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Archives of Business Research – Vol. 10, No. 4
Publication Date: April 25, 2022
DOI:10.14738/abr.104.12027. Reschiwati, Daniza, S. F. P., & Gusmiarni. (2022). Determinants of Good Corporate Governance in the Banking Sector in Indonesia.
Archives of Business Research, 10(04). 120-139.
Services for Science and Education – United Kingdom
Determinants of Good Corporate Governance in the Banking
Sector in Indonesia
Reschiwati
Sekolah Tinggi Ilmu Ekonomi Y.A.I Jakarta - Indonesia
Salsabila Firdausia Putri Daniza
Sekolah Tinggi Ilmu Ekonomi Y.A.I Jakarta - Indonesia
Gusmiarni
Sekolah Tinggi Ilmu Ekonomi Y.A.I Jakarta - Indonesia
ABSTRACT
This study aims to analyze the factors that influence good corporate governance in
the banking sector in Indonesia. These factors are Corporate Culture, Board of
Directors, Employee Performance, and Internal Audit as intervening variables.
Respondents in this study were employees of Banks, both State-Owned Enterprises
(BUMN) and private companies listed on the Indonesia Stock Exchange in 2020. The
sample selection method was purposive sampling. Based on the established
criteria, 10 banks in the Central Jakarta area were selected as samples. The data
were analyzed by bootstrapping using smartPLS 3.0. software package. The results
of this study indicate that corporate culture, board of directors, and employee
performance have an effect on good corporate governance with internal audit as an
intervening variable either partially or simultaneously. has been applied to assess
how employee behavior influences the setting of company priorities. Meanwhile,
the Board of Directors can improve the quality of company strategies, policies, and
continue to carry out company management in accordance with the interests and
objectives of the company. Employee performance can pay more attention to
controlling behavior so that company management can be carried out openly and
able to survive in competition with other companies in order to be able to survive
in intense competition and in Good Corporate Governance can focus on basic values,
namely paying attention in the physical form and behavior of employees. a company
in order to create better company performance.
Keywords: Corporate Culture, Board of Directors, Employee Performance, Good
Corporate Governance, Internal Audit.
INTRODUCTION
Good Corporate Governance (GCG) was introduced since the 1997 economic crisis, this
economic crisis lasted a very long time and was believed because the company was managed in
an irresponsible way. Starting from a proposal to improve regulations with the aim of setting
policies for issuers listed on the IDX, requiring the appointment of an Independent
Commissioner and establishing an Audit Committee in 1998 on the Jakarta Stock Exchange
(now the Indonesia Stock Exchange or IDX), in the same year GCG was introduced to all
Indonesian public company. Then, the IMF and the government inaugurated a Letter of Intent
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Reschiwati, Daniza, S. F. P., & Gusmiarni. (2022). Determinants of Good Corporate Governance in the Banking Sector in Indonesia. Archives of Business
Research, 10(04). 120-139.
URL: http://dx.doi.org/10.14738/abr.104.12027
which ultimately created a more conducive climate for the implementation of GCG. There is a
special institution established by the government to formulate and formulate
recommendations for national policies that discuss GCG, and monitor evaluations in the GCG
sector, namely the National Committee on Corporate Governance Policy (KNKCG). Not a few big
banks are facing an increase in non-performing loans or known as non-performing loans (NPL)
in the first semester - 2020. The increase in NPLs is due to many debtors finding problems in
their cash flow prior to the Covid-19 pandemic. When entering the pandemic period, the
debtor's cash flow shows symptoms of bad credit due to the failure of restructuring. In June
2020, non-performing loans were in the position of 1.165 (net) and 3.11% (gross). In addition,
third party funds grew by up to 8% due to the Covid-19 pandemic, the public experienced
uncertainty, therefore the public collected and saved their money to survive the uncertainty.
(Nisaputra, 2020).
The results of research from (Djokosantoso, 2005) state that there is an influence between
Corporate Culture and Good Corporate Governance. (Hidayah, 2008) state that there is an
influence between Employee Performance and Good Corporate Governance while (Givan,
2019) concludes that there is no influence. Meanwhile (Zarkasyi, 2008) state that there is an
influence between Internal Audit and Good Corporate Governance while (Febry, 2017)
concludes that there is no influence.
Non-bank financial institutions have changed their strategy so that the goals of the institution
can still be achieved during the Covid-19 pandemic. This is done so that the advancement of the
beloved institution, especially in increasing the rate of return and minimizing the risk of
financing, is the goal of the principles of Good Corporate Governance. The financial services
industry (IJK) is no exception, banks are required to prioritize the implementation of optimal
governance or Good Corporate Governance (GCG) during this Covid-19 pandemic era so that
IJK does not cause new effects during the pandemic.
Internal Audit may be a arrangement of methods and components by which the workforce of a
company looks for certain and exact money related data and the usage of the company's
operational exercises runs according to directions. Internal Audit is the foremost imperative
thing for companies, particularly pioneers to administer or screen all company operational
exercises, particularly these internal have more knowledge around the generally controls,
forms and different company issues in more detail and detail when compared with external
auditors.
The government made an announcement on March 2, 2020, which was the first case of a patient
infected with COVID-19 in Indonesia, which called for activities such as working, worshiping,
and studying at home in order to be able to prevent the spread of the COVID-19 virus which is
very rampant. The occurrence of Covid-19 has created a fraud triangle, if it includes
opportunities and rationalization, the tendency for fraud to become more obvious will continue
(Homer Emily, 2020). In addition, during the pandemic, the presence of other obstacles due to
the uncertainty of the economic situation which has an impact on the culture of decent
consumption, has resulted in various organizations creating the latest services and products to
make adjustments to these uncertainties. (Goodell, 2020).
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An internal audit that is carried out in an orderly manner is able to minimize the occurrence of
a problem that occurs in management, management will immediately identify and find a
solution to the problem or can identify the actual problem. Internal audit is very effective in an
organization that is expected to be able to provide an increase in organizational performance.
Research results from (Andreas, 2004) state that there is an influence between Corporate
Culture and Internal Audit. Research results from (Zahrina Nur Arifah, 2021) state that there is
an influence between the Board of Directors and internal audit. The results of research from
(Martini, 2017), (Arvianita, 2015), (Mulyadi, 2010) and (Mirnasari and Suardhika, 2018) state
that there is an influence between Employee Performance and Internal Audit while
(Ardiansyah, 2017) concludes that there is no influence.
