Board Capital Effect on Firm Performance: Evidence from Indonesia

Authors

  • Maria Kontesa Tanjungpura University, Widya Dharma Pontianak University
  • Andreas Lako Soegijapranata Catholic University
  • Wendy Tanjungpura University

DOI:

https://doi.org/10.33736/ijbs.3265.2020

Keywords:

Director capital, Social capital, Director networking, Director education, Director experience, Firm performance

Abstract

Human capital effects have been ignored as important resources to induce the organization’s performance in firm-level research. The proponents of human capital theory and resource-based view theory argue that the human resources attached to each board member, such as networking, education, and experience, might induce the performance. Yet, agency theory argues those strategic resources might bring higher transaction costs and entrenchment costs. Therefore, this study aims to examine the board's capital effect on firm performance for a sample of 252 listed firms in Indonesia over 2011–2017. Using dynamic GMM panel regression, we confirm the hypothesis about board capital and performance. The results imply that board members’ networking and experience are two important factors for firm performance. However, boar members’ education does not give any impact. It confirms prior theories whereby the capability and competency of directors are an important source for the firm to achieve its objective. Networking and experience might help the firm to avoid financial distress. It furthers implies that shareholders should choose board members with a high level of networking and experience, not education.

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Published

2020-03-26

How to Cite

Maria Kontesa, Andreas Lako, & Wendy. (2020). Board Capital Effect on Firm Performance: Evidence from Indonesia. International Journal of Business and Society, 21(1), 491–506. https://doi.org/10.33736/ijbs.3265.2020