How the Size of the Independent Commissioners and Board of Commissioners Affects Profitability

How the Size of the Independent Commissioners and Board of Commissioners Affects Profitability

Maria Novita Olin., Dwi Purwaningrum., Adiyanto., Joswin Simaremare

Universitas Insan Pembangunan Indonesia

DOI: https://dx.doi.org/10.47772/IJRISS.2025.90900098

Received: 23 August 2025; Accepted: 29 August 2025; Published: 30 September 2025

ABSTRACT

This study aims to investigate the effect of board size and independent commissioners on profit.  Company financial reports from 2019 to 2023 serve as the data source; as a result, the data collection method is secondary.  State-owned businesses (SOEs) are included in the study sample.  Multiple linear regression is the statistical test that is employed.  According to the statistical study’s conclusions, board size partially boosts profitability. In the meantime, profitability is not somewhat improved by independent commissioners.

Keywords: Board of Commissioners, Independent Commissioners, Profitability

INTRODUCTION

The goal of corporate governance is to enhance business performance.  This is accomplished by keeping an eye on and overseeing managerial performance and making sure stakeholders are held accountable by set rules.  In order to guarantee management effectiveness, the commissioners and the board of directors are essential.  Improved business performance and substantial benefits for owners and shareholders are the goals of good corporate governance [1].  Evaluating a company’s performance is one technique to determine if it operates as planned [2].  Ensuring shareholder transparency in company administration is the main goal of corporate governance.  The excellent corporate governance principle can result in transparency in management performance, which will ultimately boost profitability. Implementing effective corporate governance is crucial because it enables sound decision-making in managing the company, thereby increasing its value and competitiveness in the market [3].

The effectiveness of corporate governance has a significant impact on a company’s profitability. This can be linked to implementing corporate governance principles, which aim to increase a company’s competitiveness, credibility, and profitability [4]. With good corporate governance practices, companies can maintain good relationships with stakeholders, including investors, business partners, employees, and customers [5]. Thus, companies can achieve sustainable performance and generate higher shareholder returns.

Investors consider profitability when evaluating a company’s ability to generate profits and potential return on investment [6]. Implementing corporate governance principles is an effective way to boost a company’s financial success.  This method can assist businesses manage the possibility of interest between shareholders and management while also ensuring smooth decision-making.  As a result, businesses can avoid common issues in agency relationships [7].

[8] argue that agency conflicts arise from differing interests between company owners and management. Owners are motivated to increase their profits, while management also desires to improve their well-being. Therefore, companies implementing corporate governance must have an efficient and effective system for directing, controlling, and supervising resources. Therefore, effective corporate governance practices can balance various interests, providing positive benefits for the company [9]. Previous research on GCG and profitability has been conducted, with board size significantly impacting company profitability [10]–[14]. Independent commissioners also influence profitability [15]–[20].

Observations related to profitability have been made by [10] ; however, their study only looked at board size. The researchers introduced a new independent variable: independent commissioners. While previous research by [21] primarily focused on the industrial sector in China, this study specifically examines state-owned companies listed on the Indonesia Stock Exchange.

This study attempts to add to the existing literature by investigating the influence of board size and independent commissioners on profitability in state-owned firms. This research is expected to provide valuable contributions to the accounting field by enhancing theoretical understanding of the variables studied. Furthermore, the findings can offer practical implications for management in improving profitability in state-owned companies.

Agency Theory

[8] explaining the relationship between a principal and an agent, in which the principal appoints the agent to make decisions and perform services on their behalf. According to this theory, a company’s success, particularly in terms of profitability, can be affected by conflicts of interest between the principal and the agent. Such conflicts arise when both parties pursue different objectives or seek to protect their own interests. As stated by [22], agency relationships originate from contractual agreements in which shareholders entrust management to provide certain services on their behalf. These differences in interests are commonly referred to as agency problems. Within the framework of agency theory, management is responsible for preparing financial statements as a form of accountability to the principal. The role of management is crucial in delivering accurate financial information since they are directly involved in the company’s operations. However, there is a potential risk that management may prioritize personal interests over those of investors, which could lead to negative consequences [23].

Board of Commissioners

The board of commissioners is responsible for supervising and advising the board of directors while representing shareholder interests [24], [25]. As part of good corporate governance (GCG), public companies are required to have at least two commissioners, including one independent member. The board plays a key role in overseeing risk management to ensure the effectiveness of company programs [20]. In this study, the effectiveness of the board of commissioners is measured by the number of its members.

