Implementing good corporate governance to engage corporate social responsibility in financial performance

Abstract

Purpose: The aim of this study is to analyze the effect and implementing Good Corporate Governance (GCG) to engage and perform a proper Corporate Social Responsibility (CSR) which will impact the social community and finally improve the financial performance of the company. Design/Methodology/Approach: Good Corporate Governance will focus on four variables, such as the Size of Board of Commissioners (SBC), the Independence of the Board of Commissioners (IBC), the Size of the Board of Directors (SBD), and the numbers of the Audit Committees (NAC). As Corporate Social Responsibility will focus on the variable of CSR index required by the Global Reporting Initiative (GRI) while the Financial Performance will focus on the variable of Return on Equity (ROE) and Net Profit Margin (NPM). The research method in this study is the Tobin's Q method. The population of this research is based on 41 companies which are listed in the Indonesia Stock Exchange in the year 2016. Data analysis method used is multiple linear regression. Findings: Based on the results SBC, SBD, NAC, CSR and NPM do not have significant effect on the firm value while on the other hand, IBC and ROE do. Practical Implications: Good Corporate Governance can reveal proper and significant process including implementing Corporate Social Responsibility in the company. In some case implementing Good Corporate Governance can suppress the turmoil of company activities in the environment. Originality/Value: The negative and significant effect on the company's value does not simply mean inconsistency resulting the negative effect, instead this result indicates that IBC contributed a significant effect on GCG and CSR.