Corporate culture is able to contribute significantly to the organization in terms of clear and
straightforward insight regarding the problems to be solved. Culture in an organization has a
very important influence on the attitudes and behavior of its members in an organization.
Strategies to anticipate changes that will be implemented by an organization must be
considered from the perspective of the culture that has been applied, will the strategy made in
accordance with applicable norms, or the occurrence of debates within the organization in the
future. Company leaders must realize that how important it is for the entire organization to
have an understanding of organizational culture because of the influence of the organization
which is quite influential on the attitudes of members of the organization or company.
Research results from (Andreas, 2004) state that there is an influence between Corporate
Culture and Internal Audit. The results of research from (Djokosantoso, 2005) state that there
is an influence between Corporate Culture and Good Corporate Governance.
One of the foremost critical parts in a company is that the board of directors features a
reasonably persuasive specialist to oversee all its assets. The board of directors is capable for
setting the course of directions and planning the company's assets. Particularly in brief and long
periods. Execution is the foremost vital portion since the benefits have been demonstrated, an
institution or company certainly anticipates workers to have great execution to attain great
work comes about, within the nonappearance or decreased execution of all workers, victory
will certainly be troublesome to attain. The workforce will get a great execution evaluation in
the event that their work execution is went with by compliance with existing measures, in terms
of quality and amount.
From the previous explanation, Corporate Culture, Board of Directors, Employee Performance
and Internal Audit are interrelated if the company can pay attention to and improve Internal
Audit by implementing organizational values and behaviors that have been in effect, it can have
an influence in determining company priorities. Meanwhile in the Board of Directors, if you can
further improve the quality of the company's strategy, policies, and continue to carry out the
management of the company, the company's management can adjust it to the goals and benefits
of the company. Employee performance by paying more attention to controlling behavior to
run the company can be carried out by prioritizing transparency and being able to survive in
competition with other companies in order to be able to survive in intense competition and in
Good Corporate Governance can focus on basic values, namely paying attention in terms of
attitude and physicality in a company in order to create better company performance.
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Reschiwati, Daniza, S. F. P., & Gusmiarni. (2022). Determinants of Good Corporate Governance in the Banking Sector in Indonesia. Archives of Business
Research, 10(04). 120-139.
URL: http://dx.doi.org/10.14738/abr.104.12027
An important component in conducting an audit of this culture is the credibility and trust of
employees, which is used as an audit approach to encourage disclosure of information sources
during assignments.
The Head of Internal Audit will give a review report to the President Chief to supply an appraisal
of the adequacy of the inside control and internal audit’s framework, at that point Internal audit
will associated with the Audit Committee and the Board of Commissioners. Hence, the Inside
Review Office holds gatherings inside a certain period with the Review Committee and the
Board of Commissioners in arrange to arrange their exercises with the exercises of the outside
reviewer (audit externals). The good faith that a representative has will empower inspiration
to work way better. Based on this good faith, it'll have an impact on person demeanors when
carrying out their obligations. The nearness of inside review will minimize the likelihood of
undesirable occasions caused by its representatives.
Corporate culture will influence concentration within the frame of demeanors, these states of
mind will shape the character of the company in employees. Every expansive company includes
a driving constrain that will gotten to be the corporate culture, this corporate culture will
afterward gotten to be the hub of GCG.
The role of the board of directors is to head and oversee the whole commerce and to control,
keep up, and oversee resources in understanding with what the company will achieve.
In arrange to realize great execution, there's an impact of the capabilities and demeanors of
workers towards the execution of different standards of great corporate administration. It is
trusted that the nearness of an instrument for the presence of corporate administration is able
to screen the demeanor of administration so that the execution of corporate administration
runs in an open or transparent manner. Inner Review is an indispensably division within the
administration system of an organization. Inner Audit's key position permits them to carry out
formal supervision and evaluation in understanding with operational viability, plan, and
autonomous administration structures.
Nternal audit adds to the benefits of understanding and understanding culture. The internal
audit report must describe the impact of organizational culture on organizational risk and the
internal control environment, this is because a bad organization will have an impact on
companies that implement corporate governance. Various inputs must be suggested to an
organization in order to be able to create a healthy organizational culture. Organizational
culture is very influential in determining how well an organization's performance is. If an
organization has employees who can show attention, analysis, and accuracy to details, the
activities that run in the organization will take place accurately, precisely, and well. This will
create a stronger application of organizational culture and improve the implementation of
Corporate Governance in an organization (Lestari, 2013). Based on the description, it is hoped
that this research can provide additional knowledge that is more specific. Therefore, the author
is interested in discussing the topic "Analysis of Determinants of Good Corporate Governance
in the Banking Sector Listed on the IDX"
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LITERATURE REVIEW
Agency Theory
Agency theory is included within the hypothesis that portrays the relationship between
company administration (specialists) and company proprietors (principals). The proprietor of
the company as the foremost gets to be the party that instrument other parties, specifically the
specialist, to carry out all exercises beneath the title of the proprietor of the company. The
principal must be the primary to know all the information related to the exercises that happen
within the company, one of which is administration exercises on the issue of utilizing the stores
contributed within the company. With the responsibility report issued by the operator, the vital
gets the data required and the report gets to be an instrument for evaluating the execution of
the Aden party in a predetermined period. However, usually the specialist features an
inclination to commit extortion so that the report is sweet within the eyes of the central and
benefits the specialist. Subsequently, to dodge this circumstance, back from parties other than
the operator and the foremost is required, specifically the auditors. The help advertised by the
inspector is that the money related explanations gotten from the execution of the specialist are
more solid. The agecy theories portrays two inconsistent financial parties, to be specific the
operator and the foremost. The relationship within the agency is an understanding that's
carried out by more than one individual, more often than not called the vital, giving orders to
the specialist to perform administrations to the vital and authorizing the operator to form great
choices for the foremost (Ichsan, 2013).
Stewardship Theory
According to (Murwaningsih, 2010) Stewardship theory provides an overview of the presence
of a relationship between organizational success and satisfaction, this theory is based on
philosophical assumptions that discuss individual attitudes that individuals as human beings
can be responsible, trusted, and have integrity. The government as a steward has the function
of being a resource manager, then the owner of the resource is the community as the principal.
