State-Owned Enterprises and Corporate Governance Strength: Evidence from Indonesia

Subject Areas : General Management

D. Warganegara ¹ , Y. Hutagaol ² , M. A. Saputra ³ , Y. Anggraini ⁴

1 - Department of Accounting and Finance, BINUS Business School Bina Nusantara University, Jakarta, Indonesia.
2 - Department of Accounting and Finance, BINUS Business School Bina Nusantara University, Jakarta, Indonesia.
3 - KPMG, Jakarta, Indonesia.
4 - Commonwealth Bank, Jakarta, Indonesia.

Received: 2013-11-17 Accepted : 2013-11-17 Published : 2013-10-01

Keywords: Corporate Governance, State-Owned Enterprises (SOEs), Indonesia Stock Exchange,

Abstract :

Background: This study investigates whether state-owned enterprises (SOEs) in Indonesia implement stronger corporate governance than do non-SOEs. It can be argued that as a large dedicated institutional investor, the Indonesian government has an incentive to strengthen corporate governance in SOEs and possesses the ability to bear the cost of implementing stronger governance. Research Methods: The sample of the study consists of 76 Indonesia Stock Exchange-listed firms that are included in the Kompas 100 index, ten of which are SOEs. Two scoring systems have been employed to gauge the strength of their governance. Results: It has been consistently found that SOEs implemented stronger governance compared to non-SOEs. Conclusion: The findings of this study, however, may have a geographical limitation as they may only apply to Indonesia or may exhibit a methodical limitation due to the assumption that a higher score index is directly proportional to stronger governance. Regardless of the limitations, however, the results of this study can be used as a case study which underscores the active involvement of governments or large dedicated institutional investors in enforcing stronger corporate governance in public companies.