Share:


Analysis of corporate governance and corporate sustainability performance in the Indonesian context

    Suharyono   Affiliation
    ; Arumega Zarefar   Affiliation
    ; Atika Zarefar   Affiliation

Abstract

This study aims to examine the effect of corporate governance on the Corporate sustainability performance. The samples of this study consist of publicly-traded primary and secondary sector companies in Indonesia for eleven years, from 2010 to 2020. This study discusses the effect of corporate governance on corporate sustainability performance, Corporate governance, and corporate sustainability performance. The data used in the study are hand-collected data sourced from annual financial and company sustainability reports. The findings of the study indicate that Corporate Governance (CG) is positively affecting the Corporate Sustainability Performance (CSP) and its dimensions (Economy, Environmental, and Social aspects) significantly. Furthermore, the findings of the study have also disclosed that the CG elements consisting of the rights of shareholders (Category A), The equitable treatment of shareholders (Category B), The role of stakeholders in corporate governance (category C), disclosure principles and transparency (category D), and the responsibilities of the board (Category E) relatively showing positive effects significantly towards the CG and its elements. However, different effects have been found in the elements B and D, where it is showing that the sample companies indicate the weaknesses in the practice of the equitable treatment of shareholders and Disclosure and transparency. This study is expected to contribute to or assist the companies’ policymakers by creating regulations to improve the Corporate sustainability performance. Our research adds to the research on corporate governance and Corporate sustainability performance in analyzing the correlation between CG and CSP deeply and broadly by utilizing the instruments according to the developed OECD principles.

Keyword : corporate sustainability performance quality, corporate governance, rights of shareholders, the equitable treatment of shareholders, the responsibilities of the board, Indonesia

How to Cite
Suharyono, Zarefar, A., & Zarefar, A. (2023). Analysis of corporate governance and corporate sustainability performance in the Indonesian context. Business: Theory and Practice, 24(1), 137–147. https://doi.org/10.3846/btp.2023.16898
Published in Issue
Mar 22, 2023
Abstract Views
914
PDF Downloads
736
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

References

Adegboye, A., Ojeka, S., Alabi, O., Alo, U., & Aina, A. (2020). Audit committee characteristics and sustainability performance in Nigerian listed banks. Business: Theory and Practice, 21(2), 469–476. https://doi.org/10.3846/btp.2020.10463

Adekunle, I. A. (2021). On the search for environmental sustainability in Africa: The role of governance. Environmental Science and Pollution Research, 28(12), 14607–14620. https://doi.org/10.1007/s11356-020-11432-5

Al-Gamrh, B., Al-Dhamari, R., Jalan, A., & Afshar Jahanshahi, A. (2020). The impact of board independence and foreign ownership on financial and social performance of firms: Evidence from the UAE. Journal of Applied Accounting Research, 21(2), 201–229. https://doi.org/10.1108/JAAR-09-2018-0147

Al-Najjar, B., & Clark, E. (2017). Corporate governance and cash holdings in MENA: Evidence from internal and external governance practices. Research in International Business and Finance, 39, 1–12. https://doi.org/10.1016/j.ribaf.2016.07.030

Aldhamari, R., Mohamad Nor, M. N., Boudiab, M., & Mas’ud, A. (2020). The impact of political connection and risk committee on corporate financial performance: Evidence from financial firms in Malaysia. Corporate Governance, 20(7), 1281–1305. https://doi.org/10.1108/CG-04-2020-0122

Alshbili, I., Elamer, A. A., & Beddewela, E. (2018). Ownership types, corporate governance and corporate social responsibility disclosures: Empirical evidence from a developing country. Accounting Research Journal, 33(1), 148–166. https://doi.org/10.1108/ARJ-03-2018-0060

Amidjaya, P. G., & Widagdo, A. K. (2020). Sustainability reporting in Indonesian listed banks: Do corporate governance, ownership structure and digital banking matter? Journal of Applied Accounting Research, 21(2), 231–247. https://doi.org/10.1108/JAAR-09-2018-0149

Aras, G., Tezcan, N., Furtuna, O. K., & Kazak, E. H. (2017). Corporate sustainability measurement based on entropy weight and TOPSIS: A Turkish banking case study. Meditari Accountancy Research, 25(3), 391–413. https://doi.org/10.1108/MEDAR-11-2016-0100

Asian Development Bank. (2014). ASEAN corporate governance scorecard: Country reports and assessments 2013–2014. ADB.

