Audit Committee, Financial Condition, and Firm Performance: Empirical Evidence From Indonesia
DOI:
https://doi.org/10.38035/jafm.v1i2.29Keywords:
Audit Committee, Financial Condition, Firm Performance, IndonesiaAbstract
This study has examined the characteristics of the audit committee (size, independence, and expertise) in addition to financial Condition (leverage and firm size) in increasing firm performance. The random effect with panel data regression was applied on 309 firm-year observations of the manufacturing companies listed in the Indonesian Stock Exchange (IDX) for the period of 2016 - 2018. Return on Assets was used as the measurement of firm performance. This study’s results show a significant and positive relationship between firm size with performance and a significant negative relationship between leverage and firm performance. However, the findings show no significant relationship between the characteristics of the audit committee and firm performance. The results of this study have implications for investors, regulators, and market participants. Policy makers might use these findings, especially regarding the characteristics of the audit committee and financial conditions, for improving the performance of the companies in Indonesia
References
Mohammed, B. H., Flayyih, H. H., Mohammed, Y. N., & Abbood, H. Q. (2019). The effect of audit committee characteristics and firm financial performance: An empirical study of listed companies in Iraq stock exchange. Journal of Engineering and Applied Science, 14(4), 4919-4926.
? Amer, M. (2016). Measuring the effect of the board of directors and audit committee characteristics on firm financial performance in Egypt (Doctoral dissertation, Cardiff Metropolitan University).
Aldamen, H., Duncan, K., Kelly, S., & McNamara, R. (2020). Corporate governance and family firm performance during the Global Financial Crisis. Accounting & Finance, 60(2), 1673-1701.
Alqatamin, R. M. (2018). Audit committee effectiveness and company performance: Evidence from Jordan. Accounting and Finance Research, 7(2), 48.
Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2004). Board characteristics, accounting report integrity, and the cost of debt. Journal of accounting and economics, 37(3), 315-342.
Arslan, M., Zaman, R., Malik, R. K., & Mehmood, A. (2014). Impact of CEO duality and audit committee on firm performance: A study of oil & gas listed firms of Pakistan. Research Journal of Finance and Accounting, 5(17), 2222-1697.
Bansal, N., & Sharma, A. K. (2016). Audit committee, corporate governance and firm performance: Empirical evidence from India. International Journal of Economics and Finance, 8(3), 103.
Beasley, M. S. (1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. Accounting review, 443-465.
Ben Barka, H., Legendre, F. Effect of the board of directors and the audit committee on firm performance: a panel data analysis. J Manag Gov 21, 737–755 (2017).
Bhasin, M. L. (2013). Corporate accounting fraud: A case study of Satyam Computers Limited. Open Journal of Accounting, 2, 26-38.
Bonazzi, L., & Islam, S. M. (2006). Agency theory and corporate governance: a study of the effectiveness of the board in their monitoring of the CEO. Journal of Modeling in Management, 2 (1), 7-23.
Bontis, N., Wu, S., Chen, M. C., Cheng, S. J., & Hwang, Y. (2005). An empirical investigation of the relationship between intellectual capital and firms’ market value and financial performance. Journal of intellectual capital.
Bouaziz, Z., & Triki, M. (2012). The impact of the presence of audit committees on the financial performance of Tunisian companies. International Journal of Management & Business Studies, 2(4), 57-64.
Bronson, S. N., Carcello, J. V., Hollingsworth, C. W., & Neal, T. L. (2009). Are fully independent audit committees really necessary?. Journal of Accounting and Public Policy, 28(4), 265-280.
Chhibber, P. K., & Majumdar, S. K. (1999). Foreign ownership and profitability: Property rights, control, and the performance of firms in Indian industry. The Journal of Law and Economics, 42(1), 209-238.
Dakhlallh, M. M., Rashid, N., Abdullah, W. A. W., & Al Shehab, H. J. (2020). Audit Committee and Tobin's Q As A Measure of Firm Performance among Jordanian Companies. Jour of Adv Research in Dynamical & Control Systems, 12(1).
De Oliveira Gondrige, E., Clemente, A., & Espej, M. M. D. S. B. (2012). Composition of the board and firm value of brazilian public companies. Brazilian Business Review, 9(3), 71-93.
Doan, T. (2020). Financing decision and firm performance: Evidence from an emerging country. Management Science Letters, 10(4), 849-854.
Ehikioya, B. I. (2009). Corporate governance structure and firm performance in developing economies: evidence from Nigeria. Corporate Governance: The international journal of business in society.
Gleason, K. C., Mathur, L. K., & Mathur, I. (2000). The interrelationship between culture, capital structure, and performance: evidence from European retailers. Journal of business research, 50(2), 185-191.
