Multinational Corporate Governance

Name Rizki Malinda Isvaniari Putri

Title of the project Interdependence Mechanisms of Corporate Governance Effect in Multinational State-Owned Enterprises

1. Introduction

The state sectors have always been an important component of most economies. Recently, several state-owned enterprises (SOEs) are among the largest and fastest expanding multinational companies. They progressively compete with private firms for resources, ideas, and consumers in both domestic and international markets. Many countries manage SOEs where monopolies are treated desirable or natural. Private monopolists may produce and give price at levels which are not socially optimal, so SOEs will resolve this problem because government regulation can mitigate those though

As globalization scale increases, information processing and agency demands increase as well. Normatively, the design of corporate governance and accountability should be properly aligned with these firm-level globalization characteristics. Multinational SOEs must establish and execute a larger number of governance mechanisms and instrument to cope with globalizing needs and cross-country differences in governance norms.

Agency problems appear within a firm when managers have incentive to reach their own interests at shareholder expense. Several corporate governance mechanisms can reduce these agency problems and also increase firm performance (Agrawal and Knoeber, 1996). According to the definition of the OECD (Organization for Economic Cooperation and Development, 2004), corporate governance is the mechanism by which business corporations are directed and controlled. Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other

Internal Mechanism of Corporate Governance

Internal mechanisms of corporate governance is the way of companies to conduct a controlling by use internal structure and process, in this research the internal mechanism will be measured by board size and CEO duality.

The number of directors constituting the board of a company can influence its performance positively or negatively. Larger board size provides more monitoring resources, which may enhance firm performance. Dalton et al. (1999) found the positive relationship between board size and firm performance. Otherwise, larger board size will affect coordination, communication, and decision making process become more difficult and trigger free-riding issues among the many board members. According to Eisenberg et al. (1998), there is negative relationship between board size and firm performance.

H1: The size of the board directors is negatively related to firm