Avci, S. B., & Sungu-Esen, G. (2022). Country-level sustainability and cross-border banking flows. Sustainability Accounting, Management and Policy Journal, 13(3), 626–652. https://doi.org/10.1108/SAMPJ-07-2021-0273

Bae, S. M., Masud, M. A. K., & Kim, J. D. (2018). A cross-country investigation of corporate governance and corporate sustainability disclosure: A signaling theory perspective. Sustainability, 10(8), 2611. https://doi.org/10.3390/su10082611

Cancela, B. L., Neves, M. E. D., Rodrigues, L. L., & Gomes Dias, A. C. (2020). The influence of corporate governance on corporate sustainability: New evidence using panel data in the Iberian macroeconomic environment. International Journal of Accounting & Information Management, 28(4), 785–806. https://doi.org/10.1108/IJAIM-05-2020-0068

Castillo-Merino, D., & Rodríguez-Pérez, G. (2021). The effects of legal origin and corporate governance on financial firms’ sustainability performance. Sustainability, 13(15), 8233. https://doi.org/10.3390/su13158233

Cebrián, M. B., Khan, A., & Subramaniam, N. (2013). Firm characteristics, board diversity and corporate social responsibility: Evidence from Bangladesh. Pacific Accounting Review, 27(3), 353–372. https://doi.org/10.1108/PAR-01-2013-0007

Chatti, W. (2021). Moving towards environmental sustainability: Information and communication technology (ICT), freight transport, and CO2 emissions. Heliyon, 7(10), e08190. https://doi.org/10.1016/j.heliyon.2021.e08190

Christofi, A., Christofi, P., & Sisaye, S. (2012). Corporate sustainability: Historical development and reporting practices. Management Research Review, 35(2), 157–172. https://doi.org/10.1108/01409171211195170

Dahlsrud, A. (2008). How corporate social responsibility is defined: An analysis of 37 definitions. Corporate Social Responsibility and Environmental Management, 15(1), 1–13. https://doi.org/10.1002/csr.132

Delgado-Márquez, B. L., Pedauga, L. E., & Cordón-Pozo, E. (2017). Industries regulation and firm environmental disclosure: A stakeholders’ perspective on the importance of legitimation and international activities. Organization and Environment, 30(2), 103–121. https://doi.org/10.1177/1086026615622028

Dienes, D., Sassen, R., & Fischer, J. (2016). What are the drivers of sustainability reporting? A systematic review. Sustainability Accounting, Management and Policy Journal, 7(2), 154–189. https://doi.org/10.1108/SAMPJ-08-2014-0050

Dwekat, A., Seguí-Mas, E., Tormo-Carbó, G., & Carmona, P. (2020). Corporate governance configurations and corporate social responsibility disclosure: Qualitative comparative analysis of audit committee and board characteristics. Corporate Social Responsibility and Environmental Management, 27(6), 2879–2892. https://doi.org/10.1002/csr.2009

Elsayed, N., & Ammar, S. (2020). Sustainability governance and legitimisation processes: Gulf of Mexico oil spill. Sustainability Accounting, Management and Policy Journal, 11(1), 253–278. https://doi.org/10.1108/SAMPJ-09-2018-0242

Farooq, M. B., Zaman, R., Sarraj, D., & Khalid, F. (2021). Examining the extent of and drivers for materiality assessment disclosures in sustainability reports. Sustainability Accounting, Management and Policy Journal, 12(5), 965–1002. https://doi.org/10.1108/SAMPJ-04-2020-0113

Farooque, Al O., Buachoom, W., & Sun, L. (2020). Board, audit committee, ownership and fi nancial performance – emerging trends from Thailand. Pacific Accounting Review, 32(1), 54–81. https://doi.org/10.1108/PAR-10-2018-0079

