The Effect of Board Structure on Firm Value with Profitability as an Intervening Variable

International Journal of Research and Scientific Innovation (IJRSI) | Volume VII, Issue XII, December 2020 | ISSN 2321–2705

 The Effect of Board Structure on Firm Value with Profitability as an Intervening Variable

Tri Alpiani^1*, Sutrisno^2
1 Graduate Student in the Master of Management Program, Department of Management Business and Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia
²Associate Professor, Department of Management, Faculty of Business and Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia
*Corresponding Author

Abstract: The role of the board as an internal mechanism for Good Corporate Governance (GCG) is needed to reduce agency conflicts. When the board plays a good role in managing GCG, the company will run effectively and efficiently, and be able to prosper the shareholders, as well as bringgood effect on company performance, thereby increasing profitability. Increased profitability will indirectly increase the company’s stock price and the company’s value will increase.
This study aims to determine the direct effect of board structure consisting of the board of directors (BOD) and board of commissioner (BOC) on firm value, profitability on firm value, and to determine the indirect effect of board structure on firm value through profitability.
The sampling method used was purposive sampling, the object of this research was companies listed on the Indonesian Sharia Stock Index (ISSI) from 2015-2019, with a sample size of 103 companies. The analysis tools used were Panel Data Regression and Path Analysis.
The results showed that the variables of BOC and profitability had a negative and significant effect on firm value. Meanwhile, variables of BOD has no significant effect on firm value. The board structure variable also has no significant effect on profitability. The results of the Path Analysis show that profitability is not able to be an intervening variable between BOD and BOC on firm value.

Keywords: Board Structure, Board of Director, Board of Commissioner, Firm Value, Profitability

I. INTRODUCTION

Along with the increasingly rapid development of the industry, company owners have to make innovations continuously to maintain the future of their company, and besides, must be followed by sufficient capital. The need for additional capital is obtained through the capital market so that it automatically leads the company to switch to a more modern management model. Changes in the management of the classic model to modern management caused the problems faced by the company to become more complex, and triggered agency problems which became known as agency theory.

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