The agreement that occurs between the people and the government is based on collective trust
in order to achieve the desired goals. Organizations in the public sector have the aim of
providing services to the public which will later be accountable to the public. (Raharjo, 2007)
said that this theory has its roots in sociology and psychology and is aimed at defining managers
as stewards (agents). This theory shows the state of the management who do not have personal
goal motivation, but prioritize their achievement targets for the benefit of the organization
(principals).
Goal Setting Theory
Arfan (2010) quotes Locke's (1986) definition of goal setting theory, which is a theory that
describes the relationship between predetermined goals and work performance. The basis of
the concept of goal setting theory is that employees who understand the achievements of the
organization will have an influence on work attitudes/behaviors. A complex goal will form a
better work achievement if a comparison is made with an easily achievable goal. Goals that
contain more challenges will affect better work performance if a comparison is made with goals
whose achievements are still unclear (Arfan, 2010). Characteristics of corporate culture and
company performance is one of the internal factors that encourage activities to achieve goals in
an organization. If the culture within a company can be achieved optimally, it will create good
company performance as well.
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Research, 10(04). 120-139.
URL: http://dx.doi.org/10.14738/abr.104.12027
Good Corporate Governance
Good Corporate Governance is a mechanism created for the implementation of professional
management of companies based on GCG guidelines, namely equality, fairness, independence,
responsibility, accountability, and transparency”. (Effendi, 2016, p. 3).
Coordinating and ensuring the creation of a condition where GCG principles are implemented
well every day is the most important thing for the company. Bank Indonesia said that GCG is a
bank management system that implements five guidelines, namely; a) Fairness; b)
Independency; c) Responsibility; d) Transparency. The most organs of the Company which
comprise of the Board of Executives, Board of Commissioners, GMS, have a pivotal part when
executing GCG effectively. The organs within the company must carry out their individual
capacities in understanding with the pertinent arrangements and based on the rules that each
organ has GCG standards when carrying out obligations, capacities and obligations for the
advantage of the company.
Internal Audit
According to Arens,dkk (2008, p. 15)that the definition of auditing is: “Auditing is the collection
and execution of assessment of prove against data in arrange to decide and report on the level
of precision of the data alluded to with foreordained conditions. Examining must be carried out
by autonomous and proficient people”. Internal auditing is useful for providing assistance to
the organization in order to achieve the desired goals by using a systematic and disciplined
approach that functions as an evaluation material and increases objectivity in risk management,
processing, and control procedures. Internal audit within the company functions to conduct
audits, both operational and financial audits. Based on the opinion of (Amrizal, 2004), Internal
audit functions: Reviewing and assessing the effectiveness and also developing the
implementation of a control system at a cost that is not quite expensive. Then obey the plans,
procedures, and policies that have been set by the management. Provide certainty of
accountability and protection from various forms of possible theft, misuse, and fraud of
company assets. Provide certainty of the level of trust from the data that is processed and
developed in an organization. Provide an assessment of the value of the work of each audit
section on the tasks assigned to the management. And finally, in an effort to increase efficiency
and effectiveness, suggestions for operational improvements are given.
Company Culture
Company culture proposed by Ernawan (2011, p. 74), Organizational culture is included as a
way of sustaining the operational activities of an organization which is a reflection of the norms
and beliefs that have been believed by all members of the organization until now. Based on the
previous explanation, it can be concluded that if the company culture is included in the values
or culture that is carried out by all members, it is also the identity of the company itself is good.
From the various explanations that have been mentioned, basically organizational culture is the
assumptions, attitudes, values, norms, and beliefs of attitudes that have been formed and
manifested in the form of actions that lead to the formation of identity in the organization thus
between organizational culture and corporate culture are interrelated. Robbins in Amirullah
(2010, p. 13) revealed that the function of organizational culture is formed into five functions
of organizational culture, namely: Determining a Boundary, Forming an identity for members
of the organization, encouraging the presence of wider or shared interests compared to one's
individual interests, Unifying the organization by increasing the stability of the social system in
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order to strengthen social relations. , as a system that controls and conducts scouting and
creates the behavior and attitudes of the workforce. Meanwhile, Robbert Kreitner and Angelo
Kinicki categorize the function of organizational culture into four functions, namely presenting
organizational identity to its workforce. Facilitates collective commitment, introduces balance
in the social system and creates behavior by helping managers become aware of their presence.
Board of Directors
The board of directors according to:(Yani & Wijaya, 2002, p. 106) a complementary instrument
of the company that carries out the company's exercises and delegates the company both
interior and exterior the court. It can be said that the board of chiefs is utilized as the supervisor
of a company. The Board of Chiefs is approved by the GMS, but at the starting the approval is
carried out by composing down their names and compiling the members' organs within the
deed of foundation. Researchers and lawful specialists have defined the position of the board
of executives in a company as a middle person between two sorts of assentions or assentions,
specifically an understanding in labor or work and an assention in allowing an specialist. The
specialist of the board of chiefs is isolated into two legitimate relations, it'll not be a issue on
the off chance that both are able to be actualized appropriately and reliably. In a legitimate
relationship where the board of executives is utilized as the recipient of the company to carry
out the company in agreement with what is stipulated within the articles. According to Munir
Fuadi (2002, p. 35) the arrangement of executives can be carried out in a few ways, specifically:
A chief must be designated by lion's share vote within the GMS in agreement with the
arrangements of the Company's Articles of Affiliation. Moment, a board of executives is
designated based on the allocation framework within the GMS (for case, 20% shareholders each
get 1 board of chiefs). And at long last, for the primary directors to be named, they are named
by implies of counting them within the articles of affiliation. Essentially, the board of executives
has two fundamental capacities inside a company, specifically: The work of administration,
which implies that the board of executives can carry out their duties as the pioneer of the
company and serves as a appointment, which implies that the board of chiefs can be a agent of
a company exterior or in court. This guideline of being a agent can result within the company
being considered a lawful substance that's bound by contracts or exchanges that have been
arranged by the chiefs for the benefit/interest of the company.
Employee Performance
Employee performance is included in the results of work seen from the quantity and quality
that an employee wants to aim for when carrying out his obligations (Mangkunegara, 2004).