Fernández-Gago, R., Cabeza-García, L., & Nieto, M. (2018). Independent directors’ background and CSR disclosure. Corporate Social Responsibility and Environmental Management, 25(5), 991–1001. https://doi.org/10.1002/csr.1515

Ferrell, A., Liang, H., & Renneboog, L. (2016). Socially responsible firms. Journal of Financial Economics, 122(3), 585–606. https://doi.org/10.1016/j.jfineco.2015.12.003

Formentini, M., & Taticchi, P. (2016). Corporate sustainability approaches and governance mechanisms in sustainable supply chain management. Journal of Cleaner Production, 112, 1920–1933. https://doi.org/10.1016/j.jclepro.2014.12.072

Gavana, G., Gottardo, P., & Moisello, A. M. (2017). The effect of equity and bond issues on sustainability disclosure. Family vs non-family Italian firms. Social Responsibility Journal, 13(1), 126–142. https://doi.org/10.1108/SRJ-05-2016-0066

Hajawiyah, A., Adhariani, D., & Djakman, C. (2019). The sequential effect of CSR and COE: Family ownership moderation. Social Responsibility Journal, 15(7), 939–954. https://doi.org/10.1108/SRJ-09-2017-0179

Hussain, N., Rigoni, U., & Orij, R. P. (2018). Corporate governance and sustainability performance: Analysis of triple bottom line performance. Journal of Business Ethics, 149(2), 411–432. https://doi.org/10.1007/s10551-016-3099-5

Ibrahim, A. H., & Hanefah, M. M. (2016). Board diversity and corporate social responsibility in Jordan. Journal of Financial Reporting and Accounting, 14(2), 279–298. https://doi.org/10.1108/JFRA-06-2015-0065

Inekwe, M., Hashim, F., & Yahya, S. B. (2021). CSR in developing countries – the importance of good governance and economic growth: Evidence from Africa. Social Responsibility Journal, 17(2), 226–242. https://doi.org/10.1108/SRJ-10-2019-0336

Ionescu, L. (2021). Corporate environmental performance, climate change mitigation, and green innovation behavior in sustainable finance. Economics, Management, and Financial Markets, 16(3), 94–106. https://doi.org/10.22381/emfm16320216

Jagoda, K., & Wojcik, P. (2019). Implementation of risk management and corporate sustainability in the Canadian oil and gas industry: An evolutionary perspective. Accounting Research Journal, 32(3), 381–398. https://doi.org/10.1108/ARJ-05-2016-0053

Jamil, A., Mohd Ghazali, N. A., & Puat Nelson, S. (2021). The influence of corporate governance structure on sustainability reporting in Malaysia. Social Responsibility Journal, 17(8), 1251–1278. https://doi.org/10.1108/SRJ-08-2020-0310

Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X

Kend, M. (2015). Governance, firm-level characteristics and their impact on the client’s voluntary sustainability disclosures and assurance decisions. Sustainability Accounting, Management and Policy Journal, 6(1), 54–78. https://doi.org/10.1108/SAMPJ-12-2013-0061

Kocmanová, A., Dočekalová, M. P., Škapa, S., & Smolíková, L. (2016). Measuring corporate sustainability and environmental, social, and corporate governance value added. Sustainability, 8(9), 945. https://doi.org/10.3390/su8090945

Konadu, R., Ahinful, G. S., & Owusu-Agyei, S. (2021). Corporate governance pillars and business sustainability: Does stakeholder engagement matter? International Journal of Disclosure and Governance, 18(3), 269–289. https://doi.org/10.1057/s41310-021-00115-3

Kouaib, A., Bouzouitina, A., & Jarboui, A. (2021). CEO behavior and sustainability performance: The moderating role of corporate governance. Property Management, 40(1). https://doi.org/10.1108/PM-01-2021-0009

Lăzăroiu, G., Ionescu, L., Andronie, M., & Dijmărescu, I. (2020). Sustainability management and performance in the urban corporate economy: A systematic literature review. Sustainability, 12(18), 7705. https://doi.org/10.3390/su12187705

