Article Metrics

Article abstract view : 48 times
PDF full text: 69 times

Board of Commissioners in Corporate Governance, Firm Performance, and Ownership Structure

Cynthia Afriani Utama*, Sidharta Utama**


The purpose of this study is to investigate: firstly, the two-way causality between firms performance and the size of BOC; secondly, the nonlinear effect of board size on the firms’ performance; thirdly, the direct and moderating effects of the ownership structure on the influence of firm performance on board size. Using the ROA as a measure of firm performance, we find that there is a simultaneous relationship between firm performance and the size of BOC: the size of the board has an inverted U-shaped effect on firm performance while firms performance has a negative influence on board size. We find that the size of the board of commissioners increases firm performance up to a certain level, but a very large board reduces firm performance. We find marginal evidence that ownership structure has a moderating effect on the impact of firm performance on board size. We document that the negative effect of performance on board size dissipates as ownership right increases. The negative effect of performance on board size marginally strengthens. Thus, our study contributes to the literature by finding that the negative influence of firm performance and board primarily occurs on firms that are subject to high incentive expropriation by controlling shareholders.

board size, board of commissioners, corporate governance, firm performance,
ownership structure, cash-flow rights, control rights.

* Department of Management, Faculty of Economics and Business, Universitas Indonesia, Kampus UI Depok 16424, Indonesia
** Department of Accounting, Faculty of Economic and Business, Universitas Indonesia, Kampus UI Depok 16424, Indonesia

Full Text:



Arosa, B., Iturallde, T., Maseda, A. (2013). The board’s structure and firm performance in SMEs: Evidence from Spain.

Investigaciones Europeas de Dirreccion y Economia de la Empresa 19, 127-135.

Baysinger, B.D., Butler, H.D. (1985). Corporate governance and the board of directors: Performance effects of changes in a

board’s composition. Journal of Law, Economics, and Organization, 1, 101 – 124.

Belkhir, M. (2009). Board of Directors’ Size and Performance in the Banking Industry. International Journal of Managerial Finance 5(2), 201-221.

Bhagat, S., Black, B. (2001). Board independence and long-term form performance. Journal of Corporation Law, 27.

Bjuggren, P., Eklund, J.E., Wiberg, D. (2007). Institutional Owners and Return on Investments, Centre of Excellence for Science

and Innovation Studies (CESIS) Electronic Working Paper Series, Paper no. 96.

Brown, L. D., Caylor, M.L. (2006). Corporate Governance and Firm Valuation. Journal of Accounting and Public Policy 25,


Brown, P., Beekes, W., Verhoeven, P., 2011. Corporate governance, accounting and finance: A review. Account. Financ. 51,


Bun, M.J.G., Harrison, T.D. (2014). OLS and IV estimation of regression models including endogenous interaction terms,

retrieved March 3, 2017 from


Bushman, R., Chen, Q., Engel, E., Smith, A., 2004, Financial accounting information, organizational complexity and corporate

governance systems, Journal of Accounting and Economics 37, 167—201.

Carney, M., Gedajlovic, E. (2001). Corporate governance and firm capabilities: A comparison of managerial, alliance, and

personal capitalisms, Asia Pacific Journal of Management 18(3), 335-354.

Chaganti, R., Damanpour, F.,(1991) Institutional ownership, capital structure, and firm performance. Strategic Management

Journal 12, 479-491.

Charfeddine, L., Elmarzougui, A. (2010). Institutional ownership and firm performance. The IUP Journal of Behavioral Finance

(4), 35-46.

Chen, C. H., and B. Al-Najjar. (2012). The determinants of board size and independence: Evidence from China, International

Business Review 21(5): 831-846.

Guest, P. M. (2008). The determinants of board size and composition: Evidence from the UK, Journal of Corporate Finance

(1): 51-72.

Cheng, S. (2008). Board size and the variability of corporate performance. Journal of Financial Economics 87, 157-176.

