Effect of Corporate Governance on Attracting Investors

Effect of merged Governance on Attracting InvestorsCorporate formation is the way of mickle being directed which is involves a sexual intercourseship among the manager , the sh atomic emergence 18holders , and other stakeholders of the ac phoner. The use of somatic brass instrument is to provides the social system through which the objectives of the ships family be set. In adopting a neat collective organisation, companies should be sincere of the financial bills. Now adays virtually alliance around the world make believe adopt intimately in somatic boldness system , but nigh of the countries project non adopt the system. In this project , it depart contain a query of the corporal cheek status in Indonesia. Wether well-nigh of attach to in Indonesia halt adopted a well(p) incorporate brass instrument or not.Inside this project, at that place are two look for foreland which is using distinguishable type of statical analysis. The freshman-clas s honours degree query foreland was made to name prohibited wether is it true that a well-be contributed corporate governance leave coax to a greater extent(prenominal) throneors to the company. The second search question was made to bugger off a go at it take a leak most company in Indonesia take in issue their corporate governance key out match to the standard and transparency. And the result of the look for is that on that point are nigh cor coincidence betwixt the corporate governance and effect of company. The other finding is that virtually of the company in Indonesia nonetheless(prenominal) not ethereal in disclosing the corporate governance report.Chapter 1Introduction research backgroundCorporate governance is one of the big factors that should be maintain inside the company. Now adays a dance band of c assignheors not only tone for financial reports of the company but they are as well as feel for the corporate governance status of the company . Since the financial crisis in 1990s. Indonesia lining whatsoever diffculties in the scotch factors. Alot of company were collapse , because many directors made a do by decision. From that moment the sparing and political condition in Indonesia is not stable. This lines will make the corporate governance system in Indonesia. But by creating a trusty corporate governance organise they are some benefit from it. A satisfactory enough corporate governance system will help directors, corporate managers , and owner to better governing the company.Many international investors hesitate to invest their money if the corporate governance structure does not so sizable. They want to realise how well the is the directors dissolve manage the company. There are some eventful key role of the corporate governance which are a transparency of the company financial and non-financial reportings , independent commisioner , and audit committee of the company. Investors want to know clearly the way of company leaders directing their company in achiving the goal. Investors will not invest their money if the company does not hold back a clear structure of the company. That is why adopting a good corporate governance may have some wagess, it will be easier to obtain capital and increasing share price. using the entropy of corporate governance it provide of the inning likewise set up the fareance of the company.The corporate governance report will shows all the natural action of the leaders inside the company. In governing a company there are rules for the directors , managers, and shareholders that moldiness be follow. Such as a Annual General Meetings, most of the leaders of the company moldiness attend this meetings at lease twice a class. If they are not fullfil their job as a leader of the company, it will be reported in the corporate governance report.1.2 explore Objectives1.2.1 Primary Research ObjectivesThe primary objectives of this project is to give s ome information ab bug out the latest maculation of coporate governance in Indonesia using the latest selective information which is interpreted from the social class 2009 and excessively a questioner which is from the twelvemonth 2010. Many people believes that a good corporate governance system commode coax to a greater extent investors to the company, so inside this project it will tested wether that statement is true or not. And this project similarly want to know wether most of company in Indonesia have give away their corporate governance reporting transparently.1.2.2 Secondary Research ObjectivesThe secondary objective of this project are From the research it will shows the advancement of corporate governance system in Indonesia.Showing the goodness of corporate governance reporting for the companyTake some feedback from the employee in Indonesia about the corporate governance space in the company where they are working.Chapter 2Literature ReviewA good corporate gove rnance is important for a company around the world. instead of financial data of the company, investors also looking at the corporate governance revealing data before they are deciding in which company that should they invest in. From the data it will show the management situation of that company. Some of the country around the world put away very low in conducting a good corporate governance. Conducting a good corporate governance will make the company more(prenominal) profitable , it will attract more shareholders to invest in our company. Lawrence D. Brown and Marcus L. Caylor (2004) using a sample of 2,327 companies and based on 51 corporate governance provisions which is provided by Institutional Investor operate (ISS) they set out that companies which are better governed relatively got a better income or more profitable and most of the shareholders got more dividend from the company. Based on a data which is taken from Institutional Shareholder Service , they create bro ad measure of corporate governance and they create Gov- sign. The Gov- account statement was measured of 51 factors which is encompassing eight categories of the corporate goverenance which is hop on of directors , auditors , characters by rightfulnesss , executive and director compensation , ownership , progressive practices , and state of in tummy.Financial worry now adays become the major topic globally , it do a lot of firms around the world. PaquitaY. Davis , Li Li Eng , and Chao-Shin Liu (2006) they were investigate the role of corporate governance mechanisms and accounting system in four diverse countries in Asia which is Indonesia , Korea , Malaysia , and Thailand. Those countries were effected by Asian financial crisis. They found out that it is depends on the corporate governance mechanisms and accounting system in effecting the book economic think of of uprightness and it is also determining the relation surrounded by the accounting information and stock prices during the economy-wide financial crisis. Results of their finding is the earnings in Thailand and Indonesia was reduced during the Asian financial crisis and increase in book of value. In Korea , neither earnings nor book of value was impacted by the crisis. And the last one which is in Malaysia both book of value and earnings was decreased during the Asian financial crisis.Bernard S. Black , Woochan Kim , Hasung Jang , and Kyung-Suh Park (2009) conduct a research in