Indonesian companies have implemented good corporate governance Essay

This research will supply information to determination shapers and other interested parties sing the grade to which Indonesian companies have implemented good corporate administration. Besides fiscal public presentation, both firm-level and country-level GCG execution has become an of import issue and progressively caught stakeholders ‘ attending.

This research is besides intended to assist determination shapers in finding which houses have good corporate administration quality by looking at peculiar house features. The selected house features in this survey are steadfast growing chance, steadfast external funding, house age, house size, house ownership construction, house ownership position, and steadfast plus construction.

3.2 The Time and Place of Research

This research is conducted in Jakarta, Indonesia, from February to June, 2010.

Figure 3.1 Research Process Flowchart ( Cooper & A ; Schindler, 2008 )

Figure 3.2 Descriptors of Research Design ( Cooper & A ; Schindler, 2008 )



The grade to which the research inquiry has been formulated

Formal Study

The method of informations aggregation


The power of the research worker to bring forth effects in the variables under survey

No control over the variables

The intent of the survey


The clip dimension


The topical range of the survey


The units of analysis


The research environment

Field Puting

The sampling scheme

Non chance – purposive sampling

3.3 Research Design

3.3.1 Degree of Research Question Formulation

This research is categorized as a formal survey, which begins with hypotheses related to Good Corporate Governance ( GCG ) execution and involves organized procedures and informations beginning specifications. This research involves proving of formulated hypotheses in order to fulfill the research aims.

3.3.2 Method of Data Collection

Monitoring is involved in roll uping the information, which means that the writer examines required informations without trying to obtain responses from anyone. In this research, the writer obtains secondary beginnings which take signifier of company ‘s one-year study as required stuff for information analysis. The one-year study is downloaded from several company ‘s web site and retrieved from Indonesian Stock Exchange ( IDX ) database library. The writer besides reviews the text editions and related diary articles to back up the research processes.

3.3.3 Researcher Control of Variables

The writer analyzes one-year studies and other related figures of companies selected as sample and reports the findings. As procedure of informations aggregation merely involves direct retrieval of one-year study and other related figures, the writer has no control over the variable and therefore, there is no influence that might consequences in colored findings. The use is merely limited to try choice and statistical processs.

3.3.4 The Purpose of the Study

This research is considered as a descriptive survey because the hypotheses are structured and clearly stated. Based on the hypotheses, the writer efforts to depict steadfast features as possible determiners of corporate administration quality in Indonesian companies which are selected as a sample. Furthermore, the theoretical model related to the survey is explained comprehensively to back up the findings and decision.

3.3.5 The Time Dimension

The information aggregation and analysis are carried out one time. In this instance, the writer examines the snapshot of corporate administration quality of Indonesian companies and their associations with firm-level features merely at one point in clip. Therefore, this research is categorized as a cross-sectional survey.

3.3.6 The Topical Scope

This survey is categorized as a statistical survey because the hypotheses are tested utilizing quantitative method. The findings and decisions are presented based on the consequences of quantitative method performed on the sample. In this research, the writer performs hiting technique on each company ‘s corporate administration revelation and uses multiple arrested developments by choosing house features as independent variables.

3.3.7 The Unit of measurements of Analysis

The units of analysis explain the major entity that is being chosen for the survey. Therefore, the writer uses organisation as the units of analysis since the writer examines firm-level corporate administration quality.

3.3.8 The Research Environment

The writer collects the one-year study of several company selected as the sample. The information on one-year study represents the company ‘s status in existent environment. Therefore, this survey is performed under field status.

3.3.9 The Sampling Strategy

In roll uping the information, the writer chooses Kompas-100 companies in the terminal of 2008. The companies categorized as Kompas-100 index hold big market. Those companies are expected to surpass the market and have greater corporate administration quality. Taking into history the standards fulfilled by those companies, the writer adopts purposive trying attack. Therefore, this survey uses non-probability trying scheme.