Hansen, G. S., & Wernerfelt, B. (1989). Determinants of firm performance: The relative importance of economic and organizational factors. Strategic management journal, 10(5), 399-411.
Hill, C. W., & Jones, T. M. (1992). Stakeholder?agency theory. Journal of management studies, 29(2), 131-154.
Ibhagui, O. W., & Olokoyo, F. O. (2018). Leverage and firm performance: New evidence on the role of firm size. The North American Journal of Economics and Finance, 45, 57-82.
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American economic review, 76(2), 323-329.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.
Rahman, M. M., Meah, M. R., & Chaudhory, N. U. (2019). The impact of audit characteristics on firm performance: an empirical study from an emerging economy. The Journal of Asian Finance, Economics and Business (JAFEB), 6(1), 59-69.
Sheikh, N. A., & Khan, M. I. (2016). Effects of excess cash, board attributes and insider ownership on firm value: evidence from Pakistan. Australasian Accounting, Business and Finance Journal, 10(1), 29-39.
Surbakti, L. P., & Samosir, H. E. S. (2019) Earnings Quality and the Effect of Internal Monitoring Corporate Governance: Evidence from Indonesia.
Tripathy, S., & Shaik, A. (2020). Leverage and firm performance: Empirical evidence from Indian food processing industry. Management Science Letters, 10(6), 1233-1240.
Wiseman, R. M., Cuevas?Rodríguez, G., & Gomez?Mejia, L. R. (2012). Towards a social theory of agency. Journal of management studies, 49(1), 202-222.
Zabri, S. M., Ahmad, K., & Wah, K. K. (2016). Corporate governance practices and firm performance: Evidence from top 100 public listed companies in Malaysia. Procedia Economics and Finance, 35, 287-296.
Zhuang, J., Edwards, D., & Capulong, M. V. A. (2001). Corporate Governance & Finance in East Asia: A Study of Indonesia, Republic of Korea, Malaysia, Philippines and Thailand. Asian Development Bank.
Zhang, Y., Zhou, J., & Zhou, N. (2007). Audit committee quality, auditor independence, and internal control weaknesses. Journal of accounting and public policy, 26(3), 300-327.
Zhou, H., Owusu-Ansah, S., & Maggina, A. (2018). Board of directors, audit committee, and firm performance: Evidence from Greece. Journal of International Accounting, Auditing and Taxation, 31, 20-36.
? Amer, M. (2016). Measuring the effect of the board of directors and audit committee characteristics on firm financial performance in Egypt (Doctoral dissertation, Cardiff Metropolitan University).
Aldamen, H., Duncan, K., Kelly, S., & McNamara, R. (2020). Corporate governance and family firm performance during the Global Financial Crisis. Accounting & Finance, 60(2), 1673-1701.
Alqatamin, R. M. (2018). Audit committee effectiveness and company performance: Evidence from Jordan. Accounting and Finance Research, 7(2), 48.
Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2004). Board characteristics, accounting report integrity, and the cost of debt. Journal of accounting and economics, 37(3), 315-342.
Arslan, M., Zaman, R., Malik, R. K., & Mehmood, A. (2014). Impact of CEO duality and audit committee on firm performance: A study of oil & gas listed firms of Pakistan. Research Journal of Finance and Accounting, 5(17), 2222-1697.
Bansal, N., & Sharma, A. K. (2016). Audit committee, corporate governance and firm performance: Empirical evidence from India. International Journal of Economics and Finance, 8(3), 103.
Beasley, M. S. (1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. Accounting review, 443-465.
Ben Barka, H., Legendre, F. Effect of the board of directors and the audit committee on firm performance: a panel data analysis. J Manag Gov 21, 737–755 (2017).
Bhasin, M. L. (2013). Corporate accounting fraud: A case study of Satyam Computers Limited. Open Journal of Accounting, 2, 26-38.
Bonazzi, L., & Islam, S. M. (2006). Agency theory and corporate governance: a study of the effectiveness of the board in their monitoring of the CEO. Journal of Modeling in Management, 2 (1), 7-23.
Bontis, N., Wu, S., Chen, M. C., Cheng, S. J., & Hwang, Y. (2005). An empirical investigation of the relationship between intellectual capital and firms’ market value and financial performance. Journal of intellectual capital.
Bouaziz, Z., & Triki, M. (2012). The impact of the presence of audit committees on the financial performance of Tunisian companies. International Journal of Management & Business Studies, 2(4), 57-64.