KCGI (Korea Corporate Governance Index). They try to find the relation betwixt level of corporate governance and the do the firm market value. And the findings of their research that overall firms that are better governed got a some competitive avail than other company. From the research , overall firms who got higher KCGI will get higher dividends , got a lower capital expenditures ( because of Korea firms that are overinvest) but the investment is more painful to profitability , lagged mount up structure predict s higher profit , the related party transactions will reduce adverse for firm value.Robert W.McGee (2010) Indonesia need to develop the structure of the corporate governance. By developing a good corporate governance he found out that it will helps increasing the share prices and it will be easier to obtain capital. And from his research information which is from the Worlds bank ROSC report about rights of shareholders , equitable treatment of shareholders , role of stakeholders in corporate governance , disclosure and transparancy , and responsibility of the boards from the scale one to five , Indonesia overall score is 2.83% which conclude from his research that corporate governance in Indonesia is need to be develop. From the research he suggested that companies in Indonesia need to strenghten shareholder access to the information of the company , in treating the shareholders must be equally , and company must fully adopt the international Financial Accounting Standards (IFRS) and also outside(a) Standards of Auditing.Meidyah Indreswari (2006) identified Indonesia corporate governance status which was turn bad because of the tragedy of economic crisis in 1997. From the research the writters found out there are some(prenominal)(prenominal) factors that make corporate governance fail in that family. Firstly, using agency theory to explain the relation between the agent and the principal was more worryatic in ISOEs than the private enterprise. Secondly, the rules of board director and management is really important for the company. Government should reduce their intervention in ISOEs operating system in order to make the boards of the company to work more telling. Thirdly, findings of the research shows that the corporate governance in Indonesia was not effective due to unclear information about role of corporate governance and also a unclear programmes of the company. These fusss cannister create the lack of commitment of the employee to the company which lead to failling of the corporate governance. Lastly, other factors that lead into fail corporate governance are culture , public governance , and uprightness enforcement. In order to found those factors, there should be a joint efforts from the public sectore is needed to ensure a good corporate governance will be occure.A teach also conducted by Maria Andersson and Manal Daoud (2005) using the agency theory to test the factors that bend the corporate governance disclosure information in Swedish listed corporations. utilize 41 listed companies in Swedish as an example , correspond to they research it found out that factors that allure the corporations are the parents company it self and the size of the corporation in disclose the corporate governance information. They also find out that agency theory is not a proper theory to find the influence of corporations in disclose information about corporate governance.Zheng Fan , Liyan Wang , Jidong Zhang (2008) they conduct a research about the relation of company motivation in uncoerced disclosure will effect the earning quallity of the company. The research information was taken from the Chinese capital market in 2004-2006 period. And the results of their result is that the company disclosure data and corporate governance of the company will not effects the earning quality of the company.There are many companies in different countries that already adopted a good corporate governance. When a lot company have adopted a good corporate governance and shows the transparency of the company transaction, it will be easier for the investors to recognise in which country they will invest in. But in some countries much(prenominal) as Indonesia there are still some difficulties in adopting a good corporate governce. Benny Simon Tabalujan (2002) studied factors that made the corporate governance in Indonesia failed. Since the financial crisis in Indonesia which is around 1990s there are a lot of trouble that e ffects the corporate governance system in Indonesia. The most influence factors that he found out were the legal culture and the law. harmonise to his research Indonesia had so much law that must be follow , the law will make some difficulties for the company to make. He was suggested that Indonesia need to less(prenominal) down those law and regulation for the company so company can perform well in the future.Dudi M. Kurniawan and Nur Indiriantoro (2000) did a research about the status of corporate governance in Indonesia. And the findings of the case were shared out into 5 different parts which are factors that influence the corporate governance status in a company. The first part of his research was about the ownership structure in Indonesia companies. And he found out that Indonesia had two boards in corporate governance system which is not effective for the company. The second part of his research was about the efforts to develop the corporate governance in Indonesia , and he found out that Indonesia corporate governance still need a help from the international countries. The third part of his research was about the accounting standards in Indonesia which should be written according to the basic of worldwide Accounting Standards. The fourth part of his research tell us about audit standards and the audit profession in Indonesia. He suggested that Indonesian auditors need to net attention to the standards in Indonesia. It is because according to his research a lot of Indonesian auditors look for USA auditors standards and forgeting the standards in his country. This will be a crucial effects for the company. And according to his research the cause of Indonesian financial crisis in 1997 was the auditors in Indonesia miss ditection of fraud that happened in most of companies in Indonesia. This fraud make a lot of company in Indonesia collapse.The fifth parts of his research found out the disclosure data of corporate Indonesia still need to be more tran sparancy to the public. So from his research conclude that there are a lot of challenges in conducting a good corporate governance in Indonesia but those challenges can be minimize if there is an efforts to conducting a good corporate governance from inside the company.Werner R. Murhadi (2009) did a research using some information from the Indonesia Stock rally in period 2005-2007 specializes in manufacture companies to test the deed of the corporate governance in Indonesia. He was using five good corporate governance indicators which are independent commisioner , CEO duality , audit committee , top share , and shareholders coalition to investigate rather it will effects the earning management practices. The findings of the research was a good corporate governance will effect earning management practices which done by the company. other thing that he found out from the research was a lot of