Committee on board: Does it matter? A study of Indonesian Sharia-listed firms

Abstract

The committee on board includes audit committee and nomination committee that currently has been questioned as to whether the firm value is also affected by the committees’ performance that has been the subject of attention. Apparently, this study is the first to attempt providing an evidence of committees’ role on to the extent of its contribution to firm value in the context of Indonesian Sharia-listed firms as the establishment of Islamic-compliance firms is currently experiencing an upward trend in many countries. Hence it is enticing to examine the impact of committee on board as part of corporate governance mechanisms on firm value in the Indonesian Sharia-listed firms. Using an Indonesian Sharia-listed firms which counts for 30 firms in the quarterly period of 2009 to 2015, this study employs a 720 balanced panel, using Generalized Least Square. The results reveal that the audit committee and the nomination committee have a significant impact on firm value (Tobin’s Q). The non-significant result for ROA suggesting that the mixed measured of book and market is viewed more reliable for investors as it indicates the overall performance measure. Meanwhile the result of the number of audit committee meeting yielded no significant impact on firm value; this may be due to no restrictions on the number of positions of audit committee serves in firms, therefore, the auditor may be manifold in some companies which can be overlapping. Further, the number of audit committee only meets the regulations and yet the transparency is still far beyond.

Keywords:

• committee on board
• firm value
• Indonesian Sharia-listed-firms

Public Interest Statement

Good corporate governance became an urgent emergent issue after the last few financial crises. The rules of corporate governance were increasingly under scrutiny in countries such as Indonesia. As a seriously affected country back in the Asian Financial Crisis, Indonesia, acutely aware of the pitfalls of weak corporate governance, has been enhancing its corporate governance rules. An instrument of this enhancement process is the “board committee” which includes the audit and nomination committees. These aim to lessen conflict of interest and potential mismanagement. It was widely perceived that lack of strict adherence to financial reporting standards eventually contributed to the financial crises. Here, we examined the effect of the reported presence of an audit or nomination committee on a firm’s value. We found that the presence of the said committees do have significant effect on aspects of a firm’s value in the context of Indonesian Sharia-listed firms. This may the first such study in an era where Islamic-compliant firms are advancing in many countries.

Additional information

Notes on contributors

Fitriya Fauzi

Fitriya Fauzi is a lecturer in Finance and Banking at Faculty of Business, Curtin University Malaysia. She holds a PhD in Finance from the University of Waikato-New Zealand and has published in refereed journals such as Global Business Review and International Journal of Managerial Finance among others. Her main research interests include corporate finance and corporate governance.

Abdul Basyith

Abdul Basyith is a senior lecturer in Finance at the Faculty of Economics and Business, University of Muhammadiyah Palembang, Indonesia. He holds a PhD from the University of Pancasila-Indonesia. He has published in refereed journals such as Global Business Review among others. His main research interest includes corporate finance.

Dani Foo

Dani Foo is a senior lecturer in Accounting, Waikato Management School, University of Waikato, New Zealand. He holds a PhD from Texas and taught at various universities in Texas, Macau/Hong Kong, Malaysia, Singapore, UK, and Australia. He is a CPA, CA and CMA. His main research interests include environmental and sustainability accounting, ICT application in accounting and finance.