Do Value Added Intellectual Coefficient and Corporate Governance Contribute to Firm's Economic Value Added

  • Saarce Elsye Hatane Faculty of Business and Economics, Petra Christian University Jl. Siwalankerto 121-131, Surabaya, Indonesia
  • Maria Agustin Faculty of Business and Economics, Petra Christian University Jl. Siwalankerto 121-131, Surabaya, Indonesia
  • Vera Radja Kana Faculty of Business and Economics, Petra Christian University Jl. Siwalankerto 121-131, Surabaya, Indonesia
  • Jean Marc Dautrey Stamford University, Rama 9 – Bangkok, Thailand
Keywords: economic value added, corporate governance, value added intellectual capital

Abstract

This study is about examining the influence of Intellectual Capital and Corporate Governance to EVA. Data used in this study were collected from a sample of 121 consumer goods companies in Indonesia and Malaysia from 2010 to 2017. Panel data multiple regression was performed to examine the research framework. The intellectual capital was measured by VAIC value, while the corporate governance was explained by the audit committee, remuneration board, and auditor quality and tenure. This study found that HCE, SCE, audit committee gender, remuneration size and remuneration gender had no effect on EVA in both Malaysian and Indonesian companies. In contrast, the audit committee size was found to affect the EVA of the companies in both countries. The CEE affected the company value of Malaysian companies while it had no effect on Indonesian companies. Audit quality and audit tenure had a positive effect only on Malaysian companies and none on Indonesian companies. This study used limited variables and a narrow business sector, thus the future research may expand the research model for other types of industries and apply the model in other countries.

References

Abdullah, S. N., Ismail, K. N., & Nachum, L. (2016). Does Having Women On Boards Create Value? The Impact of Societal Perceptions and Corporate Governance in Emerging Markets. Strategic Management Journal, 37(3), 466-476.

Adams, R., & Ferreira, D. (2009). Female in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94 (2), 291-309.

Adnan, M. F., Sabli, N., & Abdullah, A. (2013). Relationship Between Board Gender Diversity and Firm Performance: Evidence from Malaysia Firm. Gading Bussinees and Management Jour-nal, (17), 021-040.

Afza, T., & Nazir, M. S. (2013). Audit quality and firm value: A case of Pakistan. Research Journal of Applied Sciences, Engineering and Technology, 7(9), 1803-1810.

Aldamen, H., Duncan, K., Kelly, S., McNamara, R., & Nagel, S. (2012). Audit committee characteristics and firm performance during the global financial crisis. Accounting & Finance, 52(4), 974-1000.

Al-Dmour, A. H., Abbod, M., & Qadi, N. S. (2018). The impact of the quality of financial reporting on non-financial business performance and the role of organization demographic’ attributes (type, size and experience). Academy of Accounting and Financial Studies Journal, 22 (1).

Al-Matari, Y. A. (2013). Board of Directors, Audit Committee Characteristics and The Performance of Public Listed Companies in Saudi Arabia. Universiti Utara Malaysia., 2(44), 241-251.

Al-Mutairi, A. R., Dunn, K., & Adan, T. S. (2009). Auditor tenure, auditor specialization, and infor-mation asymmetry. Managerial Auditing Jour-nal, 24 (7), 600-623.

Alqatamin, R. M. (2018). Audit Committee Effec-tiveness and Company Performance: Evidence from Jordan. Journal of Accounting and Fi¬nance Research , 7(2), 048-060.

Al-Wawdeh, H. A., & Al-Sakini, S. A. (2018). The Impact of Economic Value Added, Market Value Added and Traditional Accounting Measures on Shareholders’ Value: Evidence from Jordanian Commercial Bamks. International Jour¬nal of Economics and Finance, 10 (10), 40-51.

Appiah, K. O., & Chizaema, A. (2015). Remuneration committee and corporate failure. Corporate Governance: The International Journal of Busi-ness in Society, 15(5), 623–640.

Arens, A., Elder, R. J., & Beasley, M. (2010). Audi¬t¬ing and Assurance Services: An Integrated Approach. (Vol. 13). Upper Saddle River: Prentice-Hall.

Atnic, G., Simmering, M. J., & Kroll, M. (2011). Con-trol variable use and reporting in macro and micromanagement research. Organizational Research Methods, 15(1), 57-74.

Bahri, M., St-Pierre, J., & Sakka, O. (2011). Economic value added: a useful tool for SME performance management. International Journal of Productivity and Performance Management, 60(6), 603–621.

Bhatt, P. R., & Bhatt, R. (2017). Corporate governace and firm performance in Malaysia. Corporate Governance: The International Journal of Busi-ness in Society, 17(5), 896-912.