Several factors that will have an influence on employee performance are personality,
leadership, work discipline, work environment, capability, and work motivation (Sri Wahyuni,
2013). Sinambela (2012) said if the performance of an employee is described as the capability
of the workforce when carrying out the expertise he has for the company. The performance of
the workforce is very necessary, because by paying attention to performance it will be easy to
measure the capabilities of the workforce when carrying out their obligations. Therefore,
criteria that can be measured and can be used as work guidelines are needed. There are various
conditions to be used as a benchmark for good performance, namely: a. Accepted by all
members who understand their performance is being assessed, b. Sensitive to suggestions or
actions from the incumbent, c. Can evaluate its members according to the performance of its
members, d. Can be measured with reliable instruments.
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Research, 10(04). 120-139.
URL: http://dx.doi.org/10.14738/abr.104.12027
Hypothesis Development
Relatioship Between Corporate Culture and Internal Audit
Reporting from The IIA Indonesia (2016) explained that culture is the core DNA of an
organization that can be used by Internal Auditors in identifying the decision-making process,
problem solving, and communication interactions between parts of the organization, but
unfortunately culture is also an element that is most often overlooked in an organization. audit
assignments. A number of empirical research also shows that the culture of an organization has
an important role in achieving organizational goals, building financial and organizational
performance in the long term (Andreas, 2004). Auditing culture starts from a basic
understanding of organizational norms and attitudes that apply and is carried out by the
organization. The audit aims to assess employee attitudes that influence when determining the
organization's priority scale in relation to governance and existing risk management. The next
step is an assessment of the obedience of employees within the Auditi environment to
applicable principles and standards, then the use of interview techniques that have broad
insight, followed by the implementation of investigative procedures that focus on the behavior
of employees in carrying out their daily work. Broadly speaking, an important component in
conducting an audit of this culture is the credibility and trust of employees, which is used as an
audit approach to encourage disclosure of information sources during assignments. (The IIA
Indonesia, 2016).
H1: There is an influence between Corporate Culture and Internal Audit
Relationship Between Board of Directors and Internal Audit
The board of directors gives esteem to the viability of the Internal audit Framework and
Internal Control based on the Audit Report given by the Head of Internal. At that point whereas
carrying out its commitments, the Internal Division carries out coordinate interaction with the
Board of Executives, Board of Commissioners and or the Audit Committee and individuals of
the Board of Chiefs, Board of Commissioners and or the Audit Committee. At that point the
Internal Division carries out talks and pondering in agreement with a foreordained period with
the Board of Chiefs, Board of Commissioners and the Audit Committee to arrange their
exercises and the exercises of outside reviewers. Another errand is to carry out an appraisal of
the execution of the review by the inner reviewer and to administer the usage of what choices
will be taken another by the Board of Chiefs on the discoveries gotten from the inner inspector.
Produce audit reports and yield them to the Board of Chiefs and the Board of Commissioners.
H2 : There is an influence between Board of Directors and Internal Audit
Relationship Between Employee Performance and Internal Audit
Optimism embedded in an employee will foster motivation to improve performance. Based on
this sense of optimism, it will have an influence on individual attitudes, especially attitudes at
work. Performance is the result of a quality and quantity work process for the achievements of
employees when carrying out their responsibilities in accordance with the tasks assigned to
them. There are several factors that influence employee performance, namely: organizational
factors, psychological factors, and individual factors (Martini, 2017). Mulyadi (2010) defines
auditing as a systematic process with the aim of obtaining and evaluating objective evidence
relating to various statements regarding economic activities and conditions, which aims to
determine the level of conformity between various existing statements and predetermined
criteria, then These results will also be conveyed to stakeholders. Previous research discussing
internal audit has been carried out by Arvianita (2015), from her research it has been proven
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that internal control has a significant positive effect on the effectiveness of hospital employee
performance. Mirnasari and Suardhika's research (2018) proves that internal audit has a
positive effect on employee performance at the Bank. The presence of internal audit aims to
minimize the probability of finding errors or actions taken by employees but not in line with
applicable policies.
H3 : There is an influence between Employee Performance and Internal Audit
Relationship Between Corporate Culture and Good Corporate Governance
Moeljono in Effendi (2009: 122) argues that before a company implements a GCG system, it
would be better for the company to carry out the various values contained in the corporate
culture that it has set beforehand. GCG will be implemented if all individuals have a value
system that motivates them to implement, provide support, and accept the implementation of
GCG within the company. Djokosantoso (2005) defines corporate culture as the value side of
the implementation in managing a corporation. Corporate culture is also used as an upstream
part of GCG whose content focuses on the basic values of corporate management and is then
determined by a system. Corporate Governance presents attention in the form of attitude and
physicality of a company. This form is developed by using increased capabilities (skills) and
insight (knowledge). In addition to this, corporate culture presents a specification in the form
of an attitude. This form enters into the personality of the individual in the company which will
then instill the character of the company in him. Companies need drivers in the form of
corporate culture so that they can be used as the core of GCG.
H4 : There is an influence between Corporate Culture and Good Corporate Governance
Relationship Between Board of Directors and Good Corporate Governance
The Board of Directors is included within the company's organ which has the obligation and
specialist for the administration of a company for the good thing about the company in
understanding with the accomplishments that the company needs to realize and can designate
the company both interior and exterior the court in understanding with the arrangements of
the articles of affiliation (Law No. 40 of 2007). with respect to Restricted Obligation
Companies). The board of chiefs has the obligation of deciding the course of directions and the
asset technique of a company in a brief or long period of time. The part of the board of chiefs is
as a commerce pioneer and carries out in general administration as well as controlling, keeping
up, and overseeing resources in understanding with the accomplishments the company needs
to realize.
H5 : There is an influence between Board of Directors and Good Corporate Governance
Relationship Between Employee Performance and Good Corporate Governance
Good corporate governance guidelines generally have the aim of increasing the progress of a
company. The implementation of performance measurement and assessment has a function to
serve as an instrument that helps management carry out the decision-making process and
provides evidence of information to interested parties if the company has optimal capabilities.
The presence of a system of GCG principles is expected to be able to control management
behavior so that the implementation of corporate management is carried out
transparently/openly (Hidayah, 2008). Currently, the increasingly fierce competition between
companies, requires companies to be able to face competition with other companies of the same
type.
H6 : There is an influence between Employee Performance and Good Corporate Governance
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Research, 10(04). 120-139.