Lenssen, J. J., Dentchev, N. A., & Roger, L. (2014). Sustainability, risk management and governance: Towards an integrative approach. Corporate Governance, 14(5), 670–684. https://doi.org/10.1108/CG-07-2014-0077

Lin, F., Lin, S.-W., & Fang, W.-C. (2022). Impact of CEO narcissism and hubris on corporate sustainability and firm performance. North American Journal of Economics and Finance, 59, 101586. https://doi.org/10.1016/j.najef.2021.101586

Ludwig, P., & Sassen, R. (2022). Which internal corporate governance mechanisms drive corporate sustainability? Journal of Environmental Management, 301, 113780. https://doi.org/10.1016/j.jenvman.2021.113780

Maali, K., Rakia, R., & Khaireddine, M. (2021). How corporate social responsibility mediates the relationship between corporate governance and sustainability performance in UK: A multiple mediator analysis. Society and Business Review, 16(2), 201–217. https://doi.org/10.1108/SBR-12-2020-0143

Madaleno, M., & Vieira, E. (2020). Corporate performance and sustainability: Evidence from listed firms in Portugal and Spain. Energy Reports, 6(Suppl 8), 141–147. https://doi.org/10.1016/j.egyr.2020.11.092

Mahmood, Z., Kouser, R., Ali, W., Ahmad, Z., & Salman, T. (2018). Does corporate governance affect sustainability disclosure? A mixed methods study. Sustainability, 10(1), 1–20. https://doi.org/10.3390/su10010207

Masud, M. A. K., Hossain, M. S., & Kim, J. D. (2018). Is green regulation effective or a failure: Comparative analysis between Bangladesh Bank (BB) green guidelines and global reporting initiative guidelines. Sustainability, 10(4), 1267. https://doi.org/10.3390/su10041267

May, A. Y. C., Hao, G. S., & Carter, S. (2021). Intertwining corporate social responsibility, employee green behavior and environmental sustainability: The mediation effect of organizational trust and organizational identity. Economics, Management, And Financial Markets, 16(2), 32–61. https://doi.org/10.22381/emfm16220212

Nadeem, M., Zaman, R., & Saleem, I. (2017). Boardroom gender diversity and corporate sustainability practices: Evidence from Australian Securities Exchange listed firms. Journal of Cleaner Production, 149, 874–885. https://doi.org/10.1016/j.jclepro.2017.02.141

Nawawi, A. H. T., Agustia, D., Lusnadi, G. M., & Fauzi, H. (2020). Disclosure of sustainability report mediating good corporate governance mechanism on stock performance. Journal of Security and Sustainability Issues, 9, 151–170. https://doi.org/10.9770/jssi.2020.9.J(12)

Nguyen, T. L. H., Tran, N. M., & Vu, M. C. (2021). The influence of board characteristics and state holding on corporate social responsibility disclosure, evidence from Vietnamese listed firms. Business: Theory and Practice, 22(1), 190–201. https://doi.org/10.3846/btp.2021.13490

OECD. (2015). G20/OECD Principles of Corporate Governance updated. Board Leadership, 2015(142), 1–8. https://doi.org/10.1002/bl.30032

Ong, T., & Djajadikerta, H. G. (2020). Corporate governance and sustainability reporting in the Australian resources industry: An empirical analysis. Social Responsibility Journal, 16(1), 1–14. https://doi.org/10.1108/SRJ-06-2018-0135

Panicker, V. S. (2017). Ownership and corporate social responsibility in Indian firms. Social Responsibility Journal, 13(4), 714–727. https://doi.org/10.1108/SRJ-02-2017-0030

Pavláková Dočekalová, M., Kocmanová, A., & Koleňák, J. (2015). Determination of economic indicators in the context of corporate sustainability performance. Business: Theory and Practice, 16(1), 15–24. https://doi.org/10.3846/btp.2015.450

Peng, X., & Zhang, R. (2022). Corporate governance, environmental sustainability performance, and normative isomorphic force of national culture. Environmental Science and Pollution Research, 29, 33443–33473. https://doi.org/10.1007/s11356-022-18603-6