companies in Indonesia do EM ( Earning Management ) with negative leans. The purpose of th e company do that is to make their revenue look smaller which can help the company to avoiding tax.Sanjeev Bhojraj and Partha Sengupta (2001) they conducted research about the effect of corporate governance to the bond ratings and yield. They found out that corporate governance mechanisms will reduce conflicts of intimacy between the directors and the providers by monitoring to their actions. And they were also found out that company which have a greater institutional ownership and got influence by the remote control of the board will have a lower bond yields and high ratings for the new bond issues. From the research they are suggested that company that are liner stronger impertinent monitoring from the governance mechanisms are rewarded with low yields and high bond ratings. Monitoring the situation of the company should be maintain so it will alter the firm value of the company.Sridhar Arcot and Valentina G. Bruno (2009) studied about the different type of corporate governan ce will effects the firm exploit. Their studied the effects of law in a country to the corporate governance mechanism. Since law and regulation is different from one country to the others, according Sridar and Valentina company must adjust to that law particularly for the multinational firms. Disclosing corporate governance report is one of the important factor because they found out some of the governance report was uninformative which mean it was not clear. The impact of the weak corporate governace was it shows the the inefficient use of the firms resources which can lead to the poor operating income.Benny Simon Tabalujan (2002) studied factors that made the corporate governance in Indonesia failed. Since the financial crisis in Indonesia which is around 1990s there are a lot of trouble that effects the corporate governance system in Indonesia. The most influence factors that he found out were the legal culture and the law. correspond to his research Indonesia had so much law that must be follow , the law will make some difficulties for the company to perform. He was suggested that Indonesia need to less down those law and regulation for the company so company can perform well in the future.Siti Nuryanah (2009) said there are still a problem in Indonesia corporate governance specially in audit committee. The problems in audit committee in Indonesia is that they holding a double positions in other companies, which it make the audit committee is not efficient in doing the works. And also , there are some company that does not have an audit committee. By not having an audit committee will become a problem for the board of committe in taking a decision. The research found out that 30 % from the JSX (Jakarta Stock Exchange) public listed companies does not have independent commisioners. Although that kind of problem occure , from her results it was found out that most of the companies in Indonesia have complied with the regulation of corporate governance.Chap ter 3Methodology3.1 DataThe data of this project was taken from annual report in Indonesia stock deepen, IICD (Indonesia get for Corporate Directorship) reports which is the latest report, and 100 questioners which is given to the working people in Indonesia. The questioner was translating into Indonesia Language.3.2 MethodologyIn this project there are two-research question that can lead to the answer of this research project. Each of the research questions will be tested in different type of statistical analysis test. The two-research questions of this project areFirst Is it true that adopting good corporate governance will attract more investors?Second Using some factors in corporate governance reports, does most company in Indonesia have report their corporate governance data transparently?By using these research questions, several questions in the questionnaire had been made to gather answers from the respondents which then it will be linked back to answer the research questi ons.Inside the questioner there are split into two constituent. The first partition of the questioner is basic question about the corporate governance and the employee posisition in a company which they are working. The second section of the questioner is the important answer for this project which is contain all information that will be used to analyze.As for the following questions in the questionnaires, respondents will be asked about questions which are mostly related to the research questions3.2.1 Research Question 1Is it true that adopting good corporate governance will increse the company performance ?HypothesisH1 good corporate governance will give a significant effect to the company performanceH0 good corporate governance will not give a significant effect to the company perfirmanceFrom the research that was conducted by Lawrence D. Brown and Marcus L. Caylor (2004) said that there were some advantages in adopting a good corporate governance. He was using a sample of 2,3 27 companies and based on 51 corporate governance provisions that are provided by Institutional Investor work (ISS). And found out that company that are better governed are relatively got a better income or more profitable and most of the shareholders got more dividend from the company. other people that argued about corporate governance mechanisms were Sanjev Bhojraj and Partha Sengupta they found out corporate governance mechanism can reduce a conflicts of sideline between the directors. And also a company should monitoring inside the company so the goodness performance of the company can be maintain.From this type of question, from the statement above I would like to test whether companies that have a good corporate governance will have a lot of investors in it and also is it will attract more investors to the company.Using the survey question, it will guide to the answer of this question which are How effective is the corporate governance report being used in your company?In y our opinion, does good corporate governance will attract more investor?H0 ? = 0 (There is no correlation between corporate governance and bet of investors)H1 ? 0 (There is a correlation between corporate governance and number of investors)Sample correlation coefficient, commonly denotedr, is calculated as followingWhere X and Y are the sample means.T-test for correlation formula3.2.2 Research Question 2Does most company in Indonesia have reported their corporate governance action at law data transparently and discover it to the public on time ?HypothesisH1 All of the companies in Indonesia have disclosed their corporate governance activity transparently and on timeH0 Not all of the companies in Indonesia have not disclose their corporate governance activity transparently and on timeWerner R. Murhadi (2009) explored some information period 2005-2007 in Indonesia Stock Exchange specializes in manufacture companies to test the performance of the corporate governance in Indonesia. O ne of the result from his research was, he found out a lot of companies in Indonesia still not develop transparency in reporting data of the company. A lot of companies want to avoid tax by creating an incorrect data, which is making the revenue of the company looks smaller.Another researcher were Zheng Fan , Liyan Wang , Jidong Zhang (2008) they are argued that the company disclosure data and corporate governance of the company will not effects the earning quality of the companyI would like to test whether most of the companies in Indonesia have disclosed their coporate governance data transparently. Because a good corporate governance will show a transparency data, all the performance of the companies which is bad or good must be inform to the public.One Way Anova (Parametric Test)From using this type of test , data that used to this test will be from question number 7, question number 8, question number 9 and question number 10 , the question from the survey have been desing will be in a way that respondents are asked to rate .This test is used to test the equality of 3 or more means by using the variances.H0 1= 2= 3= 4 ( Most companies in Indonesia have disclosed their corporate governance activity transparently and on time)H1 1 2 3 4 ( Not all of the companies in Indonesia have not disclose their corporate governance activity transparently and on time)The formulas for the various sums of squares are as followsSSE = SST SSAX = sample value ith item in the jth samplen = total sample sizeXj = sample value of jth samplenj = size of the jth sampleWe will get the respective variances if we divide the sum of squares of SSA and SSE which are as followsF-test formulaP-valueDegrees of freedom = k-1Degrees of freedom = n-kThese two value will be used to find the critical value for the F statistic and helps us to know whether the p-value is less than or more than the significance level.ConclusionA null hypothesis will be rejected when the significant value from the test is lower than 5 percent3.2.3 LimitationsIn this project there are some limitations in it. This project only representing a small objectives of coporate governance practices in Indonesia. Moreover, the data collected from this study are limited which is only from the Indonesia embed of Corporate directorship and 100 questioners that had been given the working people in Indonesia.Chapter 4Findings and Analysis4.1 Data Statistic of Questioner Section 14.1.1 StatisticsQuestioner that was Given To the responderNValid100Missing perfect Respond793From the table 4.1.1, It shows that there are 100 valid questioner that have been produced but the respond that can be used only 93 because the other 7 questioner are missing or cannot be use.4.1.2 estimate of respondent that know corporate governanceFrequencyPercentValid PercentCumulative PercentValidYes7176.376.376.3No2223.723.7100.0 agree93100.0100.04.1.3 responsive Knowledge Of Corporate GovernanceFrequencyPercentValid PercentCumulati ve PercentValidVery Bad57.07.07.0Bad1723.923.931.0Neutral1926.826.857.7Good1926.826.884.5Very Good1115.515.5100.0 summarize71100.0100.04.1.4 Respondent Status In troupeFrequencyPercentValid PercentCumulative PercentValidDirector1926.826.826.8Manager1115.515.542.3Supervisor1318.318.360.6Non-Supervisor2839.439.4100.0 substance71100.0100.04.1.5 Relationship Of Directors and Shareholders in Respondent allianceFrequencyPercentValid PercentCumulative PercentValidVery Bad79.99.99.9Bad1825.425.435.2Neutral1318.318.353.5Good2636.636.690.1Very Good79.99.9100.0Total71100.0100.04.2 Data Statistic of Questioner Section 2Using pearson4.2.1 Correlations between corporate governance and Shareholders PerformanceCG effectivenessShareholders PerformanceCGeffectivenessPearson Correlation1.219Sig. (2-tailed).066N7171ShareholdersPerformancePearson Correlation.2191Sig. (2-tailed).066N71714.2.2 Correlations between Corporate governance and Commisioners PerformanceCG effectivenessCommisioners PerformanceCG effectivenessPearson Correlation1-.019Sig. (2-tailed).875N7171CommisionersPerformancePearson Correlation-.0191Sig. (2-tailed).875N71714.2.3 Correlations between Corporate governance and Directors PerformanceCGeffectivenessDirectorsPerformanceCGeffectivenessPearson Correlation1.396**Sig. (2-tailed).001N7171DirectorsPerformancePearson Correlation.396**1Sig. (2-tailed).001N7171**. Correlation is significant at the 0.01 level (2-tailed).IICD ( Indonesia Institute of Corporate Directorship) have made a report about the corporate governance status in Indonesia. Since the corporate governance report 2009 have not been come out yet, I am using the data from the year 2008 which is issued in 2009 by the IICD institute.Corporate Governance Performance by SOEs, Bank, and OverallCategoryMean make up of Corporate Governance Performance (%)2008 nationalPrevious vignetteSOEs76.8074.63Banking75.5571.11Overall61.2667.29The table above shows the performance of corporate governance in Indonesia List ed company. The data show in two different categories which are State possess Enterprises sector and Banking sector. There were difference in Corporate governance performance between the SOEs variable and Banking variable. The SOEs performance was 75.20 %, while Banking was only 56.50 %. However, there are some improvement of corporate covernance practices in both of the group. There were around four percent of increasement for those top quartile and can buoy quartile respectively. It is still challenging tasks facing Indonesian corporations, restrictive bodies, and other governance-related institutions how to enhance the commitment of these bottom quartile companies to good corporate governance practices as well as those companies with corporate governace performance between the top and the bottom quartile. This does not mean that attention to those top quartile firms is not necessary. In the meantime, empirical evidence shows that corporate governance is significantly correlate d to companys economic performance, although the correlation is weak.OECD PrinciplesMean get (%)2008 StudyPrevious StudyRights of Shareholders50.3751.23Equitable Treatment of Shareholders86.3583.02Role of Stakeholders63.6458.76Disclosure and Transparency70.8166.64Responsibilities of the Board59.0252.36Overall Mean Score64.9661.26Using the instrument from OECD ( Organization for Economic Co-Operation and Development) the IICD institute has conducted a survey which was given to the 314 public listed company in Indonesia. Inside the survey they are consisting 5 principles of OECD which are Rights of Shareholders , Equitable Treatment of Shareholders , Role of Stakeholders , Disclosure and Transparency , and Responsibilities of the board. From the survey the IICD institute analyze the status of corporate governance in Indonesia in the year 2008. The results of research shows there are deflation in rights of shareholders in the year 2008 which is 50.37 % and from the previous study it shows that 51.23 %. But others factors for corporate governance in Indonesia had been increase in 2008, such(prenominal) as equitable treatment of shareholders in the year 2008 was 86.35% which is shows an advancement comparing to the previous study only 83.02 %.The role of stakeholders percentage also rise up in the year 2008 which is 63.64 % comparing to the previous study which in only 58.76%. Other factors that have been changing which is disclosure and transparency of the company, in the year 2008 it constitute 70.81 % and the previous study only crap 52.36 %. The last factors that upsurged was responsibilities of the board, in the year 2008 in achieve 59.02 % and the previous study only 52.36 %. The overall mean score of the year 2008 was 64.96 % and the previous study was 61.26 %. The data shows that by using the OECD principles , the situation of corporate governance in Indonesia is getting better.Chapter 5Conclusion and RecommendatioEffect of Corporate Governance on Attra cting InvestorsEffect of Corporate Governance on Attracting InvestorsCorporate governance is the way of corporation being directed which is involves a relationship between the manager , the shareholders , and other stakeholders of the company. The use of corporate governance is to provides the structure through which the objectives of the company are set. In adopting a good corporate governance, companies should be transparent of the financial reports. Now adays most company around the world have adopt good corporate governance system , but some of the countries have not adopt the system. In this project , it will contain a research of the corporate governance status in Indonesia. Wether most of company in Indonesia have adopted a good corporate governance or not.Inside this project, there are two research question which is using different type of statical analysis. The first research question was made to found out wether is it true that a good corporate governance will attract more investors to the company. The second research question was made to know have most company in Indonesia have issue their corporate governance report according to the standard and transparency. And the result of the research is that there are some correlation between the corporate governance and performance of company. The other finding is that some of the company in Indonesia still not transparent in disclosing the corporate governance report.Chapter 1IntroductionResearch backgroundCorporate governance is one of the important factors that should be maintain inside the company. Now adays a lot of investors not only looking for financial reports of the company but they are also looking for the corporate governance status of the company. Since the financial crisis in 1990s. Indonesia facing some diffculties in the economic factors. Alot of company were collapse , because many directors made a defile decision. From that moment the economic and political condition in Indonesia is not st able. This problems will effects the corporate governance system in Indonesia. But by creating a good corporate governance structure they are some benefit from it. A good corporate governance system will help directors, corporate managers , and owner to better governing the company.Many international investors hesitate to invest their money if the corporate governance structure does not so good. They want to know how well the is the directors can manage the company. There are some important key role of the corporate governance which are a transparency of the company financial and non-financial reportings , independent commisioner , and audit committee of the company. Investors want to know clearly the way of company leaders directing their company in achiving the goal. Investors will not invest their money if the company does not have a clear structure of the company. That is why adopting a good corporate governance may have some advantages, it will be easier to obtain capital and i ncreasing share price.Using the data of corporate governance it can also effects the performance of the company.The corporate governance report will shows all the activity of the leaders inside the company. In governing a company there are rules for the directors , managers, and shareholders that must be follow. Such as a Annual General Meetings, most of the leaders of the company must attend this meetings at lease twice a year. If they are not fullfil their job as a leader of the company, it will be reported in the corporate governance report.1.2 Research Objectives1.2.1 Primary Research ObjectivesThe primary objectives of this project is to give some information about the latest situation of coporate governance in Indonesia using the latest data which is taken from the year 2009 and also a questioner which is from the year 2010. Many people believes that a good corporate governance system can attract more investors to the company, so inside this project it will tested wether that statement is true or not. And this project also want to know wether most of company in Indonesia have disclosed their corporate governance reporting transparently.1.2.2 Secondary Research ObjectivesThe secondary objective of this project are From the research it will shows the advancement of corporate governance system in Indonesia.Showing the effectiveness of corporate governance reporting for the companyTake some feedback from the employee in Indonesia about the corporate governance situation in the company where they are working.Chapter 2Literature ReviewA good corporate governance is important for a company around the world. kind of of financial data of the company, investors also looking at the corporate governance disclosure data before they are deciding in which company that should they invest in. From the data it will show the management situation of that company. Some of the country around the world still very low in conducting a good corporate governance. Conducting a goo d corporate governance will make the company more profitable , it will attract more shareholders to invest in our company. Lawrence D. Brown and Marcus L. Caylor (2004) using a sample of 2,327 companies and based on 51 corporate governance provisions which is provided by Institutional Investor Services (ISS) they found out that companies which are better governed relatively got a better income or more profitable and most of the shareholders got more dividend from the company. Based on a data which is taken from Institutional Shareholder Service , they create broad measure of corporate governance and they create Gov- score. The Gov-score was measured of 51 factors which is encompassing eight categories of the corporate goverenance which is board of directors , auditors , characters by laws , executive and director compensation , ownership , progressive practices , and state of incorporation.Financial problem now adays become the major topic globally , it effects a lot of firms aroun d the world. PaquitaY. Davis , Li Li Eng , and Chao-Shin Liu (2006) they were investigate the role of corporate governance mechanisms and accounting system in four different countries in Asia which is Indonesia , Korea , Malaysia , and Thailand. Those countries were effected by Asian financial crisis. They found out that it is depends on the corporate governance mechanisms and accounting system in effecting the book value of truth and it is also determining the relation between the accounting information and stock prices during the economy-wide financial crisis. Results of their finding is the earnings in Thailand and Indonesia was reduced during the Asian financial crisis and increase in book of value. In Korea , neither earnings nor book of value was impacted by the crisis. And the last one which is in Malaysia both book of value and earnings was decreased during the Asian financial crisis.Bernard S. Black , Woochan Kim , Hasung Jang , and Kyung-Suh Park (2009) conduct a research in KCGI (Korea Corporate Governance Index). They try to find the relation between level of corporate governance and the effects the firm market value. And the findings