URL: http://dx.doi.org/10.14738/abr.104.12027
Relationship Between Internal Audit and Good Corporate Governance
Internal audit is an integral sector in the organizational governance framework. Internal Audit's
strategic position allows them to carry out formal supervision and assessment in accordance
with operational effectiveness, design, and independent governance structures. In relation to
the implementation of GCG, it will be explained with the GCG principles which are also related
to Agency Theory. In the modern economy, the management and management of companies
are distinguished from company ownership. This problem is in line with agency theory which
focuses on the priority of company owners as shareholders who entrust the operation of the
company to professional experts (agents) and can better understand the day-to-day running of
the business. The separation of ownership and management of the company aims to provide as
much profit as possible to the owner of the company with a minimal but effective cost burden
by managing the company by experts. Professional employees have duties for the company and
are authorized to carry out company management. In this case, these experts have a role as
agents of the shareholders, so the benefits to be obtained by the agent will also be greater. Then
the owner of the company will be responsible for supervising and paying attention to the
implementation of company activities carried out by management so that the workforce works
for the sake of the company (Zarkasyi, 2008: 28).
H7: There is an influence between Internal audit and Good Corporate Governance
The framework in the research is presented in the following figure:
Figure 1 Framework
RESEARCH METHODS
The research that the researcher carried out made use of primary data through questionnaires.
The population is respondents including auditors, directors, and employees of banking
companies, both state-owned and private, which have been listed on the Indonesia Stock
Exchange in 2020 of which there are 43 banks. The sample is determined by using a technique,
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namely the purposive sampling technique. The questionnaire uses a model developed by Likert
with an interval scale of 5, namely: 1. strongly disagree, 2. disagree, 3. quite agree, 4. agree, 5.
strongly agree.
Research Samples
(Sugiyono, 2011) put forward his definition of the sample, "a sample is an element in a
population that has predetermined characteristics." So it can be concluded if the sample is an
element in the existing population, therefore when sampling it is necessary to use a
predetermined method based on the various considerations presented. The sampling
technique used in the research that the researcher carried out was using purposive sampling.
Purposive sampling is a sampling technique with certain considerations (Sugiyono, 2011).
Purposive sampling is often known as an expert sample which belongs to the type of non- probability sample.
Data Analysis Method
The data analysis technique used to test the hypothesis in the research that the researchers
carried out was Structural Equation Modeling (SEM). SEM is a multivariate statistical analysis
method. Carrying out SEM data processing is not the same as processing path analysis or
regression data. data processing SEM is different from performing regression data processing
or path analysis. In this study, SEM analysis uses the help of SmartPLS 3.0 Software. The use of
PLS software is predicted to be able to analyze latent variables in the structural equation model
with various indicators. Another consideration is that PLS does not require normally
distributed data. The following data analysis methods are used in the research that the
researchers carry out, namely: Descriptive Statistics, SEM Analysis, Partial Least Square, Outer
Model Analysis, Inner Model Analysis, and Hypothesis Testing.
RESULT AND DISCUSSION
The source of data in the research that the researchers carried out used primary data, namely
the results of the questionnaire that the researchers had distributed to the respondents. The
requirements to become a respondent in the implementation of the research are: a. Aimed at /
internal auditors, the board of directors and bank employees, Have work experience or occupy
the position for at least two years and have a minimum educational background of bachelor
degree.
Hypothesis Testing
Table 1 Descriptive Test Result Good Corporate Governance
Variable Indicator Mean Description
Good Corporate Governance
Transparency 3.836 Good
Independence 3.391 Good
Accountability 3.909 Good
Fairness 3,648 Good
General Average 3,696 Good
Based on the results of the data above, it was found that the respondents' answers to the
variable Good Corporate Governance (Z) obtained an average of 3.696. Which implies if the
respondent has a tendency to give an assessment if that the respondent tends to judge that
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Research, 10(04). 120-139.
URL: http://dx.doi.org/10.14738/abr.104.12027
Good Corporate Governance (Y) has been carried out well. The indicator that is considered the
best is “Accountability” with an average of 3,909. Meanwhile, the indicator that is rated the
lowest is “Independence” with an average of 3,391.
Table 2 Descriptive Test Result Internal Audit
Variable Indicator Mean Description
Internal
Audit
Eligibility and Importance of Examination
Findings 4.182 Good
Response and Checked Object 4.191 Good
Auditor Professionalism 4.264 Very Good
Early Warning 4.273 Very Good
Inspection Cost Savings 4.291 Very Good
Personnel Development 4.273 Very Good
Feedback and Management 4.218 Very Good
Achieving the Examination Program 4.259 Very Good
General Average 4,244 Very Good
Based on the results of the data above, it was found that the respondents' answers to the
Internal Audit variable (Y) obtained an average of 4,244. Which holds meaning if the
respondent has a tendency to give an assessment if the Internal Audit (Y) has been carried out
very well. The indicator that is considered the best is “Audit Cost Savings” with an average of
4,291. Meanwhile, the indicator that is rated the lowest is the statement “Feasibility and
Importance of Examination Findings” with an average of 4,182.
Table 3 Descriptive Test Result Corporate Culture
Variable Indicator Mean Description
Corporate Culture
Professionalism 3.977 Good
Distance and Management 3.809 Good
Trust in Coworkers 4.100 Good
Regularity 3.591 Good
Conflict Hostility 4.105 Good
Integration 3.925 Good
General Average 3,918 Good
Based on the results of the data above, it was found that the respondents' answers to the
Corporate Culture variable (X1) obtained an average of 3.918. Which holds meaning if the
respondent has a tendency to give an assessment if the Corporate Culture (X1) has been carried
out well. The indicator that received the highest rating was “Conflict Hostility”, with an average
of 4,105. Then the indicator that gets the lowest score is "regularity" with an average of 3,591.
Table 4 Descriptive Test Result Board of Directors
Variable Indicator Mean Description
Board of Directors
Management 3.630 Good
Risk Management 3.682 Good
Internal control 4.115 Good
Social Responsibility 4.185 Good
General Average 3,903 Good
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Based on the results of the data above, it was found that the respondents' answers to the
variable Board of Directors (X2) obtained an average of 3,903. Which holds meaning if the
respondent has a tendency to give an assessment if the Board of Directors (X2) has done well.
The indicator that is considered the best is “Social Responsibility” with an average of 4,185.
Meanwhile, the indicator that is rated the lowest is “Management” with an average of 3,630.
