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The relationship between corporate governance and firm performance: An empirical analysis of Indonesian companies

Author

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  • Husnah Husnah

    (Tadulako University)

  • Aryati Aryati

    (Muslim Indonesia University)

  • Ramlawati Ramlawati

    (Muslim Indonesia University)

  • Mochammad Fahlevi

    (Bina Nusantara University)

Abstract

The goal of this study is to investigate the relationship between corporate governance practices, as indicated by the Corporate Governance Perception Index (CGPI) scores, and key performance indicators (ROA, ROE, EPS) of publicly-listed Indonesian firms. Utilizing a panel data set comprising 112 Indonesian firms across various sectors, both fixed and random effects models were employed to discern the effects of corporate governance on firm performance. The dataset spanned five years, resulting in a total of 560 observations. The findings revealed a positive and statistically significant correlation between superior governance practices and enhanced firm performance. Specifically, a one-unit increase in the CGPI Score corresponded with increases in ROA, ROE, and EPS, even after controlling for variables such as firm size and industry type. Corporate governance plays a pivotal role in influencing the financial performance of Indonesian firms. Firms adhering to higher governance standards showcased better performance metrics, underscoring the strategic importance of robust governance mechanisms in the Indonesian business landscape. The results hold significant implications for Indonesian businesses, investors, and policymakers. Effective governance practices not only serve as a beacon for potential investors but also position firms for sustained growth and stakeholder trust in an increasingly competitive and interconnected global economy.

Suggested Citation

  • Husnah Husnah & Aryati Aryati & Ramlawati Ramlawati & Mochammad Fahlevi, 2023. "The relationship between corporate governance and firm performance: An empirical analysis of Indonesian companies," Journal of Economics and Business Letters, Privietlab Research Center, vol. 3(3), pages 49-52, June.
    • Handle: RePEc:prv:jeblpv:224
    DOI: 10.55942/jebl.v3i3.224
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    Cited by:

    1. Umi Hasanatun & Melisa Bella Saragi & Wenny Tailisha & Delysia Angelyn & Helman Helman & Mella Yunita, 2025. "The influence of debt to asset ratio, total asset turnover, and net profit margin on return on assets in the Banking Subsector listed on the Indonesia Stock Exchange (2019-2022)," Journal of Economics and Business Letters, Privietlab Research Center, vol. 5(1), pages 12-28, February.
    2. Dusan Ecim & Warren Maroun & Claudia Ferreira, 2025. "Aligning Key Performance Indicators With Integrated Thinking Principles: Insights From Academic Literature and South African Organisations' Extra‐Financial Reports," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 32(3), pages 4270-4294, May.

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