Corporate Governance and Voluntary Disclosure Practices: Evidence from a Two Tier Board Systems in Indonesia

ABSTRACT Lack of effective corporate governance mechanism and disclosure transparency frameworks have been partly blamed for the 1997-1999 East Asia economic crises. Consequently, Indonesia, together with many countries across the globe have been actively reviewing and improving their corporate governance and transparency mechanisms. Theoretically, corporate governance mechanism is designed to monitor and evaluate decisions made by managers in the management of a company to reduce agency cost and information asymmetry between the shareholders and the management. The main objective of the study is to examine the effect of corporate governance mechanism on the level of voluntary disclosure in Indonesia, a country that has adopted a two-tier board system. The two-tier board system is considered a better system compared to one tier board system since all members of the board are non-executives. Therefore, the board members are more independent and objective in supervising and monitoring the performance of executive managers. This study investigates four corporate governance variables which are expected to influence the level of voluntary disclosure; (1) composition of independent members of Board of Commissioners (BOC), (2) composition of family members on the BOC, (3) audit quality, and (4) managerial ownership. The sample consists of companies listed on Bursa Saham Indonesia for the year ended 2008. The influence of corporate governance on the level of voluntary disclosure is analyzed using multiple regression method. As expected, the results show that the compositions of independent BOC and auditor’s quality have a positive and significant relationship with the level of voluntary disclosure. Meanwhile, the composition of family members on the BOC has negatively influenced the disclosure. The results suggest that the corporate governance structure in a two-tier board system, specifically in Indonesia, is not significantly different from a one tier board system in influencing the level of voluntary disclosure. Keywords: Corporate governance; voluntary disclosure; board of commissioners ABSTRAK Kekurangan mekanisme tadbir urus korporat yang berkesan serta kerangka pelaporan yang kurang telus telah dikatakan antara penyebab kepada krisis ekonomi di Asia Timur pada tahun 1997-1999. Oleh itu Indonesia, bersama dengan beberapa negara lain di seluruh dunia, telah mengkaji dan memperbaiki mekanisme tadbir urus korporat serta ketelusan secara aktif. Secara teorinya, mekanisme tadbir urus korporat dibangunkan untuk memantau dan menilai keputusan yang dibuat oleh pengurus dalam pengurusan syarikat bagi mengurangkan kos agensi dan ketaksamarataan maklumat antara pemegang saham dengan pihak pengurusan. Objektif utama kajian ini adalah untuk mengkaji kesan tadbir urus korporat kepada tahap pendedahan maklumat sukarela di Indonesia, sebuah negara yang mengamalkan sistem dua lembaga pengarah. Sistem dua lembaga pengarah adalah sistem yang lebih baik berbanding sistem satu lembaga pengarah kerana semua ahli lembaga pengarah adalah bukan eksekutif. Oleh itu, ahli adalah lebih bebas and objektif untuk menyelia dan mengawal prestasi pengurus eksekutif. Kajian ini mengkaji empat pembolehubah tadbir urus korporat yang dijangka mempengaruhi tahap pendedahan sukarela; (1) kebebasan ahli Lembaga Pengarah Komisoris (ALP), (2) komposisi ahli keluarga dalam ALP, (3) kualiti audit, dan (4) pemilikan saham oleh pihak pengurusan. Sampel kajian terdiri daripada syarikat yang tersenarai di Bursa Saham Indonesia pada tahun 2008. Kesan tadbir urus korporat terhadap pendedahan secara sukarela telah diuji dengan menggunakan kaedah regresi berganda. Seperti yang dijangkakan, hasil kajian menunjukkan komposisi ahli ALP yang bebas dan kualiti audit berhubungan secara positif dan signifikan dengan tahap pendedahan sukarela. Sementara itu, komposisi ahli keluarga dalam ALP berhubungan secara negatif dengan tahap pendedahan tersebut. Dapatan menunjukkan bahawa struktur tadbir urus korporat dalam sistem dua lembaga pengarah, khususnya di Indonesia, tidak jauh berbeza daripada sistem satu lembaga pengarah dalam mempengaruhi tahap pendedahan sukarela. Kata kunci: Tadbir urus korporat; pendedahan sukarela; lembaga pengarah komisoris