (2015). Legislating a Woman’s Seat on the Board: Institutional Factors Driving Gender Quotas for Boards of Directors. Journal of Business Ethics, 128(2), 233–251. https://doi.org/10.1007/s10551-014-2083-1

Thaler, R. H. (2004). Advances in behavioral finance. In Advances in Behavioral Finance (Vol. 2, pp. 1–694). princeton university press princeton and oxford. https://doi.org/10.2307/2329257

Vijayakumaran, R. (2017). Capital Structure Decisions and Corporate Performance: Evidence from Chinese Listed Industrial Firms. International Journal of Accounting and Financial Reporting, 7(2), 562. https://doi.org/10.5296/ijafr.v7i2.12455

Vithessonthi, C., & Tongurai, J. (2015). The effect of leverage on performance: Domestically-oriented versus internationally-oriented firms. Research in International Business and Finance, 34, 265–280. https://doi.org/ 10. 1016/j. ribaf.2015.02.016

Wen, Y., Rwegasira, K., & Bilderbeek, J. (2002). Corporate governance and capital structure decisions of the Chinese listed firms. Corporate Governance, 10(2), 75–83. https://doi.org/10.1111/1467-8683.00271

Williams, J. (1987). Perquisites , Risk , and Capital Structure. The Journal of Finance, 42(1), 29–48.

Wintoki, M. B., Linck, J. S., & Netter, J. M. (2012). Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics, 105(3), 581–606. https://doi.org/10.1016/j.jfineco.2012.03.005

Yermack, D. (1996). Higher Market Valuation for Firms with a Small Board of Directors. Journal of Financial Economics, 40(40), 185–211.

Zelechowski, D. D., & Bilimoria, D. (2004). Characteristics of Women and Men Corporate Inside Directors in the US. Corporate Governance, 12(3), 337–342.

Zona, F., Boyd, B. K., & Haynes, K. T. (2018). Coordination, control, or charade? The role of board interlocks among business group members. Management Decision. https://doi.org/10.1108/MD-11-2017-1200




DOI: https://doi.org/10.18860/mec-j.v6i2.11819

Refbacks

  • There are currently no refbacks.




Editorial Office:
Faculty of Economics,
State Islamic University of Maulana Malik Ibrahim Malang
Gajayana Street 50, Malang-East Java, Indonesia 65144
Phone (+62) 341 558881, Facsimile (+62) 341 558881
e-mail: mecjournal@uin-malang.ac.id

 

 

P-ISSN 2599-3402
E-ISSN 2598-9537

Lisensi Creative Commons

MEC-J is licensed under CC-BY-SA
© All rights reserved 2017.

 

MEC-J INDEXED IN:  

                                  

Member of:

 

View My Stats