Article2015

Corporate Governance and Firm Value: The Mediating Effect of Financial Performance and Firm Risk

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Corporate Finance and Governance Financial Analysis and Corporate Governance Corporate Governance and Financial Management

Abstract

This study aims to analyze and explain the relationship between the corporate governance and the firm value, either direct, or indirect through the financial performance and the firm risk. The research object is the mining sector companies listed in Indonesia Stock Exchange for the period of 2009-2014. The corporate governance is measured from information disclosure index based on OECD principles of corporate governance. The firm value is quantified from the Tobin’s q and Price to Book Value (PBV). Return on Assets (ROA) and Net Profit Margin (NPM) are used to determine the financial performance. The firm risk is computed from the systematic risk and idiosyncratic risk. A Structural Equation Modeling (SEM) is utilized to analyze the data. The research result shows that the corporate governance has positive significant effect to the financial performance and negative significant effect to the firm risk, but it has no direct significant effect to the firm value. The corporate governance has significant effect to the firm value through the financial performance. Meanwhile, the corporate governance has no significant effect to the firm value through the firm risk. In addition, the financial performance has positive significant effect to the firm value, while the firm risk has no significant effect to the firm value.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1970The Market for "Lemons": Quality Uncertainty and the Market Mechanism 2010Strategic management a stakeholder approach 1973Job Market Signaling 2008Idiosyncratic Volatility and the Cross Section of Expected Returns 2010Corporate governance and firm value: International evidence 2004Corporate Governance and Expected Stock Returns: Evidence from Germany 2005Finding sources of brand value: Developing a stakeholder model of brand equity

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