Bontis, N., Chua Chong Keow, W., & Richardson, S. (2000). Intellectual capital and business performance in Malaysian industries. Journal of Intel-lec¬tual Capital, 1(1), 85–100.

Carter, D. A., D'Souza, F., Simkins, B. J., & Simpson, W. G. (2010). The gender and ethnic diversity of US boards and board committees and firm finan-cial performance. Corporate Governance: An International Review, 18(5), 396-414.

Chen, F. C., Liu, Z. J., & Kweh, Q. L. (2014). Intel¬lec-tual Capital and Productivity of Malaysian General Insurers. Economic Modelling, 36, 413–420.

Chowdhury, L. A., Rana, T., Akter, M., & Hoque, M. (2018). Impact of intellectual capital on financial performance: evidence from the Bangladeshi textile sector. Journal of Accounting & Organi-zational Change, 14(4), 429-454.

Cocca, P., & Alberti, M. (2010). A framework to assess performance measurement systems in SMEs. International Journal of Productivity and Performance Management, 59(2), 186-200.

Ghalib, S. (2018). Good coporate governance rating and bank profitability in indonesia: Evidence from panel data. International Journal of Business and Society, 19(3), 570-586.

Ghosh, S., & Mondal, A. (2009). Indian Software and Pharmaceutical Sector IC and Financial Performance. Journal of Intellectual Capital, 10(3), 369-388.

Gogajeh, H. H., Vahidirad, H., Taghizedgan, G. R., & Bilandi, M. M. (2015). Investigating the Relationship between Intellectual Capital Efficiency and Corporate Performance in Accepted Firms of Tehran Exchange”. European Online Journal of Natural and Social Sciences, 4(1), 13-19.

Habib, H., Jiang, H., & Zhou, D. (2014). Audit quality and market pricing of earnings and earnings components in china. Asian Review of Account-ing, 22(1), 20-34.

Hussainey, K. (2010). The impact of audit quality on earnings predictability. Managerial Auditing Journal, 24(4), 340 – 35.

Iazzolino, G., Laise, D., & Migliano, D. (2014). "Measuring value creation: VAIC and EVA". Measuring Business Excellence , 18(1), 8 – 21.

Jensen, M. C., Murphy, K. J., & Wruck, E. G. (2004). Remuneration: Where We’ve Been, How We Got to Here, What are the Problems, and How to Fix Them? SSRN Electronic Journal, 4(28).

Joshi, M., Cahill, D., Sidhu, J., & Kansal, M. (2013). Intellectual capital and financial performance: an evaluation of the Australian financial sector. Journal of Intellectual Capital, 14(2), 264–285.

Jubilee, R. V., Khong, R. W., & Hung, W. T. (2018). Would diversified corporate boards add value? The case of banking institutions in Malaysia. Asia-Pacific Journal of Business Administration, 10(2/3), 218-228.

Julizaerma, M., & Sori, Z. M. (2012). “Gender diver-sity in the boardroom and firm performance of Malaysian public listed companies”. Procedia – Social and Behavioral Sciences, 65, 1077-1085.

Junaidi, Apriyanto, H. P., Nurdiono, & Suwardi, E. (2014). The effect of aduit firm tenure in financial rotation on audit quality. Journal of Economics, Business, and Accounting Ventura, 17(3), 439-448.

Karagiorgos, T., Drogalas, G., Gotzamanis, E., & Tam-pakoudis, I. (2010). Internal Auditing as an effective tool for corporate goverance. Journal of Business Management, 2(1), 15-23.

Kontogeorgis, G. (2018). The Role of Internal Audit Function on Corporate Governance and Management. Journal of Accounting and Financial Reporting, 8(4), 100-114.

Lee, H. Y., Mande, V., & Son, M. (2009). Do Leng¬thy Auditor Tenure and The Provision of Non-audit Services by The External Auditor Reduce Audit Report Lags? International Journal of Auditing, 4(2), 87-104.

Levi, A., Russell, B. C., & Briggeman, A. M. (2017). Financial leverage and agency costs in agricultural cooperatives. Agricultural Finance Review, 77(2), 312-323.

Liargovas, P. G., & Skandalis, K. S. (2008). Factors affecting firms’ performance: the case of Greece. Global Business and Management Re-search: An International Journal, 1947-5667.

McGregor, J., Tweed, D., & Pech, R. (2004). Human capital in the new economy: Devil’s bargain? Journal of Intellectual Capital, 5(1), 153-64.

Messier, W., Glover, S. M., & Prawitt, D. F. (2007). Auditing and Assurance Services: A Systematic Approach. New York : McGraw-Hill.