3.4 Type of Data Used in the Research

The secondary information comprises of one-year study, journal articles, text editions, and related stuffs. In developing hypotheses and composing theoretical model to back up the findings, the writer reviews journal articles and text editions related to corporate administration. The informations used for analysis in this research is obtained from several company ‘s one-year study. The information includes revelation of corporate administration which is used to find corporate administration quality and related internal house features as possible determiners of corporate administration quality.

3.5 Data Analysis Method

This research will dwell of two informations analysis attack:

3.5.1 Corporate Governance Scoring Method

In this survey, the writer uses the GCG marking templet which takes signifier of questionnaires. This hiting instrument is originally prepared by BPKP in coaction with the Ministry of SOE to measure GCG quality of SOE. ( 1 ) Harmonizing to the Head of BPKP ‘s edict ( KEP-06.02.00-268/K/2001 ) , GCG squad established by BPKP is responsible to explicate rules and counsel related to rating, execution, and socialisation of GCG execution. Furthermore, the GCG squad must supply recommendation to the authorities in bettering the coverage system demand in order to accomplish GCG execution in SOE and other concern entities. Therefore, the hiting instrument developed by the GCG squad of BPKP and Ministry of SOE can be used to measure GCG execution of both SOE and other concern entities in Indonesia.

There are five chief classs to be examined in the marking questionnaire. Each class is weighted consequently based on its significance in overall corporate administration execution quality. The classs and their several significance are 1 ) Shareholder ‘s Rights / Annual General Meeting ( RUPS ) 9 % , 2 ) GCG Policy 8 % , 3 ) GCG Implementation 66 % , 4 ) Disclosure 7 % , and 5 ) Commitment 10 % .

Beginning: BPKP Official Website ( hypertext transfer protocol: // )

GCG execution is farther divided into 5 parts, which consist of Board of Commissioners ( BOC ) 27 % , BOC Committee 6 % , Board of Directors ( BOD ) 27 % , Internal Audit 3 % , and Corporate Secretary 3 % . High per centum assigned to GCG execution class indicates that the existent GCG pattern adopted by the commissioners and managers significantly affect the company ‘s GCG value in general. Therefore, failings in execution class will greatly cut down the corporate administration mark.

There are 50 GCG indexs grouped based on related classs. Every index is farther elaborated into a figure of parametric quantities which addresses elaborate issues to be evaluated. In entire, there are 160 parametric quantities that made up this marking questionnaire. Each index is besides allocated peculiar per centum harmonizing to its importance in several class.

Further, the group of parametric quantity determines the weight of each parametric quantity under its index. There are three group of parametric quantity established by the Ministry of SOE and BPKP. The parametric quantities under Group A ( important group ) measures the company ‘s ability in implementing GCG rules, including its committedness, counsel, and communicating as portion of GCG socialisation to all of its stakeholders. The absence of this group will take to hapless corporate administration pattern. Group B ( medium important group ) includes parametric quantities that assess the company ‘s GCG formal execution and the features of company ‘s BOC, BOD, Internal Audit, and Corporate Secretary. The formal execution takes signifier of written manual and other back uping paperss related to GCG. Lastly, Group C ( the least important group ) includes parametric quantities that step back uping activities as portion of GCG execution.

Manual content analysis on one-year study will be conducted to hit all parametric quantities available in the questionnaire. If the issue addressed in each parametric quantity is available in the one-year study, 1 ( one ) as the mark for that parametric quantity. Conversely, if the information is non available, 0 ( nothing ) will be given.

Due to scope and clip restriction, subjectiveness becomes the restriction of this survey since the writer relies on content analysis on the one-year study while there are some parametric quantities that require interview and direct observation of company ‘s boards and direction. Lack of information in the one-year study may do prejudice in executing the marking technique. In this respect, no mark ( nothing ) will be assigned to those parametric quantities since the information is considered non available in the one-year study.

Besides corporate administration evaluations, the writer will besides recover other available informations from these companies, including net income, book value of entire assets and fixed assets, book value of entire liabilities, gross revenues figure in three old ages, market value of portions, book value of portions, house age, and figure of portions owned by directors, establishments, and the province.

