The Role Of Consistency In Sharia Status On The Relationship Between Internal Corporate Governance Mechanisms And Investors’ Confidence: Evidence Among Indonesian Sharia Compliant Companies
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Date
2016-03
Authors
Wijayanti, Risna
Journal Title
Journal ISSN
Volume Title
Publisher
Universiti Sains Malaysia
Abstract
Stock market turmoil triggered by business scandals, trading fraud, and bank
failures has caused investor confidence to plummet. However, against that
background, Sharia-compliant companies though relatively small in terms of market
shares compared to their conventional counterparts have experienced phenomenal
growth due arguably to high investor requirements for corporate compliance with
ethical standards and improved corporate governance. To address this gap, this study
examines the influence of information relating to the quality of internal corporate
governance mechanisms (board process, board structure, board composition, and
board characteristic) on investor confidence, and the influence of consistency in
Sharia compliant status on the quality of the relationship between internal corporate
governance mechanisms and investor confidence. A total of 227 samples of nonfinancial
companies from the Sharia Securities (DES) in Indonesia was analysed
using descriptive statistics, t-tests, and moderated multiple regressions. It was found
that board structure and board composition were positively related to investor
confidence, whereas board process and board characteristic were negatively related
to investor confidence. Apparently, corporate bonding efforts in information
disclosure about the quality of board structure as well as board composition
succeeded in influencing investor confidence. The findings further reveal that
consistency in Sharia-compliant status is an important aspect influencing the relationship between information about the quality of internal corporate governance
mechanisms (board process, board composition, and board characteristics) and
investor confidence. Further analysis shows that investor confidence in high
information on the quality of board composition is higher for consistent rather than
inconsistent Sharia status companies. However, there is no difference in investor
confidence in high information about the quality of board process as well as board
characteristic between companies with consistent and inconsistent Sharia status.
Nevertheless, investor confidence in low information of quality of board process as
well as board characteristic was higher in companies’ demonstrating consistent
Sharia status compared to those that did not. These findings illustrate that investor
confidence in information disclosure on quality of board composition, board process,
as well as board characteristic could be enhanced by consistently maintaining
corporate compliance. In other words, information about consistent compliance with
Sharia principles complements corporate bonding efforts in disclosing information
about the quality of those three board elements in order to boost investor confidence,
particularly where corporate reporting is limited.
Description
Keywords
Sharia-compliant companies