PROFITABILITY AND CORPORATE GOVERNANCE DISCLOSURE:
AN INDONESIAN STUDY
Dwi Novi Kusumawati
Prasetya Mulya Business School
This research aims to test empirically the relationship between profitability and the level of corporate governance voluntary disclosure. There are two streams of research regarding the direction of relationship between those two variables, making it interesting to be test statistically in the context of corporate governance disclosure. The GCG disclosure level is measured using 161 items recommended by GCG Codes which are developed by KNKCG (2001).
Data are taken from annual reports 2002. The result shows that, after controlling the model by several variables usually used in the disclosure research, profitability are negatively correlated with GCG disclosure. In other words, companies tend to give more comprehensive GCG disclosure when facing a slowdown in profitability measurements. Therefore, market have to take cautious in considering the GCG disclosure given by public companies since it could be used by management to cover bad performance.
Keywords: Corporate Governance, Voluntary Dislcosure, Profitability
Disclosure management is one of strategic planning that has to be carefully considered by management, especially for management of public companies. Any information published to the market could create market perception which, afterwards, could give an advantage or disadvantage for the company itself. Many researches have been conducted in the field of disclosure. Those researches could be divided into two categories. The first category is studies examining factors affecting management disclosure decision, and the second one is studies examining effect of disclosure to various evonomic events or market reaction to the disclosure.
Based on the type of disclosure, previous studies could also be divided into studies examined disclosure in general, both mandatory and voluntary, and studies examined certain type of disclosure, such as financial disclosure, social responsibility disclosure, environmental disclosure, etc. This study investigates one kind of disclosure that has not been researched much but getting more attention recently, which is good corporate governance (GCG) disclosure.
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