Independent Commissioners

The company’s structure relies heavily on independent commissioners.  [26] define independent committee members as board members who are unattached to directors, other committee members, or big shareholders.  They are also not bound by any other connections that could prevent them from acting in the best interests of the organization.  As a result, independent commissioners are regarded impartial and free of extraneous influences, ensuring that decisions are made objectively and without regard for personal or group interests.  As to the [27] regulations Indonesian public corporations must have independent commissioners. There must be a minimum of two members on the board of commissioners, and independent commissioners must make up at least 30% of the board.  The GMS selects these independent commissioners, who must have no linked links with large shareholders, directors, or other board members.  Their major function is to conduct audits for the board of commissioners.  To assess the performance of independent commissioners, determine their percentage of the total number of board members in the company [28].

Profitability

Profitability is a metric that demonstrates a company’s effectiveness in generating profits for its shareholders. This indicates the importance of profitability as a measure of management’s ability and performance in generating profits over a specific period [29]. Profitability is the profit generated by a company’s business [30]. A business’s profitability reflects its management’s efficiency in utilizing resources to generate profits through sales and investments. [31] argue that high profitability can increase shareholder prosperity, encouraging shareholders to invest in the company. [32] argues that profitability is a ratio that reflects a company’s capability to generate profits. [18] claim that ROE is a measure that shows how effectively a company generates profits. This study uses the ROE indicator, the ratio of net profit to equity [18].

RESEARCH METHODS

Secondary data from the 2019–2023 financial statements of state-owned businesses listed on the Indonesia Stock Exchange (IDX) were used.  Parametric statistics are used to analyze the data.  Over a five-year period, 295 observations were made from the population of 59 companies.  The sampling method utilized was nonprobability sampling, specifically target sampling, which selects samples based on specified criteria [33].  26 state-owned businesses that were listed on the IDX over a five-year period made up the study’s sample size, yielding 130 observations in total.

Multiple linear regression was employed in the influence test, and traditional assumptions were applied to evaluate the quality of the variables.  Each variable’s minimum, maximum, mean, and standard deviation values were used in descriptive analysis to explain it.  Variable quality was evaluated using traditional assumption tests, including autocorrelation, heteroscedasticity, multicollinearity, and normality.  The Sig. (2-tailed) asymptomatic value A p-value greater than 0.05 in the one-sample Kolmogorov-Smirnov test signifies that the data is normal [34].  Heteroscedasticity is tested using a scatterplot.  The regression model lacks heteroscedasticity if the diagram’s points are dispersed.  The variance inflation factor (VIF) test and the tolerance number are used to quantify multicollinearity. If the variance index is less than 10 and the tolerance value is greater than 0.10, the research variables are deemed non-collinear.  The Durbin-Watson test will be used to quantify autocorrelation.  To ascertain the relationship between independent factors and dependent variables, multiple linear regression tests will be employed.  The F-test is used to determine simultaneous testing, and the T-test is used to determine partial tests.  Neither the F-test nor the T-test are deemed significant if the Sig. Value is less than 0.05.

RESULT

Table 1 Descriptive Analysis

The average board size ratio in the study sample was approximately 0.99. A larger board size may indicate a more complex organizational structure and the need for more individuals to make decisions. Furthermore, it may indicate the presence of multiple branches or business units that require oversight from the board.

The average proportion of independent commissioners was 0.50, indicating that most companies have many independent commissioners on their boards. This is important because independent commissioners oversee company management policies and actions. Their presence helps prevent potential conflicts of interest that could harm the company and its shareholders. Furthermore, it increases transparency and accountability, building trust among investors and the public.

For the profitability variable, using ROE as an indicator, the mean value was 0.15%. The mean ROE of 0.15% indicates that, overall, the companies measured have a low rate of return. This can be caused by various factors such as unfavorable economic conditions, intense competition, or ineffective business strategies. A minimum ROE of 0.00% indicates that some companies are experiencing losses and cannot generate sufficient profits to meet the capital requirements invested by shareholders. This could be due to high production costs, declining sales, or failure to manage company finances. Companies with the lowest ROEs need to improve their business strategies and financial management to improve their financial performance.