Table 5 Descriptive Test Result Employee Performance
Variable Indicator Mean Description
Employee
Performance
Quality 3.823 Good
Quantity 4.059 Good
Timeliness 3.668 Good
Effectiveness 4.086 Good
Independence 4.055 Good
Work Commitment 4.073 Good
General Average 3,956 Good
Based on the results of the data above, it was found that the respondents' answers to the
Employee Performance variable (X3) obtained an average of 3,956. Which holds meaning if the
respondent has a tendency to give an assessment if the Employee Performance (X3) has been
done well. The indicator that is considered the best is the “Work Commitment” Indicator with
an average of 4.073. Meanwhile, the indicator that is rated the lowest is the “Timeliness”
indicator with an average of 3,668.
Table 6 Normality Analysis Test Results
Skewness Kurtosis Skewness and Kurtosis
Value Z-Score P-Value Value Z-Score P-Value Chi-Square P-Value
321.623 17.911 0.000 916.923 7.432 0.000 376.042 0.000
Based on the results of the normality test, it is obtained that the chi square value of the
Skewness and Kurtosis test is 376,042 with a p-value of 0.000. The p-value is < significant alpha
5% or 0.05, therefore it is categorized as an abnormal data distribution. So the assumption of
multivariate normality is not met. thus used SEM-PLS analysis.
Table 7 Reliability Test Result
Variable Cronbach's Alpha Composite Reliability
Corporate Culture (X1) 0.931 0.946
Board of Directors (X2) 0.909 0.936
Employee Performance (X3) 0.955 0.964
Internal Audit (Y) 0.971 0.977
Good Corporate Governance (Z) 0.858 0.902
Based on the table above, it can be concluded that if each variable obtains a Chronbach alpha
value of more than 0.6 or a composite reliability value of more than 0.7. Therefore, based on the
calculation of the Chronbach alpha value or the composite reliability value, the overall indicator
is concluded to be reliable to be used as an instrument for measuring the variables.
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Research, 10(04). 120-139.
URL: http://dx.doi.org/10.14738/abr.104.12027
Table 8 Coefficient of Determination Results (R2)
Dependent Variable R Square R Square Adjusted
Internal Audit (Y) 0.575 0.563
Good Corporate Governance (Z) 0.668 0.655
Table 8 proves that the R-square value of the Internal Audit variable (Y) is 0.575 or 57.5%.
These results show that the diversity of Internal Audit variables (Y) can be defined by the
variables of Corporate Culture (X1), Board of Directors (X2), and Employee Performance (X3),
worth 57.5%. It can be concluded that the contribution of the Corporate Culture variable (X1),
Board of Directors (X2), and Employee Performance (X3) to the Internal Audit variable (Y) is
57.5%. Then the remaining 42.5% is the contribution of other variables that the researcher
does not use in conducting the research.
The R-square value of the Good Corporate Governance (Z) variable is 0.668 or 66.8%. These
results prove that the diversity of the variables of Good Corporate Governance (Z) can be
defined by the variables of Corporate Culture (X1), Board of Directors (X2), Employee
Performance (X3), and Internal Audit (Z) of 66.8%. Or in other words, the contribution of the
variables of Corporate Culture (X1), Board of Directors (X2), Employee Performance (X3), and
Internal Audit (Y) to the Good Corporate Governance (Z) variable is 66.8%. Then the remaining
33.2% is the contribution of other variables that the researcher does not use in conducting the
research.
Table 9 Predictive Relevant Result (Q2)
Variabel Dependen SSO SSE Q2 (=1-SSE/SSO)
Audit Internal (Y) 880.000 464.162 0.473
Good Corporate Governance (Z) 440.000 248.539 0.435
The results in table 9 prove that all variables produce Predictive Relevance (Q2) values > 0
(zero) which indicates that the model is concluded to be good enough.
Tabel 10 Partial Hypothesis Result
Effect Coefficient T Statistics
(|O/STDEV|) P Values
Corporate Culture (X1) -> Internal Audit (Y) 0.348 3.219 0.001
Board of Directors (X2) -> Internal Audit (Y) 0.222 2.069 0.039
Employee Performance (X3) -> Internal
Audit (Y) 0.295 2.897 0.004
Corporate Culture (X1) -> Good Corporate
Governance (Z) 0.167 2.315 0.021
Board of Directors (X2) -> Good Corporate
Governance (Z) 0.220 2.529 0.012
Employee Performance (X3) -> Good
Corporate Governance (Z) 0.296 4.415 0.000
Internal Audit (Y) -> Good Corporate
Governance (Z) 0.265 3.969 0.000
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Table 11 Indirect Effect Result
Variable Indirect Coefficient T Statistics
(|O/STDEV|) P Values
Corporate Culture (X1) -> Internal Audit (Y) ->
Good Corporate Governance (Z) 0.092 2.327 0.020
Board of Directors (X2) -> Internal Audit (Y) ->
Good Corporate Governance (Z) 0.059 2.072 0.039
The test of the influence of Corporate Culture (X1) on Internal Audit (Y) produces a T statistics
value of 3.219 with a p-value of 0.001. The test results show that the value of T statistics > 1.96
and p-value < 0.05. This means that there is a significant influence of Corporate Culture (X1) on
Internal Audit (Y). The resulting coefficient value is positive, namely 0.348. Thus it can be
interpreted, the better the Corporate Culture (X1), the more likely it is to increase the Internal
Audit (Y). So that hypothesis 1 is fulfilled.
The test of the influence of the Board of Directors (X2) on Internal Audit (Y) produces a T
statistics value of 2,069 with a p-value of 0.039. The test results show that the value of T
statistics > 1.96 and p-value < 0.05. This means that there is a significant influence of the Board
of Directors (X2) on Internal Audit (Y). The resulting coefficient value is positive, namely 0.222.
Thus it can be interpreted, the better the Board of Directors (X2), the tendency to increase the
Internal Audit (Y). So that hypothesis 2 is fulfilled.
Testing the effect of Employee Performance (X3) on Internal Audit (Y) produces a T statistics
value of 2.897 with a p-value of 0.004. The test results show that the value of T statistics > 1.96
and p-value < 0.05. This means that there is a significant effect of Employee Performance (X3)
on Internal Audit (Y). The resulting coefficient value is positive, namely 0.295. Thus it can be
interpreted, the better the Employee Performance (X3), the tendency to increase the Internal
Audit (Y). So that hypothesis 3 is fulfilled.
