The existence and role of independent board members and their impact on the board’s effectiveness and firm’s value: The case of the emerging market

Franciskus Antonius Alijoyo · Kevin Bastian Sirait

12 citations0/0 files storedCorporate Governance and Organizational Behavior Review

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Corporate Finance and Governance Gender Diversity and Inequality Corporate Governance and Financial Management

Abstract

The implementation of good corporate governance (GCG) within a firm dictates its organizational behavior driven down by the board functionality effectiveness, among which the existence and role of an independent board member are taken into account. This study examines the effect of the existence and role of independent board members in Indonesia listed firm on the board’s functionality effectiveness, and subsequently, its impact on the value of the firm. Since Indonesia adopts a two-board system instead of a one-board system, the independent board member is known as an independent commissioner (IC) who sits on the company board of commissioners (BOC) which is equivalent to the company board of directors (BOD) in the one-board system. It is found through regression analysis that when an IC holds a powerful leadership position, it enhances the BOC’s functionality effectiveness. Likewise, if the IC has the position as the chair of BOC’s sub-committee in the company. The regression analysis was conducted in two periods, before the establishment of the Financial Services Authority (FSA) and after.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 2003Boards of Directors and Firm Performance: Integrating Agency and Resource Dependence Perspectives 2010Stakeholder Theory: The State of the Art 1983Stockholders and Stakeholders: A New Perspective on Corporate Governance 2003Corporate Governance: Decades of Dialogue and Data 2003The Cross-National Diversity of Corporate Governance: Dimensions and Determinants 1999Cognition and Corporate Governance: Understanding Boards of Directors as Strategic Decision-Making Groups 1990On the Efficiency of Internal and External Corporate Control Mechanisms

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