Cho, M. H. (1998). Ownership structure, investment, and the corporate value: An empirical analysis. Journal of Financial

Economics,47, 103-121.

Claessens, S., Djankov, S. Lang, L.H.P. (2000). The separation of ownership and control in East Asian corporations. Journal of

Financial Economics 58(1-2), 81-112.

Claessens, S., J.H.P. Fan and L.H.P. Lang. (2002a). The Benefits and costs of group affiliation : Evidence from East Asia,

Working Paper, University of Amsterdam, Hong Kong University of Science & Technology, and the Chinese University

of Hong Kong.

Claessens, S., S. Djankov, J.P.H. Fan, and L.H.P Lang (2002b). Disentangling the incentive and entrenchment effects of large

shareholdings, The Journal of Finance, 57 (6): 2741-277.

Coles, J., Daniel, N., Naveen, L., 2008. Boards: Does one size fit all? Journal of Financial Economics 87, 329-356.

Coles, J. L., Lemmon, M. L., Meschke, J. F. (2012). Structural models and endogeneity in corporate finance: The link between

managerial ownership and corporate performance, Journal of Financial Economics 103, 149-168.

Conheady, B., P. Mckllkenny, K. K. Opong, I. Pignatel. (2015). Board effectiveness and board performance of Canadian listed

firms, The British Accounting Review 47: 209-303.

Conyon, M. J. and Peck, S. I. (1998) Board size and corporate performance: Evidence from European countries, European

Journal of Finance (4), 291–304.

Cornett, M. M., Marcus, A. J., Saunders, A., Tehranian, H. (2007). The impact of institutional ownership on corporate operating

performance, Journal of Banking and Finance 31, 1771- 1794.

Cornett, M. M., Marcus, A. J., Tehranian, H. (2008). Corporate governance and pay-for-performance: The impact of earnings

management, Journal of Financial Economics 87, 357-373.

Croci, E., Gonenc, H., Ozkan, N. (2012). CEO compensation, family control, and institutional investors in Continental Europe.

Journal of Banking & Finance 36(12), 3318–3335.

Dahlquist, M., Robertsson, G. (2001). Direct foreign ownership, institutional investors, and firm characteristics, Journal of

Financial Economics 59, 413-440.

Daily, C., Dalton, D., Rajagopalan, N. (2003). Governance through ownership: Centuries of practice, decades of research”,

Academy of Management Journal 46(2), 151-158.

Dalton, D. R., Daily, C.M., Johnson, J.L., Ellstrand, A.E. (1999). Number of directors and Financial performance: A meta analysis,

Academy of Management Journal 42(6), 674-686.

de Andres, P., Azofra, V. and Lopez, F. (2005). Corporate boards in OECD countries: Size, composition, functioning and

effectiveness, Corporate Governance: An International Review 13(2), 197–210.

Demsetz, H., Villalonga, B. (2001). Ownership structure and corporate performance. Journal of Corporate Finance 7, 209-233.

Denis, D. J., Sarin, A. 1999. Ownership and board structure in publicly traded corporations. Journal of Financial Economics 52,

– 223.

Diyanti, V., Utama, S., Rossieta, H., Veronica NPS, S. (2010). The effects of ultimate controlling ownership on the related party

transactions and earnings management, Working Paper, Universitas Indonesia.

Duggal, R., Millar, J.A. (1999). Institutional Ownership and firm performance: The case of bidder returns. Journal of Corporate

Finance 5, 103-117.

Eisenberg, T., Sundgren, S., Wells, M. (1998). Larger board size and decreasing firm value in small firm. Journal of Financial

Economics 48, 35-54.

Eliyanora. (2008). Pengaruh Ukuran dewan, komisaris independen, dan kepemilikan institusional terhadap non performing

loan. Thesis, Fakultas Ekonomi Universitas Indonesia.

Elloumi, Gueyi, (2001). Financial Distress and Corporate Governance: An Empirical Analysis, Corporate Governance 1(1),

- 23.