Rodriguez-Fernandez, M. (2016). Social responsibility and financial performance: The role of good corporate governance. BRQ Business Research Quarterly, 19(2), 137–151. https://doi.org/10.1016/j.brq.2015.08.001

Rudyanto, A., & Siregar, S. V. (2018). The effect of stakeholder pressure and corporate governance on the sustainability report quality. International Journal of Ethics and Systems, 34(2), 233–249. https://doi.org/10.1108/IJOES-05-2017-0071

Said, R., Joseph, C., & Mohd Sidek, N. Z. (2017). Corporate governance and corporate social responsibility (CSR) disclosure: The moderating role of cultural values. In Developments in corporate governance and responsibility: Vol. 12. Modern organisational governance (pp. 189–206). Emerald Publishing Limited. https://doi.org/10.1108/S2043-052320170000012013

Salvioni, D. M., Franzoni, S., Gennari, F., & Cassano, R. (2018). Convergence in corporate governance systems and sustainability culture. International Journal of Business Performance Management, 19(1), 7–15. https://doi.org/10.1504/IJBPM.2018.088490

Salvioni, D. M., Gennari, F., & Bosetti, L. (2016). Sustainability and convergence: The future of corporate governance systems? Sustainability, 8(11), 1203. https://doi.org/10.3390/su8111203

Shamil, M. M., Shaikh, J. M., Ho, P. L., & Krishnan, A. (2014). The influence of board characteristics on sustainability reporting Empirical evidence from Sri Lankan firms. Asian Review of Accounting, 22(2), 78–97. https://doi.org/10.1108/ARA-09-2013-0060

So, I. G., Haron, H., Gui, A., Princes, E., & Sari, S. A. (2021). Sustainability reporting disclosure in islamic corporates: Do human governance, corporate governance, and IT usage matter? Sustainability, 13(23), 13023. https://doi.org/10.3390/su132313023

Taj, S. A. (2016). Application of signaling theory in management research: Addressing major gaps in theory. European Management Journal, 34(4), 338–348. https://doi.org/10.1016/j.emj.2016.02.001

Tjahjadi, B., Soewarno, N., & Mustikaningtiyas, F. (2021). Good corporate governance and corporate sustainability performance in Indonesia: A triple bottom line approach. Heliyon, 7(3), e06453. https://doi.org/10.1016/j.heliyon.2021.e06453

United Nations Economic and Social Commission for Asia and the Pacific. (2020). Economic and social survey of Asia and the Pacific 2020: Towards sustainable economies. UNESCAP. United Nations publication.

Utama, C. A., Utama, S., & Amarullah, F. (2017). Corporate governance and ownership structure: Indonesia evidence. Corporate Governance, 17(2), 165–191. https://doi.org/10.1108/CG-12-2015-0171

Vazquez, P., Carrera, A., & Cornejo, M. (2020). Corporate governance in the largest family firms in Latin America. Cross Cultural & Strategic Management, 27(2), 137–163. https://doi.org/10.1108/CCSM-11-2018-0194

Windolph, S. E., Schaltegger, S., & Herzig, C. (2014). Implementing corporate sustainability: What drives the application of sustainability management tools in Germany? Sustainability Accounting, Management and Policy Journal, 5(4), 374–404. https://doi.org/10.1108/SAMPJ-01-2014-0002

Zahid, M., Rahman, H. U., Ali, W., Khan, M., Alharthi, M., Imran Qureshi, M., & Jan, A. (2020). Boardroom gender diversity: Implications for corporate sustainability disclosures in Malaysia. Journal of Cleaner Production, 244, 118683. https://doi.org/10.1016/j.jclepro.2019.118683

Zeng, T. (2020). Corporate social responsibility (CSR) in Canadian family firms. Social Responsibility Journal, 17(5), 703–718. https://doi.org/10.1108/SRJ-12-2019-0410

Zarefar, A., Dian, A., & Noorlailie, S. (2022). Bridging the gap between sustainability disclosure and firm performance in Indonesian firms: The moderating effect of the family firm. Sustainability, 14(19), 12022. https://doi.org/10.3390/su141912022