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Abstract
Firm value is important information in investment decisions. Therefore, it is necessary to investigate further the relationship between firms' corporate governance and corporate social responsibility. This study aims to analyze the effect of Good Corporate Governance mechanism (as proxied by the frequency of joint meetings between boards of commissioners and directors and the frequency of boards of commissioners and directors' meeting attendance) on firm value with Corporate Social Responsibility (CSR) as the intervening variable. We generate our data from the annual reports of firms listed in the sRi-KEHATi Index in 2014-2016. Using Partial Least Square, we show that CSR cannot mediate the relationship between GCG and firm value. Meanwhile, CSR is only affected by joint board meetings. Lastly, board meeting attendance directly affects firm value.
Keywords: good corporate governance (GCG); corporate social responsibility (CSR); firm value; Sri-Kehati.
1. Introduction
Firms arguably aim to enhance their values to enable their shareholders to maximize their returns. Thus, firm value determines shareholders' wealth (Handriani and Robiyanto, 2018b, Ernayani et al., 2017). High firm value motivates investors to invest in these firms (Ernayani and Robiyanto, 2016, Panjaitan, 2017). However, agency conflicts or situations when managers' self-interests contradict their firms' objectives often inhibit firms to maximize their values (Handriani and Robiyanto, 2018a). In this context, managers' self-interests refer to their interests to prioritize their wealth and to ignore both short-term and longterm shareholders' interests (Mai, 2010, Mai, 2017). Managers' self-interests will arguably increase (decrease) their firms' costs (profits) that eventually reduce firms' stock prices and values (Jensen and Meckling, 1976). Good Corporate Governance mechanism is therefore important to mitigate the agency problem (Handriani and Robiyanto, 2019).
Good Corporate Governance (GCG) mechanism is a system that regulates and manages the relationship between shareholders, managers, and other stakeholders to balance the rights and obligations of each stakeholder and to enhance firms' transparency in reporting their performance to their stakeholders. GCG facilitates firms to create conducive conditions that support their sustainable growth (Handriani and Robiyanto, 2018b, Handriani and Robiyanto, 2018a). Further, GCG enables firms to monitor their managers to ensure that they make effective decisions in accordance with their objectives and to provide balanced information between managers and other stakeholders (Adefemi et al., 2018).
Board of commissioners and directors are important...