Fama, E., Jensen, M., (1983). Separation of ownership and control. Journal of Law and Economics 26, 301 – 325.

Gillan, S. L., Starks, L.T. (2000). Corporate governance proposals and shareholder activism: The role of institutional investors,

Journal of Financial Economics 57, 275- 305.

Gilson, S. (1990). Bankruptcy, boards, banks, and blockholders, Journal of Financial Economics 26, 355-387.

Giri. (2008). Pengaruh prosentase komisaris independen, kepemilikan manajerial, kepemilikan institusi dan konsentrasi

kepemilikan terhadap kinerja dan nilai perusahaan pada perusahaan di Bursa Efek Indonesia. Thesis. Fakultas Ekonomi

Universitas Indonesia.

Goodstein, J., Gautam, K., Boeker, W. (1994). The effect of board size and diversity on strategic change. Strategic Management

Journal 15, 241-250.

Hampel, R. (1998). Committee on Corporate Governance: Final Report’, Gee; London.

Hartzell, J. C., Starks, L.T. 2003, Institutional investors and executive compensation, Journal of Finance 58, 2351-2374.

Hermalin, B., Weisbach, M. (1988). Endogenously chosen boards of directors and their monitoring of the CEO. American

Economic Review 88, 96 – 118.

Hermalin, B., Weishbach, M. (1991). The effect of board composition and direct incentives om firm performance, Financial

Management, 1001-112.

Hermawan, A.A. (2009). Pengaruh Efektifitas Dewan Komisaris dan Komite Audit, Kepemilikan oleh Keluarga, dan Peran

Monitoring Bank terhadap Kandungan Informasi Laba. Disertation, Fakultas Indonesia Universitas Indonesia.

Higgs, D. (2003). Review of the Role and Effectiveness of Non-executive Directors, The Department of Trade and Industry;


Himmelberg, C., Hubbard, R., Palia, D. (1999). Understanding the determinants of managerial ownership and the link between

ownership and performance. Journal of Financial Economics 53, 353-384.

Jensen, M. C., Meckling, W. (1976). Theory of the Firm: Managerial behavior, agency cost, and ownership structure. Journal of

Financial Economics 305-360.

Jensen, M.C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. The Journal of Finance

, 831-880

Johnson, S., Boone, P., Breach, A., Friedman, E. (2000). Corporate governance in the Asian financial crisis. Journal of Financial

Economics 58, 141–186.

Kieso, D.E., Weygandt, J.J., Warfield, T.D. (2008). Intermediate Accounting, John Wiley and Sons Inc.

Klein, A. (1998). Firm performance and board committee structure. Journal of Law & Economics, 41, 275– 303.

Lehmann, E.,Weigand, J. (2000). Does the governed corporation perform better? Governance structures and corporate

performance in Germany, European Finance Review 4(2), 157-195.

La Porta, R., Lopez-de-Silanes, F., Shleifer, A. (1999). Corporate ownership around the world. The Journal of Finance 54(2),


Leng, A.C.A. (2004). The impact of corporate governance practices on firms’ financial performance: Evidence from Malaysian

companies, ASEAN Economic Bulletin Vol. 21, No. 3, pp. 308-318.

Linck, J., Netter, J., Yang, T. (2008). The determinants of board structure. Journal of Financial Economics 87(2), 308-328.

Lipton, M., Lorch, J. W. (1992). A modest proposal for improved corporate governance. The Business Lawyer 48, 59-77

Lowenstein, L. (1991). Why managers should (and should not) have respect for their shareholders. Journal of Corporation

Law 17, 1-27.

Mak, Y.T., Li, Y. (2001). Determinants of corporate ownership and board structure: Evidence from Singapore, Journal of

Corporate Finance 7(3), 235-256.

Market valuation: An empirical analysis, Journal of Financial Economics, 20, 293-315.

McConnell, J.J., Servaes, H. (1990). Additional evidence on equity ownership and corporate value. Journal of Financial

Economics 27, 595 – 612.

