Open AccessThe value of political independent supervisory boards: Evidence from Indonesian dual board setting
Author(s) -
Joni Joni,
Jahja Hamdani Widjaja,
Maria Natalia,
Ivan Junius Salim
Publication year - 2021
Publication title -
acrn journal of finance and risk perspectives
Language(s) - English
Resource type - Journals
ISSN - 2305-7394
DOI - 10.35944/jofrp.2021.10.1.008
Subject(s) - endogeneity , politics , generalized method of moments , indonesian , dual (grammatical number) , political risk , control (management) , business , accounting , economics , econometrics , panel data , management , political science , art , linguistics , philosophy , literature , law
We investigate whether political independent supervisory boards (political I-SBs) help companies to reduce their corporate risks in the setting of Indonesian two-tier board system. This study is different from other studies in several ways. First, while most prior studies examine the effectiveness of independent boards in one-tier board setting, we use dual board system. This system promotes the strategic role of political I-SBs. Second, we use two measures of corporate risks: operating and market risks. Based on 1,176 firm-year observations for operating risk analysis and 1,254 firm-year observations for market risk analysis, we find that firms with political I-SBs have lower operating and market risks than firms with non- politically connected independent SBs. We also control for endogeneity problem using GMM (Generalized Method of Moments) method, and the results are still consistent.