Corporate governance and investment efficiency in Indonesia: the moderating role of industry competition

Irenius Dwinanto Bimo, Engelbertha Evrantine Silalahi and Ni Luh Gde Lydia Kusumadewi

Journal of Financial Reporting and Accounting, 2021, vol. 20, issue 2, 371-384

Abstract: Purpose - This study aims to analyse the effect of corporate governance on investment efficiency and the moderating impact of industry competition on the relationship between corporate governance and investment efficiency. Design/methodology/approach - The research sample includes a total of 36 publicly listed companies assessed by the Indonesian Institute for Corporate Directorship from 2012 to 2018. Testing is performed on full sample and overinvestment and underinvestment subsamples. Additional testing is further carried out using the generalized method of moments to address endogeneity problems and a robustness test is performed to assess the estimated investment efficiency. Findings - Corporate governance can increase investment efficiency and the effectiveness of corporate governance is found to drop when the level of industry competition is higher. Practical implications - The results of the present study corroborate the suggestion that companies need to implement corporate governance mechanisms. Furthermore, designing a corporate governance mechanism requires the scrutiny of the external environment, including industry competition. Originality/value - The present study adds the profitability factor in the calculation of investment efficiency levels. This study also considers external factors that can influence the effectiveness of corporate governance in determining investment efficiency.

Keywords: Corporate governance; Investment efficiency; Industrial competition; Disclosure (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrapp:jfra-12-2020-0351

DOI: 10.1108/JFRA-12-2020-0351

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