Melati, I., Rijken, H.A., Utama, S. (2010). Ownership structure and firm performance: Additional evidence from Indonesia,

Working Paper.

Morck, R., Shleifer, A.,Vishny, R. W. (1988). Management ownership and market valuation: An empirical analysis, Journal of

Financial Economics 20, 293-315.

Mishra, D. R. (2011). Multiple large shareholders and corporate risk taking: Evidence from East Asia, Corporate Governance

International Review 19(6): 507-528.

Muniandy, B., Hillier, J. (2015). Board independence, investment opportunity set, and performance of South African firms,

Pacific-Basin Finance Journal xxx, 1-17.

Munisi, G., N. Hermes, and T. Randoy. (2014). Corporate boards and ownership structure: Evidence from South-Saharan

American, Internatinal Business Review 23: 785-796.

O’Connell, V., Cramer, N. (2010). The relationship between firm performance and board characteristics in Ireland, European

Management Journal 28, 387- 399.

Peng, M.W., C.C. Mutlu, S. Sauerwald, K.Y. Au, and D. Y. L. Wang. (2015). Board interlocks and corporate performance among

firms listed abroad, Journal of Management History 21 (2): 257-282.

Puspita, Lukviarman, (2007). Board governance dan kinerja Perusahaan (studi terhadap perbankan go publik di BEJ), The 1st

Accounting Conference FEUI, Depok.

Raheja, C. (2005). Determinants of board size and composition: A theory of corporate boards. Journal of Corporate Finance

, 113 – 139.

Rosenstein, S., Wyatt, J.G. (1990). Outside Directors, Board Independence, and Shareholder Wealth, Journal of Financial

Economics, 26, 175-192.

Ross, S.A.,Westerfield, R.W., Jordan, B.D. (2009). Modern Financial Management. McGraw-Hill. Eight Edition.

Seifert, B., Gonenc, H., Wright, J. (2005). The international evidence on performance and equity ownership by insiders,

blockholders, and institutions, J. of Multi. Fin. Manag. 15, 171-191.

Shleifer, A., and M. W. Vishny. (1986). Large shareholders and corporate control. Journal of Political Economy 94: 461–488.

Shleifer, A., Vishny, R. W. (1999). A survey of corportae governance. Journal of Finance 52 (2), 737-783

Sing, S.S.G.H.B.D. (2015). Ownership concentration, board characteristics and firm performance, Management Decision 53(5),

- 931

Siregar, S. V., Utama, S. (2008). Type of earning management and the effect of ownership structure, firm size, and corporate

governance practice: Evidence from Indonesia. The International Journal of Accounting 43, 1-27.

Stiles, P., Taylor, B. (2001). Boards at work: how directors view their roles and responsiblities. Oxford: Oxford University Press.

Utama, C. A. (2012). Company disclosure in Indonesia: Corporate governance practice, ownership structure, and total assets,

Asian Journal of Business and Accounting 5(1): 1-25.

Van den Berghe, L.A.A, Levrau, A. (2004). Evaluating board of directors: What constitutes of board a good of corporate board?.

Corporate Governance of International Review 12, 461-478.

Wardhani, R. (2006). Mekanisme corporate governance dalam perusahaan yang mengalami permasalahan keuangan

(financially distressed firms). Simposium Nasional Akuntansi 9. Padang.

Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics 40, 185 – 211.

Zefanya. (2008). Analisis pengaruh ukuran dewan, komisaris independen, dan kepemilikan manajerial terhadap NPM, ROA

dan ROE sebagai kinerja keuangan perusahaan, Thesis, Fakultas Ekonomi, Universitas Indonesia

Zuna, S. U. (2009). Komisaris, CEO, Tipe Kepemilikan Saham Pengendali dan Risk Taking pada Industri Perbankan di Indonesia

Periode 2004-2008, Thesis, Fakultas Ekonomi Universitas Indonesia.


International Research Journal of Business Studies indexed in: