Corporate Financial Performance on Corporate Governance Mechanism and Corporate Value: Evidence from Indonesia

Abstract

This study offers a contribution to the theories of corporate governance mechanism and corporate financial performance and their effects on the corporate value.It also recommends references for the corporates about corporate value and for the prospective investors about investing in particular corporate with precise, effective, and efficient investment decision.This study performed an assessement of mediating effect of corporate financial performance on correlation between corporate governance mechanism and corporate value.This study used internal mechanism as independent variable under the argument that internal mechanism was easier to be controlled by the corporate.The study applied four internal mechanisms of the corporate governance as independent variables, i.e. managerial ownership, institutional ownership, independent commissioner, and audit committee.Population for the study were financial firms listed in the Indonesia Stock Exchange selected through a purposive sampling technique.This study applied a path analysis method to test the hypothesis and sobel test on the mediation of the corporate financial performance.The study found a significant effect of the corporate governance mechanisms (managerial ownership, institutional ownership, independent commissioner, and audit committee) on corporate value.Therefore, it was proven that the corporate financial performance had mediated the effect of the corporate governance mechanism on the corporate value.

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