The test of the influence of Corporate Culture (X1) on Good Corporate Governance (Y) produces
a T statistics value of 2,315 with a p-value of 0.021. The test results show that the value of T
statistics > 1.96 and p-value < 0.05. This means that there is a significant influence of Corporate
Culture (X1) on Good Corporate Governance (Z). The resulting coefficient value is positive,
namely 0.167. Thus it can be interpreted, the better the Corporate Culture (X1), the more likely
it is to increase Good Corporate Governance (Z). So that hypothesis 4 is fulfilled.
The test of the influence of the Board of Directors (X2) on Good Corporate Governance (Y)
produces a T statistics value of 2,529 with a p-value of 0.000. The test results show that the
value of T statistics > 1.96 and p-value < 0.05. This means that there is a significant influence of
the Board of Directors (X2) on Good Corporate Governance (Y). The resulting coefficient value
is positive, namely 0.220. Thus it can be interpreted, the better the Board of Directors (X2), the
tendency to increase Good Corporate Governance (Y). So hypothesis 5.
The test of the influence of the Board of Directors (X3) on Good Corporate Governance (Y)
produces a T statistics value of 4.415 with a p-value of 0.000. The test results show that the
value of T statistics > 1.96 and p-value < 0.05. This means that there is a significant influence of
the Board of Directors (X3) on Good Corporate Governance (Y). The resulting coefficient value
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Research, 10(04). 120-139.
URL: http://dx.doi.org/10.14738/abr.104.12027
is positive, namely 0.296. Thus it can be interpreted, the better the Board of Directors (X3), the
tendency to increase Good Corporate Governance (Y). So that hypothesis 6 is fulfilled.
The test of the influence of Internal Audit (Y) on Good Corporate Governance (Z) produces a T
statistics value of 3.969 with a p-value of 0.000. The test results show that the value of T
statistics > 1.96 and p-value < 0.05. This means that there is a significant effect of Internal Audit
(Y) on Good Corporate Governance (Z). The resulting coefficient value is positive, namely 0.265.
Thus, it can be interpreted, the better the Internal Audit (Y) it tends to increase the Good
Corporate Governance (Z). So hypothesis 7.
The test of the influence of Corporate Culture (X1) on Good Corporate Governance (Z) Through
Internal Audit (Y) produces a T statistics value of 2.327 with a p-value of 0.020. The test results
show that the value of T statistics > 1.96 and p-value < 0.05. This means that there is an
influence of Corporate Culture (X1) on Good Corporate Governance (Z) through Internal Audit
(Y). So that hypothesis 8 is fulfilled.
The test of the influence of Internal Audit (X2) on Good Corporate Governance (Z) Through
Internal Audit (Y) produces a T statistics value of 2.072 with a p-value of 0.039. The test results
show that the value of T statistics > 1.96 and p-value < 0.05. This means that there is an
influence of Internal Audit (X2) on Good Corporate Governance (Y) Through Employee
Performance (Z). So that hypothesis 9 is fulfilled.
Testing the effect of Employee Performance (X3) on Good Corporate Governance (Z) Through
Internal Audit (Y) produces a T statistics value of 2.210 with a p-value of 0.028. The test results
show that the value of T statistics > 1.96 and p-value < 0.05. This means that there is an
influence of the Board of Directors (X3) on the Board of Directors (X3) on Good Corporate
Governance (Y) through Employee Performance (Z). So that hypothesis 10 is fulfilled.
DISCUSSION
The first hypothesis Culture is the core of an organization that can be used by internal audit as
a process in decision making, problem solving, and communication within the organization. But
unfortunately, organizational culture is often neglected in audit assignments. A number of
empirical research shows that organizational culture is very important for companies in
achieving organizational goals, building financial and organizational performance in the long
term starting from a basic understanding of organizational values and behaviors that apply and
are applied in audit organizations. The next step is an assessment of the compliance of
employees within the Auditi environment to applicable standards and principles, then the use
of insightful interview techniques, followed by the implementation of investigative procedures
that focus on the behavior of employees in carrying out their daily work. Broadly speaking, an
important component in conducting an audit of this culture is the credibility and trust of
employees, which is used as an audit approach to encourage disclosure of information sources
during assignments. The results of the research that the researchers carried out received
support from research conducted by (The IIA Indonesia, 2016) and (Andreas, 2004) with
interrelated and significant results. Supporters of this grand theory are agency theory and goal
setting theory because there is a relationship between management to find out all company
information in order to achieve company goals for work performance.
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The second hypothesis is that the board of directors is the pioneer chosen by partners in
overseeing the company and administering the execution of company management so that they
work for the interface of partners. In carrying out this supervision, the board of directors will
utilize internal audit. The reason of internal is to extend partner certainty within the work of
administration. The most chief evaluates the viability of the inner review instrument and
internal control based on the auditreport given by the head of audits. At that point whereas
carrying out its duties, the inside review office communicates straightforwardly with the Board
of Directors, Board of Commissioners and or the Audit Committee and individuals of the Board
of Directors, Board of Commissioners and/or Audit Committee. Subsequently, the Internal
Audit Division conducts gatherings concurring to a foreordained plan with the Board of
Executives, Board of Commissioners and the Audit Committe and the Audit Committee in
coordinating their activities and the activities of the external auditor. The another obligation is
to survey the usage of supervision by the inner evaluators and to oversee the usage of
approaches by the Board of Directors on the discoveries of the inner evaluators. Displaying
review reports and submitting them to the Board of Chiefs and the Board of Commissioners.
The comes about of the inquire about that the creator carried out gotten back from investigate
conducted by (Zahrina Nur Arifah, 2021) with interrelated and significant results. Supporters
of this theory are agency theory and stewardship theory due to the relationship between the
management and the principal in order to find out company information and to determine the
nature or relationship in the interests of the company.
The third hypothesis is the positive belief held by the workforce will motivate the workforce to
work. Based on this belief, it will have an influence on his attitude when doing his job.
Performance is the result of work steps seen from the aspect of quantity and quality achieved
by the workforce when carrying out their responsibilities, as well as factors that influence
organizational, environmental, and individual factors. The results of the research that the
researchers carried out received support from research conducted by (Martini, 2017),
(Arvianita, 2015), (Mulyadi, 2010) and (Mirnasari and Suardhika, 2018) obtained results if
internal audit had a positive influence on workforce performance in Bank. The presence of
internal audit is able to minimize the tendency for errors and attitudes that are not in line with
the policies implemented. Supporters of this grand theory are agency theory and goal setting
theory due to knowing all company information in order to reduce the possibility of errors so
that company goals can be achieved.
