The Effectivity of Internal and External Corporate Governance Mechanisms Towards Corporate Performance

Abstract

Corporate Governance is a concept emerging from the agency theory, as to synchronize between the owner and management’s interests. The achievement of corporate performance relies on the mechanism efficiency of Corporate Governance both internally and externally. This study is intended to show the influence of Corporate Governance towards the corporate performance, particularly the profitability and the corporate’s dividend policy. The study was conducted to all non-financial corporations in the Indonesian Stock Exchange during 2007 – 2010. The result of the study shows that the external corporate governance which was measured through the existence of institutional ownership and debt holder has a higher effectiveness than internal corporate governance which was measured by the independent commissioner’s ratio towards the corporate performance.

Keywords: corporate governance, dividend policy, profitability