of their research that overall firms that are better governed got a some competitive advantage than other company. From the research , overall firms who got higher KCGI will get higher dividends , got a lower capital expenditures ( because of Korea firms that are overinvest) but the investment is more exquisite to profitability , lagged board structure predicts higher profit , the related party transactions will reduce adverse for firm value.Robert W.McGee (2010) Indonesia need to develop the structure of the corporate governance. By developing a good corporate governance he found out that it will helps increasing the share prices and it will be easier to obtain capital. And from his research information which is from the Worlds bank ROSC report about rights of shareholders , equitable treatment of shareholders , ro le of stakeholders in corporate governance , disclosure and transparancy , and responsibility of the boards from the scale one to five , Indonesia overall score is 2.83% which conclude from his research that corporate governance in Indonesia is need to be develop. From the research he suggested that companies in Indonesia need to strenghten shareholder access to the information of the company , in treating the shareholders must be equally , and company must fully adopt the worldwide Financial Accounting Standards (IFRS) and also International Standards of Auditing.Meidyah Indreswari (2006) identified Indonesia corporate governance status which was turn bad because of the tragedy of economic crisis in 1997. From the research the writters found out there are several factors that make corporate governance fail in that year. Firstly, using agency theory to explain the relation between the agent and the principal was more problematic in ISOEs than the private enterprise. Secondly, the r ules of board director and management is really important for the company. Government should reduce their intervention in ISOEs operating system in order to make the boards of the company to work more effective. Thirdly, findings of the research shows that the corporate governance in Indonesia was not effective due to unclear information about role of corporate governance and also a unclear programmes of the company. These problems can create the lack of commitment of the employee to the company which lead to failling of the corporate governance. Lastly, other factors that lead into fail corporate governance are culture , public governance , and law enforcement. In order to batten down those factors, there should be a joint efforts from the public sectore is needed to ensure a good corporate governance will be occure.A study also conducted by Maria Andersson and Manal Daoud (2005) using the agency theory to test the factors that influence the corporate governance disclosure informa tion in Swedish listed corporations. Using 41 listed companies in Swedish as an example , according to they research it found out that factors that influence the corporations are the parents company it self and the size of the corporation in disclose the corporate governance information. They also find out that agency theory is not a proper theory to find the influence of corporations in disclose information about corporate governance.Zheng Fan , Liyan Wang , Jidong Zhang (2008) they conduct a research about the relation of company motivation in intended disclosure will effect the earning quallity of the company. The research information was taken from the Chinese capital market in 2004-2006 period. And the results of their result is that the company disclosure data and corporate governance of the company will not effects the earning quality of the company.There are many companies in different countries that already adopted a good corporate governance. When a lot company have adopt ed a good corporate governance and shows the transparency of the company performance, it will be easier for the investors to claim in which country they will invest in. But in some countries such as Indonesia there are still some difficulties in adopting a good corporate governce. Benny Simon Tabalujan (2002) studied factors that made the corporate governance in Indonesia failed. Since the financial crisis in Indonesia which is around 1990s there are a lot of trouble that effects the corporate governance system in Indonesia. The most influence factors that he found out were the legal culture and the law. According to his research Indonesia had so much law that must be follow , the law will make some difficulties for the company to perform. He was suggested that Indonesia need to less down those law and regulation for the company so company can perform well in the future.Dudi M. Kurniawan and Nur Indiriantoro (2000) did a research about the status of corporate governance in Indonesi a. And the findings of the study were divided into 5 different parts which are factors that influence the corporate governance status in a company. The first part of his research was about the ownership structure in Indonesia companies. And he found out that Indonesia had two boards in corporate governance system which is not effective for the company. The second part of his research was about the efforts to develop the corporate governance in Indonesia , and he found out that Indonesia corporate governance still need a help from the international countries. The third part of his research was about the accounting standards in Indonesia which should be written according to the basic of International Accounting Standards. The fourth part of his research tell us about audit standards and the audit profession in Indonesia. He suggested that Indonesian auditors need to salary attention to the standards in Indonesia. It is because according to his research a lot of Indonesian auditors lo ok for USA auditors standards and forgeting the standards in his country. This will be a crucial effects for the company. And according to his research the cause of Indonesian financial crisis in 1997 was the auditors in Indonesia miss ditection of fraud that happened in most of companies in Indonesia. This fraud make a lot of company in Indonesia collapse.The fifth parts of his research found out the disclosure data of corporate Indonesia still need to be more transparancy to the public. So from his research conclude that there are a lot of challenges in conducting a good corporate governance in Indonesia but those challenges can be minimize if there is an efforts to conducting a good corporate governance from inside the company.Werner R. Murhadi (2009) did a research using some information from the Indonesia Stock exchange in period 2005-2007 specializes in manufacture companies to test the performance of the corporate governance in Indonesia. He was using five good corporate gove rnance indicators which are independent commisioner , CEO duality , audit committee , top share , and shareholders coalition to investigate rather it will effects the earning management practices. The findings of the research was a good corporate governance will effect earning management practices which done by the company. Another thing that he found out from the research was a lot of companies in Indonesia do EM ( Earning Management ) with negative leans. The purpose of the company do that is to make their revenue look smaller which can help the company to avoiding