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from The Influence of Good Corporate Governance Mechanisms, Liquidity, Firm Size, and Impact of Covid-19
The Influence of Good Corporate Governance Mechanisms, Liquidity, Firm Size, and Impact of Covid-19 on Firm Value : Financial Performance as Mediation Variable
Annida Husnatul Jannah1 , Triyono2*
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1(Faculty Of Economic and Business / Muhammadiyah Univercity of Surakarta, Indonesia)
2(Faculty Of Economic and Business / Muhammadiyah Univercity of Surakarta, Indonesia)
ABSTRACT : This study aims to determine the effect of Good Corporate Governance Mechanisms,Liquidity, Firm Size, and Impact of Covid-19, on Firm Value with Financial Performance as a mediating variable. This study uses secondary data from 35 sample banking companies listed on the Indonesian Stock Exchange for the 2017-2021 period. Sampling using purposive sampling technique. The research data analysis method uses SPSS v.26 software. The results of this study are the Good Corporate Governance Mechanism (board of directors), liquidity, and financial performance hava a significant effect on firm value. Meanwhile, the indirect effect of firm size and impact of covid-19 has a significant effect on financial performance (mediation variable). From the calculation of the sobel test and direct or indirect effect, its found that financial performance cannot mediate form the GCG mechanisms, liquidity, firm size, and the impactof Covid-19 on firm value.
KEYWORDS : Good Corporate Governance Mechanisms, Financial Performance, Liquidity, Firm Value, Firm Size
I. INTRODUCTION
Corona Virus (Covid-19) origaniting from China which eventually spread to all countries in early 2020 has had an impact on the world economy, including Indonesia. In addition to having impact on the decline in the country’s economy, it also has a negative impact on several industrial sectors in Indonesia, one of which is the banking sector. The existence of the covid-19 pandemic has made the banking sector unable to extend credit due to the high risk to default from creditors. This because the income of the community an companies decreased during the covid pandemic. (Seto, A. A., & Septianti, D. : 2021)
The public must be careful in determining where to invest during the Covid pandemic, especially in the banking sector. The Indonesia Stock Exchange noted that 46 companies have conducted Initial Public Offerings (IPO). The large number of banks can cause competition between banks to attract investors to increase. Investors will choose a bank that is able to increase the welfare of shareholders. Welfare of shareholders can be seen from the company's performance. Company performance is reflected in company value and financial performance which can provide information about the goals and success of the company (Aristya Krisna Dewi & Alit Suardana, n.d.). The company's success can be achieved if the management's success in managing the company well, the results are reflected in the firm value. Firm value can be achieved in several ways, namely by improving financial performance, liquidity, implementing good corporate governance mechanisms in accordance with applicable guidelines, and increasing the scale or size of the company. Corporate governance has an important role in carrying out the company's operating activities. If the company's GCG is not able to run, it can affect the trust of investors and the public so that the financial performance and firm value are affected. (Kurniyanto, et.al : 2019)
Several studies state that the effect of GCG on financial performance is significant. Research by Rahman et al., (2015) proves that Good Corporate Governance has a significant effect on Financial Performance, GCG has an insignificant effect on Firm Value, and Financial Performance has a significant effect on Firm Value. Kao et al., (2019) stated that independent directors, the smaller the board size is positively related to firm values. Danoshana et al., (2013); Mahrani & Soewarno, (2018) stated that corporate governance has a significant effect on company performance.
American Journal of Humanities and Social Sciences Research (AJHSSR) 2023
Research by Mahanavami, G.A. & Kayobi, NKM (2021) and Don Dzapasi, (2020) states that liquidity has a significant negative effect on firm value. Research conducted by Patricia, et.al (2018) shows that the liquidity variable has a negative and insignificant effect on firm value, the company size variable has a positive and insignificant effect on firm value. The variables of profitability and liquidity have a positive and significant effect on financial performance, while the variable firm size has a positive and insignificant effect on financial performance. The positive effect that profitability, liquidity, and firm size have on firm value will be more positive and stronger if financial performance also increases. Soewignyo et al., (2021) states that the independent board of commissioners, the board of directors have no significant effect on financial performance and the audit committee has a significantly negative effect on financial performance. He also mentioned that company size has no significant effect on financial performance. Research by Anastasia C et al., (2021) states that the Covid-19 pandemic has had a significant effect on the financial performance of banks in Nigeria. The purpose of this study was to examine and analyze the direct and indirect effects of good corporate governance mechanisms, liquidity, firm size, impact-covid-19, financial performance of firm value in banking sector companies listed on the IDX for the 2017-2021 period.