Mojtahedi, A., & Payam, M. A. (2013). The Effect of Intellectual Capital on Economic Value Added in Malaysians Companies. Current Research Journal of Economic Theory, 5(2), 20-24.

Omolaye, K. (2017). The Role of Internal Auditing in Enhancing Good Corporate Governance Practice in an Organization. Internal Journal of Accounting Research, 6(1), 174.

Panda, B., & Leepsa, N. M. (2017). Agency theory: Review of Theory and Evidence on Problems and Perspectives. Indian Journal of Corporate Governance, 10(1), 74–95.

Platt, H., & Platt, M. (2012). “Corporate board attributes and bankruptcy”. Journal of Business Research, 65(8), 1139-1143.

Premachandra, I., Chen, Y., & Watson, J. (2011). DEA as A Tool for Predicting Corporate Failure adn Succeess: a Case of Bankruptcy Assesment. Omega, 39(6), 620-626.

Prusty, T. (2013). Corporate Governance through the EVA Tool: A Good Corporate Performance Driver. Journal of Asian Business Strategy, 3(12), 340-348.

Pulic, A. (2004). Intellectual capital – does it create or destroy value? Measuring Business Excellence, 8(1), 62–68.

Pulic, A. (1998). Measuring the Performance of Intellectual Potential in Knowledge Economy.

Raymond, L., St-Pierre, J., & Marchand, M. (2009). A taxonomic approach to studying the performance of manufacturing SMEs. International Journal of Business Performance Management, 11(4), 277-91.

Razaei, E. (2014). Statistical Analysis of The Impact of Intellectual Capital elements on Future Perfor-mance: A Case Study of Tehran Stock Ex-change”. Research Journal of Recent Sciences, 3(12), 131-137.

Rosikah, Prananingrum, D. K., Muthalib, D. A., Azis, M. I., & Rohansyah, M. (2018). Effects of return on asset, return on equity, earning per share on corporate value. Journal of Engineering and Science, 7(3), 06-14.

Saeed, S., Rasid, S., & Basiruddin, R. (2015). The Mediating Role Of Intellectual Capital In Cor-porate Governance and the Corporate Perfor-mance Relationship. Mediterran Journal of Social Sciences, 6(5), 209-219.

Sahara, L. I. (2018). The Analysis of Financial Performance Using Economic Value Added (EVA) and Market Value Added (MVA) Methods and it’s Influence on Stock Return of Transportation Listed Company in Indonesia Stock Exchange. Scientific Journal of Reflection: Economic Account¬ing, Management and Bussines, 1(13).

Sahoo, B. B., & Pramanik, A. K. (2016). Economic Value Added: A Better Technique for Performance Measurement. International Journal of Advances In Management and Economics, 5(6), 01-12.

Salehi, M., Enayanti, G., & Jayadi, P. (2014). The Realtionship between Intellectual Capital with Economic Value Added and Financial Perfor-mance. Iranian Journal of Management Studies, 7(2), 301-315.

Salleh, N., & Haat, M. (2013). Audit committee diversity-malaysian evidence after the revision of MCCG. Malaysian Accounting Review, 12(2), 91-113.

Shamsuddin, A., Chan, Y., Mun, & Nurul, A. (2017). The Influence of Intellectual Capital Towards Corporate Governance Practices in top 100 Asian Countries. International Journal of Bussiness, Economics and Law, 13(1), 55-61.

Singh, V., Terjesen, S., & Vinnicombe, S. (2008). Newly appointed directors in the boardroom: howdo female and men differ? European Management Journal, 26(1), 48-58.

Srinidhi, B., Gul, F. A., & Tsui, J. (2011). Female directors and earnings quality. Contemporary Accounting Research, 28(5), 1610-1644.

Ståhle, P., Ståhle, S., & Aho, S. (2011). Value added intellectual coefficient (VAIC): a critical analysis. Journal of Intellectual Capital, 12(4), 531–551.

Stephens, N. M. (2011). External auditor characteristics and internal control reporting under SOX section 302. Managerial Auditing Journal, 26(2), 114-129.

Stewart, T. A. (1997). Intellectual Capital: The New Wealth of Organizations. New York: Doubleday.

Taheri, F., Asadollahi, S. Y., & Niazian, M. (2014). Inves¬tigating The Relationship Between Intellectual Capital and Economic Value Added of Listed Companies in Tehran Stock Exchange. Indian Journal of Fundamental and Applied Life Sciences, 4(1), 628-634.

Wang, W. K., Lu, W. M., & Lin, Y. L. (2012). Does corporate governance play an important role in BHC performance? Evidence from the US. Economic Modelling, 29(3), 751-760.

Published
2019-11-01
Section
Articles