The effect of board governance and debt policy on value of non-financial firms


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Supervisory board plays an essential role to implement good governance in firm. If this governance is implemented well, the increase in firm value will occur. Related to this statement, the main question that appears is about the number and independence rate of supervisory board members needed to enhance firm value. Besides supervisory board, debt policy holds an important role for firm because of bankruptcy issue. Firm with good governance tries to avoid this issue by decreasing the amount of its debt to create high value.
The aim of this study is to test and analyze the effect of board governance, consisting of size and independence of supervisory board, and debt policy on value of non-financial firms forming the Kompas 100 Index on Indonesia Stock Exchange. To be able to generalize results on all non-financial firms forming this index, stratified random sampling method is used to take firms as the sample from the population. Method of data analysis used is fixed effect regression model.
This study infers that the number of supervisory board members has no effect on firm value, whereas board independence and debt policy have the effect on firm value: firm with high portion of supervisory board independence and the amount of debt significantly tends to have low value.

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    • Table 1. The number of sample and its allocation from the number of population based on stratified random sampling method
    • Table 2. The detection of multicollinearity
    • Table 3. The result of Harvey heteroscedasticity test
    • Table 4. The result of autocorrelation test
    • Table 5. Result of normality test
    • Table 6. Redundant fixed effects test result
    • Table 7. Estimation result of fixed regression model: the effect of supervisory board size and its independence and debt policy on firm value