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Board of Commissioner's Effectiveness on Politically Connected Conglomerates: Evidence from Indonesia

Lela Nurlaela Wati

Pertanika Journal of Tropical Agricultural Science, Volume 25, Issue S, November 2017

Keywords: Board of commissioners' effectiveness, conglomerates' performance, political connection

Published on: 7 May 2018

This paper aims to examine the effect of political connection and board of commissioners (BOC) effectiveness on the performance of conglomerates. The sample of this research is all 66 conglomerates listed on Indonesia Stock Exchange from 2006 to 2014. Regression panel data with General Least Square was used for analysis. It was found that the effectiveness of the BOC as measured by independence, activity, the number of commissioners and competency have a different effect on the conglomerate's performance. Findings show that independence does not affect market and accounting performance, activities of the board of commissioners have a negative effect on the market performance and accounting performance, the number of commissioners has positive effect on the market performance and accounting performance, whereas education and experience of commissioner have a positive effect on market and accounting performance. However, the results of the board of commissioners' effectiveness on politically connected conglomerates show they have a positive and significant effect on market performance and accounting performance. The presence of independent board of commissioners and their activities in the conglomerate is not so effective, but the presence of commissioners, especially ones who are officials (both active and inactive) and their activities in the conglomerate are very effective and have a positive impact on the conglomerates' performance both in short and long term. Conglomerates that ignore good corporate governance practices are heavily monitored by their BOC and serves as a means of political rent-seeking.

ISSN 1511-3701

e-ISSN 2231-8542

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