Director's diversity, ownership concentration and company performance in Indonesian listed companies

This study investigates the relationship between directors’ diversity, ownership
concentration and company performance in Indonesian listed companies. It is argued that the diversity in terms of ethnicity, gender, nationality, experiences and qualification should be able to improve company performance. In addition, ownership concentration is viewed as one of the primary corporate governance
mechanisms to minimize agency problems. Indonesia has been selected for the study because, unlike other ASEAN countries, its corporate governance is based on the adapted version of the Continental European’s two-tier board system, which comprises of the Supervisory Board and the Board of Director. This study analyzed a number of 1981 company-year observations, which is drawn from the population of the Indonesian listed companies during the period of 2004-2010.
With reference to the agency theory and the resources dependency theory, the present study finds that the Supervisory Board with diverse nationalities has a positive effect on accounting performance, while the Board of Directors with diverse nationalities has a positive effect on market performance. However, the Supervisory Board’s gender diversity and the Board of Directors’ ethnicity diversity are found to have negative effects, both on accounting and market performance. No evidence has been found to suggest the role of ownership
concentration on company performance. The study also suggests that the implementation of the new revised Code of Corporate Governance does not significantly affect company performance. Based on the results of this study, it is
recommended that the government should regulate the appointment and dismissal mechanism for the Supervisory Board, for instance, to include representatives selected by the employees. In addition, the authority should also limit the
maximum number of multiple directorships by directors to ensure better performance