tax.Sanjeev Bhojraj and Partha Sengupta (2001) they conducted research about the effect of corporate governance to the bond ratings and yield. They found out that corporate governance mechanisms will reduce conflicts of interest between the directors and the providers by monitoring to their actions. And they were also found out that company which have a greater institutional ownership and got influence by the external c ontrol of the board will have a lower bond yields and high ratings for the new bond issues. From the research they are suggested that company that are facing stronger external monitoring from the governance mechanisms are rewarded with low yields and high bond ratings. Monitoring the situation of the company should be maintain so it will stabilize the firm value of the company.Sridhar Arcot and Valentina G. Bruno (2009) studied about the different type of corporate governance will effects the firm performance. Their studied the effects of law in a country to the corporate governance mechanism. Since law and regulation is different from one country to the others, according Sridar and Valentina company must adjust to that law especially for the multinational firms. Disclosing corporate governance report is one of the important factor because they found out some of the governance report was uninformative which mean it was not clear. The impact of the weak corporate governace was it sh ows the the inefficient use of the firms resources which can lead to the poor operating income.Benny Simon Tabalujan (2002) studied factors that made the corporate governance in Indonesia failed. Since the financial crisis in Indonesia which is around 1990s there are a lot of trouble that effects the corporate governance system in Indonesia. The most influence factors that he found out were the legal culture and the law. According to his research Indonesia had so much law that must be follow , the law will make some difficulties for the company to perform. He was suggested that Indonesia need to less down those law and regulation for the company so company can perform well in the future.Siti Nuryanah (2009) said there are still a problem in Indonesia corporate governance specially in audit committee. The problems in audit committee in Indonesia is that they holding a double positions in other companies, which it make the audit committee is not efficient in doing the works. And also , there are some company that does not have an audit committee. By not having an audit committee will become a problem for the board of committe in taking a decision. The research found out that 30 % from the JSX (Jakarta Stock Exchange) public listed companies does not have independent commisioners. Although that kind of problem occure , from her results it was found out that most of the companies in Indonesia have complied with the regulation of corporate governance.Chapter 3Methodology3.1 DataThe data of this project was taken from annual report in Indonesia stock exchange, IICD (Indonesia Institute for Corporate Directorship) reports which is the latest report, and 100 questioners which is given to the working people in Indonesia. The questioner was translating into Indonesia Language.3.2 MethodologyIn this project there are two-research question that can lead to the answer of this research project. Each of the research questions will be tested in different type of statistical a nalysis test. The two-research questions of this project areFirst Is it true that adopting good corporate governance will attract more investors?Second Using some factors in corporate governance reports, does most company in Indonesia have report their corporate governance data transparently?By using these research questions, several questions in the questionnaire had been made to gather answers from the respondents which then it will be linked back to answer the research questions.Inside the questioner there are divided into two section. The first section of the questioner is basic question about the corporate governance and the employee posisition in a company which they are working. The second section of the questioner is the important answer for this project which is contain all information that will be used to analyze.As for the following questions in the questionnaires, respondents will be asked about questions which are mostly related to the research questions3.2.1 Research Q uestion 1Is it true that adopting good corporate governance will increse the company performance ?HypothesisH1 good corporate governance will give a significant effect to the company performanceH0 good corporate governance will not give a significant effect to the company perfirmanceFrom the research that was conducted by Lawrence D. Brown and Marcus L. Caylor (2004) said that there were some advantages in adopting a good corporate governance. He was using a sample of 2,327 companies and based on 51 corporate governance provisions that are provided by Institutional Investor Services (ISS). And found out that company that are better governed are relatively got a better income or more profitable and most of the shareholders got more dividend from the company.Another people that argued about corporate governance mechanisms were Sanjev Bhojraj and Partha Sengupta they found out corporate governance mechanism can reduce a conflicts of interest between the directors. And also a company sh ould monitoring inside the company so the goodness performance of the company can be maintain.From this type of question, from the statement above I would like to test whether companies that have a good corporate governance will have a lot of investors in it and also is it will attract more investors to the company.Using the survey question, it will guide to the answer of this question which are How effective is the corporate governance report being used in your company?In your opinion, does good corporate governance will attract more investor?H0 ? = 0 (There is no correlation between corporate governance and number of investors)H1 ? 0 (There is a correlation between corporate governance and number of investors)Sample correlation coefficient, commonly denotedr, is calculated as followingWhere X and Y are the sample means.T-test for correlation formula3.2.2 Research Question 2Does most company in Indonesia have reported their corporate governance activity data transparently and disc losed it to the public on time ?HypothesisH1 All of the companies in Indonesia have disclosed their corporate governance activity transparently and on timeH0 Not all of the companies in Indonesia have not disclose their corporate governance activity transparently and on timeWerner R. Murhadi (2009) explored some information period 2005-2007 in Indonesia Stock Exchange specializes in manufacture companies to test the performance of the corporate governance in Indonesia. One of the result from his research was, he found out a lot of companies in Indonesia still not develop transparency in reporting data of the company. A lot of companies want to avoid tax by creating an incorrect data, which is making the revenue of the company looks smaller.Another researcher were Zheng Fan , Liyan Wang , Jidong Zhang (2008) they are argued that the company disclosure data and corporate governance of the company will not effects the earning quality of the companyI would like to