Study of Effectiveness Investments with Social Commitment towards Corporate Value Creation: In the Context of Structure and Mechanism Corporate Governance

Abstract

The objective of this paper was to investigate the association between the structure and mechanism of corporate governance and firm value mediated by the effectiveness of investments with social commitment that derived from synthesis of Agency and Stakeholder theories. The study was conducted to all corporations in the Indonesian Stock Exchange during 2009 – 2011. This study was expected to provide new insights on the synergistic effects of investment discretion that synchronizes between economic and social orientation as suggested in the finance literature, an area had not been examined in the prior studies. The result of this study can resolve the existing conflict in the literatures. Effectiveness investments with social commitment mediate the relationship between structures and mechanisms of corporate governance in the aspect of ownership concentration and the intensity role of the board toward firm value. The finding of this research, the most dominant path was effect of the intensity role of the board on firm value through effectiveness of investment with social commitment and corporate reputation. This suggests that the mechanism of corporate governance was more effective than the structure of corporate governance toward firm value.

Keywords: Effectiveness of investment with social commitment; corporate governance; ownership concentration; managerial ownership; intensity role of board;  reputation; firm value.