BOARD OF DIRECTORS' TENDENCIES TOWARD PROFITABILITY AND ENVIRONMENTAL PERFORMANCE IN INDONESIA

Authors

  • yessica step uib
  • Muhammad Taufik Universitas Internasional Batam

Keywords:

tendency, environmental performance, PROPER, financial performance, board diversity

Abstract

This study investigates the impact of board diversity on profitability and environmental performance. The PROPER ratings are designed to address the shortcomings in corporate social responsibility (CSR) disclosures. Moreover, Tobin's Q and business volume ensure consistency in sales and market performance. Consequently, this study contributes to understanding directors' tendency to profitability and/ or environmental concerns, resulting in tremendous corporate governance literature. BOD diversity includes gender, age, education level, expertise, and nationality. In total, 272 data were analysed in the panel data test from 68 companies in 2017-2020.  There is a homogeneous composition of the board, which consists mostly of men, older people, bachelor's degrees, and locals. However, BOD expertise is quite heterogeneous. The presence of male and local directors can improve financial performance, but they delegitimise the environment. The old directors cause Tobin's Q to decline, and vice versa for local directors, but they are apathetic to the environment. Surprisingly, board education level improves environmental performance, while accounting expertise has the opposite effect, but they adversely affect financial performance. To attain Sustainable Development Goal No. 5 gender equality, the government must intervene in regulations while companies accommodated. The complex business, including profit and environmental performance, demonstrates the strategic importance of accounting expertise; hence, their proportion needs to be increased. Additionally, homogeneity affects performance stagnation; thus, younger, higher education (master) levels and more foreign directors need to be increased.

Downloads

Download data is not yet available.

References

Abu Qa'dan, MB, & Suwaidan, MS (2019). Board composition, ownership structure and corporate social responsibility disclosure: the case of Jordan. Social Responsibility Journal, 15(1), 28–46.https://doi.org/10.1108/SRJ-11-2017-0225

Alazzani, A., Hassanein, A., & Aljanadi, Y. (2017). Impact of gender diversity on social and environmental performance: evidence from Malaysia. Corporate Governance (Bingley), 17(2), 266–283.https://doi.org/10.1108/CG-12-2015-0161

Anita, A., & Amalia, D.P. (2021). The influence of social responsibility on financial performance: Ownership structure as a moderating variable. Journal of Modernization Economics, 17(1), 54–68; https://doi.org/10.21067/jem.v17i1.5283

Arvidsson, S. (2014). Corporate social responsibility and stock market actors: A comprehensive study. Social Responsibility Journal, 10(2), 210–225.https://doi.org/10.1108/SRJ-08-2012-0099

Assenga, M. P., Aly, D., & Hussainey, K. (2018). The impact of board characteristics on the financial performance of Tanzanian firms. Corporate Governance (Bingley), 18(6), 1089–1106.https://doi.org/10.1108/CG-09-2016-0174

Barroso, C., Villegas, M. M., & Pérez-Calero, L. (2011). Board influence on a firm's internationalization. Corporate Governance: An International Review, 19(4), 351–367.https://doi.org/10.1111/j.1467-8683.2011.00859.x

Beji, R., Yousfi, O., Loukil, N., & Omri, A. (2021). Board Diversity and Corporate Social Responsibility: Empirical Evidence from France. Journal of Business Ethics, 173(1), 133–155.https://doi.org/10.1007/s10551-020-04522-4

Biswas, P. K., Mansi, M., & Pandey, R. (2018). Board composition, sustainability committees and corporate social and environmental performance in Australia. Pacific Accounting Review, 30(4), 517–540.https://doi.org/10.1108/PAR-12-2017-0107

Chang, Y. K., Oh, W. Y., Park, J. H., & Jang, M. G. (2017). Exploring the Relationship Between Board Characteristics and CSR: Empirical Evidence from Korea. Journal of Business Ethics, 140(2), 225–242.https://doi.org/10.1007/s10551-015-2651-z

Colakoglu, N., Eryilmaz, M., & Martínez-Ferrero, J. (2021). Is board diversity an antecedent of corporate social responsibility performance in firms? A research on the 500 biggest Turkish companies. Social Responsibility Journal, 17(2), 243–262.https://doi.org/10.1108/SRJ-07-2019-0251