test whether most of t he companies in Indonesia have disclosed their coporate governance data transparently. Because a good corporate governance will show a transparency data, all the performance of the companies which is bad or good must be inform to the public.One Way Anova (Parametric Test)From using this type of test , data that used to this test will be from question number 7, question number 8, question number 9 and question number 10 , the question from the survey have been desing will be in a way that respondents are asked to rate .This test is used to test the equality of 3 or more means by using the variances.H0 1= 2= 3= 4 ( Most companies in Indonesia have disclosed their corporate governance activity transparently and on time)H1 1 2 3 4 ( Not all of the companies in Indonesia have not disclose their corporate governance activity transparently and on time)The formulas for the various sums of squares are as followsSSE = SST SSAX = sample value ith item in the jth samplen = total sample sizeXj = sample value of jth samplenj = size of the jth sampleWe will get the respective variances if we divide the sum of squares of SSA and SSE which are as followsF-test formulaP-valueDegrees of freedom = k-1Degrees of freedom = n-kThese two values will be used to find the critical values for the F statistic and helps us to know whether the p-value is less than or more than the significance level.ConclusionA null hypothesis will be rejected when the significant value from the test is lower than 5 percent3.2.3 LimitationsIn this project there are some limitations in it. This project only representing a small objectives of coporate governance practices in Indonesia. Moreover, the data collected from this study are limited which is only from the Indonesia Institute of Corporate directorship and 100 questioners that had been given the working people in Indonesia.Chapter 4Findings and Analysis4.1 Data Statistic of Questioner Section 14.1.1 StatisticsQuestioner that was Given To the Responden tNValid100MissingTotal Respond793From the table 4.1.1, It shows that there are 100 valid questioner that have been produced but the respond that can be used only 93 because the other 7 questioner are missing or cannot be use.4.1.2 sum up of respondent that know corporate governanceFrequencyPercentValid PercentCumulative PercentValidYes7176.376.376.3No2223.723.7100.0Total93100.0100.04.1.3 Respondent Knowledge Of Corporate GovernanceFrequencyPercentValid PercentCumulative PercentValidVery Bad57.07.07.0Bad1723.923.931.0Neutral1926.826.857.7Good1926.826.884.5Very Good1115.515.5100.0Total71100.0100.04.1.4 Respondent Status In CompanyFrequencyPercentValid PercentCumulative PercentValidDirector1926.826.826.8Manager1115.515.542.3Supervisor1318.318.360.6Non-Supervisor2839.439.4100.0Total71100.0100.04.1.5 Relationship Of Directors and Shareholders in Respondent CompanyFrequencyPercentValid PercentCumulative PercentValidVery Bad79.99.99.9Bad1825.425.435.2Neutral1318.318.353.5Good2636.636.690. 1Very Good79.99.9100.0Total71100.0100.04.2 Data Statistic of Questioner Section 2Using pearson4.2.1 Correlations between corporate governance and Shareholders PerformanceCG effectivenessShareholders PerformanceCGeffectivenessPearson Correlation1.219Sig. (2-tailed).066N7171ShareholdersPerformancePearson Correlation.2191Sig. (2-tailed).066N71714.2.2 Correlations between Corporate governance and Commisioners PerformanceCG effectivenessCommisioners PerformanceCGeffectivenessPearson Correlation1-.019Sig. (2-tailed).875N7171CommisionersPerformancePearson Correlation-.0191Sig. (2-tailed).875N71714.2.3 Correlations between Corporate governance and Directors PerformanceCGeffectivenessDirectorsPerformanceCGeffectivenessPearson Correlation1.396**Sig. (2-tailed).001N7171DirectorsPerformancePearson Correlation.396**1Sig. (2-tailed).001N7171**. Correlation is significant at the 0.01 level (2-tailed).IICD ( Indonesia Institute of Corporate Directorship) have made a report about the corporate gover nance status in Indonesia. Since the corporate governance report 2009 have not been come out yet, I am using the data from the year 2008 which is issued in 2009 by the IICD institute.Corporate Governance Performance by SOEs, Bank, and OverallCategoryMean Score of Corporate Governance Performance (%)2008 StudyPrevious StudySOEs76.8074.63Banking75.5571.11Overall61.2667.29The table above shows the performance of corporate governance in Indonesia Listed company. The data show in two different categories which are State have Enterprises sector and Banking sector. There were difference in Corporate governance performance between the SOEs variable and Banking variable. The SOEs performance was 75.20 %, while Banking was only 56.50 %. However, there are some improvement of corporate covernance practices in both of the group. There were around four percent of increasement for those top quartile and bottom quartile respectively. It is still challenging tasks facing Indonesian corporations, r egulatory bodies, and other governance-related institutions how to enhance the commitment of these bottom quartile companies to good corporate governance practices as well as those companies with corporate governace performance between the top and the bottom quartile. This does not mean that attention to those top quartile firms is not necessary. In the meantime, empirical evidence shows that corporate governance is significantly correlated to companys economic performance, although the correlation is weak.OECD PrinciplesMean Score (%)2008 StudyPrevious StudyRights of Shareholders50.3751.23Equitable Treatment of Shareholders86.3583.02Role of Stakeholders63.6458.76Disclosure and Transparency70.8166.64Responsibilities of the Board59.0252.36Overall Mean Score64.9661.26Using the instrument from OECD ( Organization for Economic Co-Operation and Development) the IICD institute has conducted a survey which was given to the 314 public listed company in Indonesia. Inside the survey they are consisting 5 principles of OECD which are Rights of Shareholders , Equitable Treatment of Shareholders , Role of Stakeholders , Disclosure and Transparency , and Responsibilities of the board. From the survey the IICD institute analyze the status of corporate governance in Indonesia in the year 2008. The results of research shows there are deflation in rights of shareholders in the year 2008 which is 50.37 % and from the previous study it shows that 51.23 %. But others factors for corporate governance in Indonesia had been increase in 2008, such as equitable treatment of shareholders in the year 2008 was 86.35% which is shows an advancement comparing to the previous study only 83.02 %.The role of stakeholders percentage also rise up in the year 2008 which is 63.64 % comparing to the previous study which in only 58.76%. Other factors that have been changing which is disclosure and transparency of the company, in the year 2008 it reach 70.81 % and the previous study only reach 52.36 %. The last factors that upsurged was responsibilities of the board, in the year 2008 in achieve 59.02 % and the previous study only 52.36 %. The overall mean score of the year 2008 was 64.96 % and the previous study was 61.26 %. The data shows that by using the OECD principles , the situation of corporate governance in Indonesia is getting better.Chapter 5Conclusion and Recommendatio