IDEAS home Printed from https://ideas.repec.org/a/gam/jecomi/v11y2023i5p139-d1141808.html
   My bibliography  Save this article

The Critical Factors Affecting the Implementation of Corporate Governance in Indonesia: A Structural Equation Modeling Analysis

Author

Listed:
  • Suldja Hartono

    (Faculty of Administrative Science, Brawijaya University, Malang 65145, Indonesia)

  • Mochammad Al Musadieq

    (Faculty of Administrative Science, Brawijaya University, Malang 65145, Indonesia)

  • Kusdi Rahardjo

    (Faculty of Administrative Science, Brawijaya University, Malang 65145, Indonesia)

  • Tri Wulida Afrianty

    (Faculty of Administrative Science, Brawijaya University, Malang 65145, Indonesia)

Abstract

The concept of corporate governance has become a topic of global discussion since The New York Stock Exchange crashed on 19 October 1987, when many multinational companies listed on the New York Stock Exchange experienced large financial losses. CG was a preventive measure and increased investor confidence in the company. CG implementation is influenced by isomorphisms, such as organizational structure and the external environment in the form of regulation, competition, and culture. In Indonesia, the quality of CG implementation still contributes to the country’s economic growth. Weak CG implementation is due to the adoption of the western system immediately. It arises due to a high ownership structure, government intervention, underdeveloped capital markets, and weak law enforcement. This study aims to examine and analyze more deeply about factors that cause CG not to be inadequate to develop properly in Indonesia. Private and state-owned companies in the East Kalimantan Industrial Estate are the research samples for the SOR modelling exploration method. The SOR (stimulus-organism-response) model is a novelty in identifying CG implementation. Identification of the model to obtain a structural model is carried out by using PLS-SEM (partial least square structural equation modelling) through an institutional approach. The results found that the organizational structure and national cultural environment strongly influence CG implementation through the mediation of organizational structure. The contribution to understanding the national cultural environment in CG implementation efforts will be driven by organizational structure. Comprehensively, this study describes other factors such as organizational culture, environment competition, and the environment mediated by organizational structure. The national cultural environment mediated by organizational culture did not significantly affect CG.

Suggested Citation

  • Suldja Hartono & Mochammad Al Musadieq & Kusdi Rahardjo & Tri Wulida Afrianty, 2023. "The Critical Factors Affecting the Implementation of Corporate Governance in Indonesia: A Structural Equation Modeling Analysis," Economies, MDPI, vol. 11(5), pages 1-18, May.
    • Handle: RePEc:gam:jecomi:v:11:y:2023:i:5:p:139-:d:1141808
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7099/11/5/139/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7099/11/5/139/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    2. Semenov, R., 2000. "Cross-country differences in economic governance : Culture as a major explanatory factor," Other publications TiSEM 2e8b65dd-972a-4342-8580-4, Tilburg University, School of Economics and Management.
    3. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    4. Araniyar C. Isukul & John J. Chizea, 2015. "Environmental Factors Influencing Corporate Governance," SAGE Open, , vol. 5(2), pages 21582440155, May.
    5. Johnson, Simon & Boone, Peter & Breach, Alasdair & Friedman, Eric, 2000. "Corporate governance in the Asian financial crisis," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 141-186.
    6. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-746, August.
    7. Francis C. Kim & Chung-Ki Min & Christopher Maden, 2004. "Chaebols and Corporate Governance in South Korea," Palgrave Macmillan Books, in: The Governance of East Asian Corporations, chapter 9, pages 177-198, Palgrave Macmillan.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ajit Singh, 2003. "Competition, corporate governance and selection in emerging markets," Economic Journal, Royal Economic Society, vol. 113(491), pages 443-464, November.
    2. Erik Berglof & Ernst-Ludwig von Thadden, 1999. "The Changing Corporate Governance Paradigm: Implications for Transition and Developing Countries," William Davidson Institute Working Papers Series 263, William Davidson Institute at the University of Michigan.
    3. Ahmed Ishaku ACA & Mubarakatu Garba & Farida Musa, 2020. "Assessment of Corporate Governance Practice among Listed Conglomerate Companies in Nigeria," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 7(9), pages 16-21, September.
    4. Doidge, Craig & Andrew Karolyi, G. & Stulz, Rene M., 2007. "Why do countries matter so much for corporate governance?," Journal of Financial Economics, Elsevier, vol. 86(1), pages 1-39, October.
    5. Singh, Ajit & Singh, Alaka & Weisse, Bruce, 2002. "Corporate Governance, Competetion, The new International Financial Architecture and Large Corporations in Emerging Markets," MPRA Paper 24305, University Library of Munich, Germany.
    6. Jun Chen & Wang Dong & Jamie Tong & Feida Zhang, 2018. "Corporate Philanthropy and Tunneling: Evidence from China," Journal of Business Ethics, Springer, vol. 150(1), pages 135-157, June.
    7. Art Durnev & Amrita Nain, "undated". "The Unanticipated Effects of Insider Trading Regulation," American Law & Economics Association Annual Meetings 1023, American Law & Economics Association.
    8. Choi, Paul Moon Sub & Chung, Chune Young & Vo, Xuan Vinh & Wang, Kainan, 2020. "Are better-governed firms more innovative? Evidence from Korea," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 263-279.
    9. Ding, Wenzhi & Levine, Ross & Lin, Chen & Xie, Wensi, 2021. "Corporate immunity to the COVID-19 pandemic," Journal of Financial Economics, Elsevier, vol. 141(2), pages 802-830.
    10. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    11. Chaiyasit Anuchitworawong, 2010. "The Value of Principles-Based Governance Practices and the Attenuation of Information Asymmetry," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 17(2), pages 171-207, June.
    12. Art Durnev & Ruben Enikolopov & Maria Petrova & Veronica Santarosa, 2012. "Politics, instability, and international investment flows," Working Papers w0190, Center for Economic and Financial Research (CEFIR).
    13. Saghi-Zedek, Nadia & Tarazi, Amine, 2015. "Excess control rights, financial crisis and bank profitability and risk," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 361-379.
    14. Luc Laeven & Ross Levine, 2008. "Complex Ownership Structures and Corporate Valuations," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 579-604, April.
    15. Alessandro Zattoni & Emmanouil Dedoulis & Stergios Leventis & Hans Van Ees, 2020. "Corporate governance and institutions—A review and research agenda," Corporate Governance: An International Review, Wiley Blackwell, vol. 28(6), pages 465-487, November.
    16. Peter Blair Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 887-935, December.
    17. Goergen, Marc & Manjon, Miguel C. & Renneboog, Luc, 2008. "Recent developments in German corporate governance," International Review of Law and Economics, Elsevier, vol. 28(3), pages 175-193, September.
    18. Hani El-Chaarani, 2015. "The Impact of Financial and Legal Structures on the Performance of European Listed Firms," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(2), pages 39-52.
    19. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    20. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecomi:v:11:y:2023:i:5:p:139-:d:1141808. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.