Đặng, R., Houanti, L.H., Reddy, K., & Simioni, M. (2020). Does board gender diversity influence firm profitability? A control function approach. Economic Modelling, 90, 168–181.https://doi.org/10.1016/j.econmod.2020.05.009

Darko, J., Aribi, Z.A., & Uzonwanne, G.C. (2016). Corporate governance: the impact of director and board structure, ownership structure and corporate control on the performance of listed companies on the Ghana stock exchange. Corporate Governance (Bingley), 16(2), 259–277.https://doi.org/10.1108/CG-11-2014-0133

Falck, O., & Heblich, S. (2007). Corporate social responsibility: Doing well by doing good. Business Horizons, 50(3), 247–254.https://doi.org/10.1016/j.bushor.2006.12.002

Felix, EGS, & David, DST (2019). Performance of family-owned firms: the impact of gender at the management level. Journal of Family Business Management, 9(2), 228–250.https://doi.org/10.1108/JFBM-10-2018-0051

Fernández-Temprano, M.A., & Tejerina-Gaite, F. (2020). Types of directors, board diversity and firm performance. Corporate Governance (Bingley), 20(2), 324–342.https://doi.org/10.1108/CG-03-2019-0096

Flammer, C. (2013). Corporate social responsibility and shareholder reaction: The environmental awareness of investors. Academy of Management Journal, 56(3), 758–781.https://doi.org/10.5465/amj.2011.0744

Formigoni, H., Segura, L., & Gallego-Álvarez, I. (2021). Board of directors characteristics and disclosure practices of corporate social responsibility: a comparative study between Brazilian and Spanish companies. Social Responsibility Journal, 17(2), 282–298.https://doi.org/10.1108/SRJ-01-2019-0043

Gabaldon, P., De Anca, C., Mateos De Cabo, R., & Gimeno, R. (2016). Searching for Women on Boards: An Analysis from the Supply and Demand Perspective. Corporate Governance: An International Review, 24(3), 371–385.https://doi.org/10.1111/corg.12141

García, J. H., Sterner, T., & Afsah, S. (2007). Public disclosure of industrial pollution: The PROPER approach for Indonesia? Environmental and Development Economics, 12(6), 739–756.https://doi.org/10.1017/S1355770X07003920

Giannetti, M., Liao, G., & Yu, X. (2015). The Brain Gain of Corporate Boards: Evidence from China. Journal of Finance, 70(4), 1629–1682.https://doi.org/10.1111/jofi.12198

Gray, S., & Nowland, J. (2017). The diversity of expertise on corporate boards in Australia. Accounting and Finance, 57(2), 429–463.https://doi.org/10.1111/acfi.12146

Gulzar, M.A., Cherian, J., Hwang, J., Jiang, Y., & Sial, M.S. (2019). The impact of board gender diversity and foreign institutional investors on the corporate social responsibility (CSR) engagement of Chinese listed companies. Sustainability (Switzerland), 11(2).https://doi.org/10.3390/su11020307

Harjoto, MA, Laksmana, I., & Yang, Y. wen. (2019). Board nationality and educational background diversity and corporate social performance. Corporate Governance (Bingley), 19(2), 217–239.https://doi.org/10.1108/CG-04-2018-0138

Hartmann, C. C., & Carmenate, J. (2021). Does board diversity influence firms' corporate social responsibility reputation? Social Responsibility Journal, 17(8), 1299–1319.https://doi.org/10.1108/SRJ-04-2020-0143

Holland, L. (2004). Experiences from a student program designed to examine the role of the accountant in corporate social responsibility (CSR). International Journal of Sustainability in Higher Education, 5(4), 404–416.https://doi.org/10.1108/14676370410561108

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, N.A., Angelidis, J.P., & Howard, D.P. (2006). Corporate social responsibility: A comparative analysis of perceptions of practicing accountants and accounting students. Journal of Business Ethics, 66(2–3), 157–167.https://doi.org/10.1007/s10551-005-5572-4

Jizi, M. (2017). The Influence of Board Composition on Sustainable Development Disclosure. Business Strategy and the Environment, 26(5), 640–655.https://doi.org/10.1002/bse.1943

Johl, S. K., Kaur, S., & Cooper, B. J. (2015). Board Characteristics and Firm Performance: Evidence from Malaysian Public Listed Firms. Journal of Economics, Business and Management, 3(2), 239–243.https://doi.org/10.7763/joebm.2015.v3.187