Bronson, S. N., Carcello, J. V., Hollingsworth, C. W., & Neal, T. L. (2009). Are fully independent audit committees really necessary?. Journal of Accounting and Public Policy, 28(4), 265-280.
Chhibber, P. K., & Majumdar, S. K. (1999). Foreign ownership and profitability: Property rights, control, and the performance of firms in Indian industry. The Journal of Law and Economics, 42(1), 209-238.
Dakhlallh, M. M., Rashid, N., Abdullah, W. A. W., & Al Shehab, H. J. (2020). Audit Committee and Tobin's Q As A Measure of Firm Performance among Jordanian Companies. Jour of Adv Research in Dynamical & Control Systems, 12(1).
De Oliveira Gondrige, E., Clemente, A., & Espej, M. M. D. S. B. (2012). Composition of the board and firm value of brazilian public companies. Brazilian Business Review, 9(3), 71-93.
Doan, T. (2020). Financing decision and firm performance: Evidence from an emerging country. Management Science Letters, 10(4), 849-854.
Ehikioya, B. I. (2009). Corporate governance structure and firm performance in developing economies: evidence from Nigeria. Corporate Governance: The international journal of business in society.
Gleason, K. C., Mathur, L. K., & Mathur, I. (2000). The interrelationship between culture, capital structure, and performance: evidence from European retailers. Journal of business research, 50(2), 185-191.
Hansen, G. S., & Wernerfelt, B. (1989). Determinants of firm performance: The relative importance of economic and organizational factors. Strategic management journal, 10(5), 399-411.
Hill, C. W., & Jones, T. M. (1992). Stakeholder?agency theory. Journal of management studies, 29(2), 131-154.
Ibhagui, O. W., & Olokoyo, F. O. (2018). Leverage and firm performance: New evidence on the role of firm size. The North American Journal of Economics and Finance, 45, 57-82.
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American economic review, 76(2), 323-329.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.
Rahman, M. M., Meah, M. R., & Chaudhory, N. U. (2019). The impact of audit characteristics on firm performance: an empirical study from an emerging economy. The Journal of Asian Finance, Economics and Business (JAFEB), 6(1), 59-69.
Sheikh, N. A., & Khan, M. I. (2016). Effects of excess cash, board attributes and insider ownership on firm value: evidence from Pakistan. Australasian Accounting, Business and Finance Journal, 10(1), 29-39.
Surbakti, L. P., & Samosir, H. E. S. (2019) Earnings Quality and the Effect of Internal Monitoring Corporate Governance: Evidence from Indonesia.
Tripathy, S., & Shaik, A. (2020). Leverage and firm performance: Empirical evidence from Indian food processing industry. Management Science Letters, 10(6), 1233-1240.
Wiseman, R. M., Cuevas?Rodríguez, G., & Gomez?Mejia, L. R. (2012). Towards a social theory of agency. Journal of management studies, 49(1), 202-222.
Zabri, S. M., Ahmad, K., & Wah, K. K. (2016). Corporate governance practices and firm performance: Evidence from top 100 public listed companies in Malaysia. Procedia Economics and Finance, 35, 287-296.
Zhuang, J., Edwards, D., & Capulong, M. V. A. (2001). Corporate Governance & Finance in East Asia: A Study of Indonesia, Republic of Korea, Malaysia, Philippines and Thailand. Asian Development Bank.
Zhang, Y., Zhou, J., & Zhou, N. (2007). Audit committee quality, auditor independence, and internal control weaknesses. Journal of accounting and public policy, 26(3), 300-327.
Zhou, H., Owusu-Ansah, S., & Maggina, A. (2018). Board of directors, audit committee, and firm performance: Evidence from Greece. Journal of International Accounting, Auditing and Taxation, 31, 20-36.
Downloads
Published
2020-11-04
How to Cite
Jati Wibawaningsih, E. ., & Primta Surbakti, L. . (2020). Audit Committee, Financial Condition, and Firm Performance: Empirical Evidence From Indonesia. Journal of Accounting and Finance Management, 1(5), 242–249. https://doi.org/10.38035/jafm.v1i2.29
Issue
Section
Articles
License
Authors who publish their manuscripts in this journal agree to the following conditions:
- The copyright on each article belongs to the author(s).
- The author acknowledges that the Journal of Accounting and Finance Management (JAFM) has the right to be the first to publish with a Creative Commons Attribution 4.0 International license (Attribution 4.0 International (CC BY 4.0).
- Authors can submit articles separately, arrange for the non-exclusive distribution of manuscripts that have been published in this journal into other versions (e.g., sent to the author's institutional repository, publication into books, etc.), by acknowledging that the manuscript has been published for the first time in the Journal of Accounting and Finance Management (JAFM).