The fourth hypothesis is that corporate culture is an aspect of the value of the implementation
of corporate processing, or is used as the most important part of GCG with content that contains
and focuses on the basic values of corporate processing which are then determined with the
help of the system. GCG pays attention to the attitude and physical form of a company. This form
develops by adding capabilities and insights. Then, corporate culture focuses on the form of
behavior that is included in the personality of a person in the company and triggers the
character of the company in oneself. The driver is corporate culture, so it can be concluded that
corporate culture is the core of GCC. The results of the research that the researchers carried out
received support from the research conducted by (Djokosantoso, 2005) with interrelated and
significant results. Supporters of this grand theory are agency and stewardship theory because
of the relationship between management who wants to know all company information so that
there can be a strong relationship between satisfaction and organizational success which is
more concerned with common interests.
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Research, 10(04). 120-139.
URL: http://dx.doi.org/10.14738/abr.104.12027
The fifth theory is that the Board of Directors is an organ of the Company that has generally
specialist and obligation for the administration of the Company for the purpose of the Company,
in line with the accomplishments to be accomplished by the Company and gets to be an
assignment of the Company interior or exterior the court in agreement with the arrangements
within the articles of affiliation (Law No. 40 of 2007). with respect to Constrained Obligation
Companies). The board of directors has the duty to decide the vital heading and controls of the
company's assets, to completely lead and oversee the trade and to control, oversee, and keep
up resources in line with the company's vision and mission. Supporters of this fantastic
hypothesis are organization hypothesis and goal setting hypothesis since there's a relationship
between administration to find out all company data in arrange to attain company objectives
for work execution.
The sixth hypothesis is that the achievement of the expected work performance cannot be
separated from the capabilities and attitudes of the workforce towards the implementation of
GCG guidelines. The presence of the GCG system is expected to be able to control management
attitudes so that the company's processing can be carried out transparently. Increasingly fierce
competition between companies. The results of the research carried out by the researchers
received support from the research conducted by (Hidayah, 2008) with interrelated and
significant results. Supporters of this grand theory are agency theory and goal setting theory
due to the relationship between employees and management, if there is a strong relationship
between satisfaction and organizational success, work performance can arise and increase the
quality of the company.
The seventh hypothesis, Internal audit is an integral element of the organizational governance
structure. Their strategic location in the organization provides the possibility for internal
auditors to conduct formal and independent observations and assessments of the optimal and
independent governance, design, and operational structures. The relationship with the
implementation of GCG can be defined on the basis of the value of GCG itself which is related to
agency theory and goal setting theory because there is a relationship between employees and
management, if there is a strong relationship between satisfaction and organizational success,
work performance can arise and increase the quality of the company. The results of research
conducted by researchers get support from research conducted by (Zarkasyi, 2008: 28) with
interrelated and significant results.
CONCLUSION
Based on the results of the empirical analysis, namely the factors that influence GCG with
Internal audit as the interceding variable, ten conclusions were gotten, to be specific as takes
after (1) Found a noteworthy impact of Corporate Culture on Internal Audit. The esteem of the
coefficient gotten produces a positive esteem, which implies that an improved Corporate
Culture will result in a inclination to extend Internal Audit. (2) There's a significant influence of
the Board of Directors on Internal Audit. The value of the coefficient obtained is positive, which
implies that distant better Board of Directors will result in a propensity to extend Internal
Audit. (3) There's a noteworthy impact of Employee Performance on Internal Audit. The esteem
of the coming about coefficient is positive, it can be translated, the way better the employee's
execution, the more likely it is to make strides the internal audit. (4) There's a significant
influence of corporate culture on great corporate governance. The esteem of the coming about
coefficient is positive, it can be deciphered, the superior the Corporate Culture, the more likely
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it is to progress Great Corporate Administration (5) There’s a significant impact of the Board of
Directors on Good Corporate Governance. The coefficient value gotten encompasses a esteem
that holds the meaning of superior Inner Review, which can result in a inclination to extend
Great Corporate Governance. (6) There’s a significant impact of Employee Performance on
Good Corporate Governance. The coefficient esteem gotten contains a positive esteem, which
suggests that way better representative execution will result in a propensity to extend Great
Corporate Governance. (7) There’s a significant impact of Internal Audit on Great Corporate
Governance. The coming about coefficient esteem is positive, it can be deciphered, the superior
the Internal Audit, the more likely it is to extend Good Corporate Governance.(8) There’s a
significant impact Corporate Culture on Good Corporate Governance on Internal Audit. (9)
There’s a significant impact of the Board of Directors on Good Corporate Governance on
Internal Audit. (10) There’s a significant impact of Employee Performance on Good Corporate
Governance through Internal Audit.
SUGGESTION
Suggestions in this study are that there's a critical impact on Good Corporate Governance, to be
specific Corporate Culture, Board of Directors, Employee Performance and Internal Audit
appears that companies must pay consideration to and move forward Internal by applying
organizational values and behaviors that have been connected in arrange to evaluate how
worker behavior has an impact on setting company needs, the Board of Directors by encourage
making strides the quality of company methodologies, arrangements, and proceeding to carry
out company operational exercises that are in line with the company's vision and mission,
Employee Performance with more consideration to behavior control so that company
administration can be carried out straightforwardly and is able to outlive in competition with
other companies in arrange to be able to outlive in seriously competition and in Good Corporate
Governance can center on essential values, to be specific paying consideration to the demeanor
and physical shape of a company in arrange to make corporate execution a better one. For
advance inquire about, it is anticipated to include other factors that can be utilized in arrange
to discover the impact of the GCG’s variable since there are still 30-50% of other factors that
influence Internal Audit, conjointly more total the number of existing tests, it is found how much
impact the autonomous factors and intervening factors need to the esteem of the company.
IMPLICATION
The results of the research are expected to provide input for parties who have an interest,
namely for the development of knowledge, it is expected to add knowledge related to the
analysis of determinants of good corporate governance in the company. The company's
management is expected to be able to run the corporate governance system optimally and the
company is able to operate properly.
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