3.5.3 Statistical Method

All required informations will be analyzed by utilizing multiple arrested development analysis. Harmonizing to Cooper and Schindler ( 2008 ) , multiple arrested development serves as a descriptive tool relevant in three types of state of affairss. First, it is used for explicating a self-weighting estimating theoretical account to foretell values for a standard variable ( dependent variable ) from the values for several forecaster variables ( independent variables ) . Second, it controls complicated variables to supply better appraisal of other variables ‘ part. Third, multiple arrested development is used to prove and explicate causal theories.

Harmonizing to DeFusco ( 2004 ) , to guarantee the cogency of the trial, there are several premises to be satisfied before executing statistical illation on the multiple additive arrested development theoretical accounts:

The additive relationship exists between independent variable and dependent variable

There is no exact additive association between two or more independent variables

The independent variables are non random

The expected value of the error term is zero and its discrepancy is the same for all observations

The error term is uncorrelated across observations and usually distributed

Based on the above premises, there are three common jobs arise in multiple arrested development analysis which greatly affect statistical illation:

Heteroskedasiticy occurs if discrepancy of the error term differs across observations

Consecutive correlativity occurs when the mistake term is correlated across observations

Multicollinearity arises when two or more independent variables are extremely correlated

In this survey, the dependant variable is corporate administration mark while the independent variables are the internal house features ; consist of external funding, growing chances, house size, house age, degree of managerial ownership, degree of institutional investors ‘ ownership, ownership position, and steadfast plus construction.

Based on the above treatment, the arrested development theoretical account in this research is:

CGSi = I±i + I?1 FUNDi + I?2GROWi +I?3 SIZEi + I?4 AGEi + I?5 MANi +

I?6 INSTi + I?7 STATi + I?8 TANi + Iµi


I±i = a changeless, the value of CGSi when all other variables are zero

CGS = Corporate administration mark

FUND = Measured by per centum of book value of entire liabilities to book value of entire assets

GROW = Measured by gross revenues growing in the last three old ages.

SIZE = Total assets in natural logarithm

AGE = Represents old ages since the company was founded until 2008, expressed in natural logarithm

MAN = Percentage of portion ownership by directors and commissioners

INST = Percentage of portion ownership by institutional investors

STAT = A silent person variable taking the value of one ( 1 ) if it is SOE and zero ( 0 ) otherwise

TAN = Measured by per centum of book value of fixed assets to book value of entire assets.

Iµi = an mistake term

3.5.3 Sample Selection

The preliminary sample in this research is companies that are included in Kompas-100 index at the terminal of 2008. Kompas-100 index consists of 100 public company portions which are traded in Indonesian Stock Exchange ( IDX ) . The index was officially published by IDX in coaction with Kompas in August 10, 2007. The index is renewed every 6 months. The stocks included in Kompas-100 index are selected based on their frequences and values of dealing, market capitalisations and cardinal public presentations quality.

IDX sets the undermentioned factors to see in finding which stocks to be included as portion of Kompas-100 index:

The stocks have been listed in IDX for at least 3 months

The dealing activities in regular market, which includes dealing value, dealing frequence, and market capitalisation

The amount of trading twenty-four hours in regular market

Market capitalisation in specified period

Evaluation and consideration of the company ‘s cardinal factor and trading form

Investors ‘ and other stakeholders ‘ involvement consideration

Kompas-100 index involves stocks that have high dealing value, stand foring companies in Indonesia and often traded. Therefore, the investors, portfolio directors, and fund directors frequently use this index as a mention for stock-based fund direction. Furthermore, it will be easier to roll up the information required in this research.

In this preliminary sample, companies in fiscal sector will be excluded since they have different method of coverage and require extra supervising by Bank Indonesia.

3.6 Data Interpretation

In this research, the writer uses Microsoft Excel to fix the informations, tabular arraies, and figures. For analysing and construing the information, the writer will utilize Statistical Packages for the Social Sciences ( SPSS ) and Eviews to find the relationship between the independent variables and the dependant variable in this survey.