II.
L
Iterature Review
Agency Theory (agency theory) is a theory that explains the relationship between sharehorders of company owners in handing over the management of the company to professionals of agents who understand and understand better in carrying out daily operations (Febrianto : 2020). The principal has a interest in maximizing profits while the agent has an interest in maximizing the fulfillment of his economic and psychological needs. This theory shows that there is an important conflict among all interested parties in the company. Good Corporate Governance Mechanisms is a clear procedure and relationship between the party making the decision (company manager) and the party exercising control or oversight of the decision (shareholders, creditors, government, and others). Corporate governance arises from the company’s interest to ensure principals/investors that the funds invested are used appropriately and efficiently.
Liquidity is one of the ratios used to determine a bank’s ability to its short-term obligations. A bank can be said to be liquid, if the bank is able to pay all of its debts, especially short-term debt. Liquidity is proxied by Loan to Deposit Ratio (LDR). (Sullivan, V. S. & Widoatmodjo, S. : 2021)
Firm Size is a scale in whoch a company can be classified according to various ways, including total assets, log size, market value of shares, and others. Firm Size can affect the ability to bear the rosks that may arise in various situations faced by the company. Firm size also plays a role in determining the level of investor confidence. (Ajildyaningrum, N. : 2019)
The Covid-19 pandemic is expected to trigger credit growth of financing in the banking industry to slow down or decrease, which will result in decreased industry profitability, and also an increase in bad loan. In this pandemic, there was a lack of investor reaction in buying shares and investing their capital, causing the market price to decline. The decline in market prices has an effect on measuring company value. (Rich : 2021)
According IAI (2007) Fiancial Performance is a company’s ability to manage and control its resource. Information on financial position and condition has a function as a means of information, an accountability tool for management to company owners and serves as material for consideration in the decision-making process. The better the financial statements are presented, the company value will also increase. (Patricia, et.al : 2018)
Firm Value is a certain condition that has been achieved by the company as an illustration of public trust in the company after going through a process from its founding to the present. Firm value is a description of company management which is reflected in the stock price. One alternative that is used to calculate the value of the company is to use Tobin’s Q.
Hypothesis Development
The implementation of good corporate governance that focuses on risk management and effective internal control can improve performance and competitiveness as well as the creativity of corporate values which can later achieve the goals set by the company. Research results Purbopangstu, et.al (2014), Rahman et.al, (2015) , and Kao et al., (2019) states that Good Corporate Governance (GCG) has a significant effect on Firm value. Based on the description above, hypothesis in this study is:
H1: Good Corporate Governance Mechanism has a significant effect on Company Value
A bank can be said to be liquid, if the bank is able to pay all of its debts, especially short-term debt. Banks must also fulfill every credit application that is feasible to be financed. The relationship between LDR and firm value is that LDR is used to measure the bank's ability to pay off its debts and repay them, and to be able to fulfill credit requests that are channeled will determine the bank's profits. If a bank is unable to extend credit, while there are a lot of funds raised, it will cause the bank to lose money and will reduce the value of the company. The results of research by Elda & Ruzikna (2019), Oktaviani E.N (2021) , Putra & Lestari (2016) state that liquidity has a positive effect on firm value. Based on the description above, hypothesis in this study is:
H2: Liquidity has a significant effect on Firm Value
Firm value is a description of company management which is reflected in the stock price. High Firm value causes many investors to be interested in investing in the company. The existence of investment opportunities can provide a positive signal about the company's growth in the future, so that it will increase stock prices, with increasing stock prices, the company's value will also increase. The research results of Rudangga & Sudiarta (2016), Lumbantobing (2017), Patricia, et.al (2018) state that firm size is considered capable of influencing firm value. Based on the description above, hypothesis in this study is:
H3: Firm Size has a significant effect on Firm Value