Classical Assumption Analysis

The standard deviation test employs the one-sample Kolmogorov-Smirnov method.   The results indicate that the data in this study are normally distributed, with an asymptomatic (2-tailed) value of 0.058, which is larger than 0.05.   The VIF, or variance inflation factor, and collinearity statistical tolerance columns have an impact on the multicollinearity test results.   All variables have a tolerance value near 1 with a VIF < 10, whereas the Multicollinearity test reveals a tolerance value > 0.10.   This reveals that there is no multicollinearity among the variables in this study, which allows for regression analysis. The test for heteroscedasticity scatterplot shows a pattern of dots that extend above and below the Y-axis without following a particular pattern, indicating that the relationship between the independent and dependent variables is not heteroscedastic.  The Durbin-Watson (DW) test produced a correlation coefficient of 1.694.   A run test is used to verify that the DW value remains in the dubious group, and the results show that there is no autocorrelation, with a sig value of 0.2189 > 0.05.

Table 2 Multiple Linear Regression

From the table above, the multiple linear regression equation is obtained as follows:

Y = 0.012 + 0.106 X1 + 0.082 X2 + e

For more clarity, it can be explained as:

1. Constant Value = 0.012

The constant value 0.012 indicates that if variables X1 and X2 are held constant, the customer satisfaction value (Y) is 0.012.

1. α1 = 0.106

The α1 value indicates 0.106 and has a positive regression coefficient sign. This indicates a directional effect between the board of commissioners size (X1) and ROE. This means that if there is an increase in the UDK variable (X1) by one unit, the ROE (Y) will increase by 0.106 units. This is assuming variable X2 remains constant.

1. α2 = 0.082

The α2 value is 0.082 and has a positive regression coefficient sign. This indicates a directional effect between the independent commissioner variable (X2) and ROE (Y). This means that if the KI variable (X2) is increased by one unit, ROE (Y) will increase by 0.082 units. This assumes variable X1 remains constant.

Based on the table above, the following conclusions are drawn:

H1: The board of commissioner size variable has a significant value of 0.000 < 0.05. This indicates that the board of commissioner size variable impacts profitability (ROE). Therefore, H1 can be accepted.

H2: The independent commissioner variable has a significant value of 0.166 > 0.05. This indicates that the independent commissioner variable does not impact profitability (ROE). Therefore, H2 can be rejected.

Table 3 Simultaneous Test

Based on the table above, it can be concluded that there is a positive relationship between the size of the board of commissioners and independent commissioners on profitability (ROE) together.

Board of Commissioners Size on Profitability

The results of the hypothesis test indicate that the size of the board of commissioners significantly influences company profitability. A larger board enhances decision-making quality by bringing diverse perspectives and experiences, which contributes to higher profitability. In line with agency theory [8], conflicts often arise between owners, who aim to maximize profits, and managers, who may pursue personal interests. The presence of a larger board helps mitigate these conflicts by strengthening supervision and ensuring managerial accountability. This finding is consistent with prior studies [10]–[14], which also highlight the positive impact of board size on profitability.

Independent Commissioners on Profitability

The results of this study show that independent commissioners have no substantial impact on corporate profitability, as assessed by Return on Equity (ROE).  The aforementioned suggests that the percentage of independent commissioners within the corporate governance framework has not been able to directly enhance financial performance.  The main responsibility of independent commissioners is to supervise board policies and guarantee that the business follows sound corporate governance guidelines.  Therefore, rather than making operational decisions that have an immediate impact on revenue, independent commissioners are more concerned with upholding accountability, transparency, and corporate compliance with legislation.  The results of  [19], which showed that independent commissioners had no beneficial effect on profitability, are consistent with this assertion.

CONCLUSION

This study aims to examine the effect of board size (X1) and independent commissioners (X2) on profitability (Y). Based on the findings and discussion, it can be concluded that board size significantly affects profitability. Furthermore, independent commissioners do not have a positive impact on profitability.

This study has limitations that need to be addressed, including the use of published secondary data, with a five-year time series (2019-2023). This study only has two independent variables: board size and independent commissioners. Future research is expected to add other variables to provide a better picture of profitability, such as adding company size and leverage.

The recommendations provided in this study are: 1) Implement good governance principles. Companies must strengthen corporate governance by implementing transparency, accountability, and information disclosure. In this way, companies can improve financial performance and avoid conflicts of interest that could be detrimental to the company. 2) Conduct periodic evaluations. Companies should regularly evaluate the performance of the board of commissioners, independent commissioners, and audit committee. This can help companies identify weaknesses and make necessary improvements to increase profitability.

The results of this study highlight several managerial implications. One is improving internal management oversight and control. This is crucial for reducing the risk of fraud and abuse of power, which can harm the company. Companies need to implement an effective internal oversight and control system to achieve this. Furthermore, companies should implement strict procedures and policies and conduct regular internal audits. This will minimize risks that could harm the company.

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