Effect of Institutional Ownership

Oct 13, 2025 by magicalceylontours.com 22 views

Introduction

Good Corporate Governance (GCG) is a crucial aspect of a company's success, particularly in the banking sector. It encompasses a set of principles and practices aimed at creating transparency, accountability, and effective management. The application of GCG can significantly impact a company's financial performance, as it fosters investor and customer confidence, leading to improved financial outcomes. This study aims to analyze the effect of GCG on the financial performance of banking companies listed on the Indonesia Stock Exchange (IDX) during the 2017-2021 period.

Methodology

This study employs a quantitative approach, utilizing panel regression analysis to examine the impact of independent variables, namely Good Corporate Governance (GCG), Institutional Ownership (KI), Independent Board of Commissioners (DKI), and Audit Committee (KA), on the dependent variable, Return On Equity (ROE). The data sources used in this study include the IDX.co.id website and the banking company's website.

Results and Discussion

The results of this study indicate that the variable size of institutional ownership has a positive and significant influence on Return on Equity (ROE) in banking companies listed on the IDX. Conversely, the variables of the Independent Board of Commissioners (DKI) and the Audit Committee (KA) show negative and insignificant effects on ROE. However, simultaneously, the Good Corporate Governance (GCG) variable, institutional ownership (KI), the Independent Board of Commissioners (DKI), and the Audit Committee (KA) have a significant influence on Return On Equity (ROE) in the banking company.

Effect of Institutional Ownership

Institutional ownership is proven to have a positive and significant influence on ROE. This shows that institutions that have shares in companies tend to be more active in encouraging company performance to remain high. They often have resources to carry out tighter monitoring of company management, so that the decisions taken are more pro-investor. With a large institutional ownership, banking companies can focus more on long-term goals that lead to an increase in profit.

Independent Board of Commissioners and Audit Committee

On the other hand, the Independent Board of Commissioners (DKI) and the Audit Committee (KA) showed an insignificant negative impact on ROE. Although the presence of DKI should provide tighter supervision to management, in some cases, DKI can be trapped in conflicts of interest that makes them unable to carry out the supervisory function properly. Likewise with the audit committee that may not be effective in carrying out their duties, so it cannot contribute positively to financial performance.

Conclusions

From the results of this study, it can be concluded that the application of good corporate governance, especially in terms of institutional ownership, can have a positive impact on the financial performance of banking companies in Indonesia. However, the challenges faced by DKI and the audit committee show the need to increase their effectiveness and independence. To improve financial performance, banking companies must focus on improvement in the implementation of GCG as a whole. This will create a better environment for the company's growth and sustainability, as well as providing added value for all stakeholders.

Recommendations

Based on the findings of this study, the following recommendations are made:

Improvement in Institutional Ownership: Banking companies should focus on increasing institutional ownership to improve financial performance.
Enhancement of Independent Board of Commissioners and Audit Committee: The effectiveness and independence of DKI and the audit committee should be improved to provide tighter supervision to management.
Implementation of Good Corporate Governance: Banking companies should focus on improvement in the implementation of GCG as a whole to create a better environment for the company's growth and sustainability.

Limitations of the Study

This study has several limitations, including:

Data Limitation: The study only used data from the 2017-2021 period, which may not be representative of the entire period.
Sample Size: The study only used a sample of banking companies listed on the IDX, which may not be representative of all banking companies in Indonesia.
Methodology: The study used a quantitative approach, which may not capture the nuances of the relationship between GCG and financial performance.

Future Research Directions

Future research should focus on:

Longitudinal Study: A longitudinal study should be conducted to examine the impact of GCG on financial performance over a longer period.
Qualitative Study: A qualitative study should be conducted to examine the nuances of the relationship between GCG and financial performance.
Industry-Wide Study: A study should be conducted to examine the impact of GCG on financial performance across different industries.

Conclusion

In conclusion, this study provides evidence that the application of good corporate governance, especially in terms of institutional ownership, can have a positive impact on the financial performance of banking companies in Indonesia. However, the challenges faced by DKI and the audit committee show the need to increase their effectiveness and independence. To improve financial performance, banking companies must focus on improvement in the implementation of GCG as a whole. This will create a better environment for the company's growth and sustainability, as well as providing added value for all stakeholders.

Q: What is Good Corporate Governance (GCG)?

A: Good Corporate Governance (GCG) is a series of principles and practices aimed at creating transparency, accountability, and effective management in a company. It encompasses a set of rules and guidelines that ensure the company operates in a fair, transparent, and accountable manner.

Q: How does GCG impact financial performance?

A: The application of GCG can significantly impact a company's financial performance by fostering investor and customer confidence, leading to improved financial outcomes. GCG helps to create a better environment for the company's growth and sustainability, as well as providing added value for all stakeholders.

Q: What is the role of institutional ownership in GCG?

A: Institutional ownership is proven to have a positive and significant influence on Return on Equity (ROE). Institutions that have shares in companies tend to be more active in encouraging company performance to remain high. They often have resources to carry out tighter monitoring of company management, so that the decisions taken are more pro-investor.

Q: What are the challenges faced by Independent Board of Commissioners (DKI) and the Audit Committee (KA)?

A: The Independent Board of Commissioners (DKI) and the Audit Committee (KA) showed an insignificant negative impact on ROE. Although the presence of DKI should provide tighter supervision to management, in some cases, DKI can be trapped in conflicts of interest that makes them unable to carry out the supervisory function properly. Likewise with the audit committee that may not be effective in carrying out their duties, so it cannot contribute positively to financial performance.

Q: How can banking companies improve their financial performance?

A: Banking companies can improve their financial performance by focusing on improvement in the implementation of GCG as a whole. This includes increasing institutional ownership, enhancing the effectiveness and independence of DKI and the audit committee, and creating a better environment for the company's growth and sustainability.

Q: What are the limitations of this study?

A: This study has several limitations, including:

Data Limitation: The study only used data from the 2017-2021 period, which may not be representative of the entire period.
Sample Size: The study only used a sample of banking companies listed on the IDX, which may not be representative of all banking companies in Indonesia.
Methodology: The study used a quantitative approach, which may not capture the nuances of the relationship between GCG and financial performance.

Q: What are the future research directions?

A: Future research should focus on:

Longitudinal Study: A longitudinal study should be conducted to examine the impact of GCG on financial performance over a longer period.
Qualitative Study: A qualitative study should be conducted to examine the nuances of the relationship between GCG and financial performance.
Industry-Wide Study: A study should be conducted to examine the impact of GCG on financial performance across different industries.

Q: What are the implications of this study for policymakers and regulators?

A: The findings of this study have significant implications for policymakers and regulators. They should focus on creating a regulatory environment that encourages the implementation of GCG in banking companies. This includes providing incentives for institutional ownership, enhancing the effectiveness and independence of DKI and the audit committee, and creating a better environment for the company's growth and sustainability.

Q: What are the implications of this study for banking companies?

A: The findings of this study have significant implications for banking companies. They should focus on improving their financial performance by implementing GCG as a whole. This includes increasing institutional ownership, enhancing the effectiveness and independence of DKI and the audit committee, and creating a better environment for the company's growth and sustainability.