Jouber, H. (2021). Is the effect of board diversity on CSR diverse? New insights from one-tier vs two-tier corporate board models. Corporate Governance (Bingley), 21(1), 23–61.https://doi.org/10.1108/CG-07-2020-0277

Katmon, N., Mohamad, Z.Z., Norwani, N.M., & Farooque, O. Al. (2019). Comprehensive Board Diversity and Quality of Corporate Social Responsibility Disclosure: Evidence from an Emerging Market. Journal of Business Ethics, 157(2), 447–481.https://doi.org/10.1007/s10551-017-3672-6

Khan, I., Khan, I., & Senturk, I. (2019). Board diversity and quality of CSR disclosure: evidence from Pakistan. Corporate Governance (Bingley), 19(6), 1187–1203.https://doi.org/10.1108/CG-12-2018-0371

Lu, J., & Herremans, I. M. (2019). Board gender diversity and environmental performance: An industrial perspective. Business Strategy and the Environment, 28(7), 1449–1464.https://doi.org/10.1002/bse.2326

Muttakin, M.B., Khan, A., & Subramaniam, N. (2015). 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

Naciti, V. (2019). Corporate governance and board of directors: The effect of a board composition on firm sustainability performance. Journal of Cleaner Production, 237.https://doi.org/10.1016/j.jclepro.2019.117727

Oxelheim, L., & Randøy, T. (2003). The impact of foreign board membership on firm value. Journal of Banking and Finance, 27(12), 2369–2392.https://doi.org/10.1016/S0378-4266(02)00395-3

Pérez-Calero, L., Villegas, M. del M., & Barroso, C. (2016). A framework for board capital. Corporate Governance (Bingley), 16(3), 452–475.https://doi.org/10.1108/CG-10-2015-0146

Santi Yopie, & Robin. (2023). The Influence of Corporate Governance System and Corporate Social Responsibility on Corporate Profit Management Kompas 100. Migration Letters, 20(7), 1327–1346. https://doi.org/10.59670/ml.v20i7.5153

Siddiqui, S.S. (2015). The association between corporate governance and firm performance - A meta-analysis. International Journal of Accounting and Information Management, 23(3), 218–237.https://doi.org/10.1108/IJAIM-04-2014-0023

Taufik, M. (2021). The Influence of the BOD's characteristics toward corporate social responsibility: Study of non-financial and financial firms in Indonesia. Indonesian Accounting & Auditing Journal, 25(2), 194–208.https://doi.org/10.20885/jaai.vol25.iss2.art9

Taufik, M., & Chua, L. (2021). BOD characteristics and firm performances: Evidence from Indonesia. Eleven March Business Review, 6(2), 32–43.https://doi.org/10.20961/smbr.v6i2.56224

Taufik, M., & William, T. (2021). Does BOC's Characteristics Moderate The Effect of Corporate Social Responsibility on Performance? Journal of Applied Accounting and Taxation, 6(2), 137–146.https://doi.org/10.30871/jaat.v6i2.3236

Thompson, E.K., & Adasi Manu, S. (2020). The impact of board composition on the dividend policy of US firms. Corporate Governance (Bingley), 21(5), 737–753.https://doi.org/10.1108/CG-05-2020-0182

Ujunwa, A. (2012). Board characteristics and the financial performance of Nigerian quoted firms. Corporate Governance (Bingley), 12(5), 656–674.https://doi.org/10.1108/14720701211275587

Wati, E., & Malik, AQ (2021). Corporate Social Responsibility and Earnings Management: The Moderating Role of Corporate Governance. Journal of Accounting Research, Organization and Economics, 4(3), 298-307.

Wilburn, K., & Wilburn, R. (2014). Demonstrating a Commitment to Corporate Social Responsibility Not Simply Shared Value. Business and Professional Ethics Journal, 33(1), 1–15.https://doi.org/10.5840/bpej20144216

Yopie, S. (2021). the Effect of Good Corporate Governance and Financial Distress on Real Earnings Management. Journal of Accounting, 11(3), 285-306.

Zhuang, Y., Chang, X., & Lee, Y. (2018). Board composition and corporate social responsibility performance: Evidence from Chinese public firms. Sustainability (Switzerland), 10(8).https://doi.org/10.3390/su1008275

Downloads

Published

2024-04-04