The impact of Covid-19 pandemic has also been felt in the banking sector. In this pandemic, there was a lack of investor reaction in buying shares and investing their capital, causing the market price to decline. Decreasing market prices affect the measurement of firm value. The research results of Seto, A. A., & Septianti, D. (2021) stated that the Covid-19 pandemic had a significant effect on the value of banking companies. Based on the description above, hypothesis in this study is:
H4: The Impact of Covid-19 has a significant effect on Firm Value
Financial Performance can be seen from the company's ability to generate profits. Apart from being an indicator of the company's ability to fulfill obligations to funders, company profits are an element in creating Firm value that shows the company's prospects in the future. The better the financial performance, the better the firm value. The measure of the successful achievement of generating profits for shareholders is that the greater the ROE reflects the company's ability to generate high profits for shareholders. The results of research by Arief, et al (2015), Patricia, et.al (2018) state that financial performance has a significant effect on firm value. Based on the description above, hypothesis in this study is:
H5: Financial Performance has a significant effect on Firm Value
The company's main goal is to maximize the value of the company and this is an advantage for stakeholders because their prosperity increases along with the increase in company value. research by Ghosh (2008) and Patricia, et al (2018) shows that financial performance affects company value. Based on the description above, hypothesis in this study is:
H6 : Good Corporate Governance mechanisms has a significant effect on Firm Value through Financial Performance
Liquidity is used to assess a bank's ability to repay its short-term obligations. In his assessment, the soundness of a bank can be divided into several categories, namely healthy, moderately healthy, less healthy and unhealthy. If a bank is unable to extend credit, while there are a lot of funds collected, it will cause the bank to lose money and will reduce the company's financial performance. Iskandar M. & Zulhilmi M. (2021) research results states that the variables of liquidity and firm size have a significant effect on financial performance. The results of research by Elda & Ruzikna (2019), Oktaviani, et al (2018), Putra & Lestari (2016) state that liquidity has a positive effect on firm value. Based on the description above, hypothesis in this study is:
H7: Liquidity has a significant effect on Firm Value through Financial Performance
Firm size shows how capable the company is in generating profits, the bigger the company, the higher the profit generated. Company managers want high company profits, because high profits illustrate that the company's performance is good. Firm size also influences the interest of investors in investing their capital so that it has an impact on the financial performance of banking companies. The results of research by Patricia, et.al (2018) state that size has a positive effect on financial performance. The research results of Rudangga & Sudiarta (2016), Lumbantobing (2017), Patricia, et.al (2018) state that firm size is considered capable of influencing firm value. Based on the description above, hypothesis in this study is:
H8: Firm Size has a significant effect on Firm Value through Financial Performance Banking companies cannot be separated from the impact of Covid-19. Corona is expected to trigger credit growth or financing in the banking industry to slow down or decrease, which will result in reduced industry profitability, and also an increase in bad loans. With this pandemic, there was a lack of investor reaction in buying shares and investing their capital, causing the market price to decline. Decreasing market prices affect the measurement of firm value. The research results of Seto, A. A., & Septianti, D. (2021) and Harahap L.R et.al (2020) stated that the Covid-19 pandemic had a significant effect on the financial performance of banking companies. Based on the description above, hypothesis in this study is:
H9: The impact of Covid-19 has a significant effect on Firm Value through Financial Performance
III. RESEARCH METHODOLOGY Research Methodologies
This study uses a quantitative method by using secondary data from published report from banking companies listed on the Indonesia Stock Exchange (IDX). The annual financial reports for the 2017-2021 period, as well as other data related to this research, use a literature study and documentation methodology. This research utilizes secondary data in the form of annual reports collected from the IDX database (www.idx.co.id), (www.idnfinancials.com), as well as from related websites. The research population consisted of all banking companies listed on the Indonesia Stock Exchange (IDX) between 2017-2021. The method of determining the
