Journal of Modern Accounting and Auditing, ISSN 1548-6583 October 2012, Vol. 8, No. 10, 1484-1495

D

DAVID

PUBLISHING

Corporate Social Responsibility (CSR), Good Corporate Governance (GCG), and Firm Performance Wuryan Andayani, Sari Atmini Brawijaya University, Malang, Indonesia The strategy of the company, such as corporate social responsibility (CSR), can be adopted to show a good image of the company to the external parties. The company can maximize the shareholders’ equities, the prosperity of the owners of interests, the reputation of the company, and the long-term viability of the company by undertaking the CSR. The controversy whether the company should be engaged in CSR or not is still going on. According to the shareholder theory, the supporters of CSR (Donaldson & Preston, 1995; Jones, 1995) say that CSR is a mechanism to achieve a better financial condition and to maximize the property of the shareholders (A. Mackey, T. B. Mackey, & Barney, 2007). This research investigates in three folds, the relationships among corporate governance, CSR, and firm performance, then the relationship between intellectual property and firm performance. This research shows that the independent board of commissioners is related to CSR. CSR and the institutional ownership are also related to firm performance. In addition, intellectual property is strongly related to firm performance. This means that intellectual property owned by public-limited companies in Indonesia increases firm performance. Keywords: corporate social responsibility (CSR), good corporate governance (GCG), intellectual property, firm performance

Introduction Background of the Problem The strategy of the company, such as corporate social responsibility (CSR), can be adopted to show a good image of the company to the external parties. The company can maximize the shareholders’ equities, the prosperity of the interests of owners, the reputation of the company, and the long-term viability of the company by undertaking the CSR. In Article 74 of the Indonesian Republic Law No. 40 in 2007, it is stated that the company which operates its activities in the sector of or in relation to the natural resources must conduct the social responsibility. According to Becchetti, Ciciretti, and Hasan (2007), the investment in the capital market is called socially responsible investment portfolios, if it has a responsibility to the society. The aim of this research is to investigate in three folds, the relationships among corporate governance, CSR, and firm performance by using an agency theory. The controversy whether the company should be engaged in CSR or not is still going on. According to the shareholder theory, the supporters of CSR (Donaldson & Preston, 1995; Jones, 1995) say that CSR is a mechanism to achieve a better financial condition and to maximize the property of the shareholders (A. Mackey, Wuryan Andayani, lecturer, Department of Accounting, Brawijaya University. Email: [email protected]. Sari Atmini, lecturer, Department of Accounting, Brawijaya University.  

CORPORATE SOCIAL RESPONSIBILITY (CSR), GOOD CORPORATE GOVERNANCE (GCG) 1485 T. B. Mackey, & Barney, 2007). This corresponds with the activities of CSR, which include the economic activities of the company, the prosperity of the stakeholders, and the preservation of the environment. Freeman (1984) stated that the company which had what it takes could continue its viability, because it had supports from the stakeholders to obtain valuable resources. On the contrary, some parties refused CSR, such as Friedman (1962), who stated that the company should maximize the property of the shareholders (as cited in A. Mackey, T. B. Mackey, & Barney, 2007). The company should also maximize the present value of the future cash flow (Copeland, Murrin, & Koller, 1994). A. Mackey, T. B. Mackey, and Barney (2007) stated that CSR was an action of the company to improve the condition of the society and its environment. CSR is positively related to the financial way of work (Pava & Krausz, 1996; Preston & O’Bannon, 1997) and sales growth and return (Ruf, Muralidhar, Brown, Janney, & Paul, 2001). According to Fombrun and Shanley (1990) and Soloman and Hansen (1995), CSR is positively related to returns. While for Aupperle, Carroll, and Hatfield (1985) and McGuire, Sundgren, and Scheeweis (1990), CSR is negatively related to the returns. This shows that the research finding of the relationship between CSR and financial way of work is still not consistent. CSR and good corporate governance (GCG) show a trend of the displacement of the traditional concept (the shareholder theory) to a broader concept (the stakeholder theory), i.e., the displacement of the shareholder theory (Friedman, 1962) to the stakeholder theory (Freeman, 1984), which is in accordance with the CSR concept. The manager should pay attention to the interests of the shareholders and the interests of other stakeholders, such as employees, customers, suppliers, and the surrounding society (Tirole, 2001; as cited in Sato, 2004). The shareholders expect that CSR can improve the market value and the company’s way of work. The CSR activities include the intellectual property of the company, copyright, patent right, house mark, commercial secret, and industrial design. The aim of this research is to examine whether there is a relationship among CSR, GCG, and intellectual property towards improving the value of the company.

Theoretical Review and Hypothesis Development CSR CSR is a voluntary action of the company to improve the condition of the society and environment (A. Mackey, T. B. Mackey, & Barney, 2007). The activities of CSR are related to the obligation towards the society and stakeholders (Brown & Dacin, 1997; Luo & Bhattacharya, 2006; Sen & Bhattacharya, 2001; Varadarajan & Menon, 1988). Bowen (1953; as cited in Falck & Heblich, 2007) stated that CSR was related to the obligation of the entrepreneurs to continue their politics according to the purposes and values of the society. The World Bank states that CSR is an obligation of the company to give responsibility to all stakeholders in cases of operation and company’s activities (Doane, 2005). The company justifies its effects to the society and environment, when making a decision which impacts the stakeholders. The company should balance the needs of stakeholders and their needs in achieving the profit. European Union states that CSR is a business action upon the needs according to the accepted rules. Friedman (1962; as cited in Falck & Heblich, 2007) did not support CSR and the commitment of the company to the society. In Friedman’s (1962) point of view, the managers had the obligation to increase the values of shareholders, because their principal duty was to maximize the values of the company. According to Friedman (1962), the commitment towards the needs and interests of the society does not generate the profit.  

1486 CORPORATE SOCIAL RESPONSIBILITY (CSR), GOOD CORPORATE GOVERNANCE (GCG)

Therefore, the commitment should not always be done. If the managers want to give goodies to the society, they should use their own money, not just acting as agents from principals (Friedman, 1962). Different from Friedman (1962), Freeman (1984; as cited in Falck & Heblich, 2007; Kolk & Pinkse, 2005) stated that people who influenced the purposes of the business and who were influenced by the company were the stakeholders (suppliers, customers, owners, employees, company’s competitor, environment expert, and media etc.). The management can enhance CSR to satisfy shareholders (the owners of interests) and stakeholders. The stakeholder approach states that stakeholders are a group or individuals who can influence or be influenced by the purposes of the organization (Freeman, 1984). In the view of stakeholder approach, the company should pay attention to the interests of stakeholders and shareholders (Donaldson & Preston, 1995; Hill & Jones, 1992; Jones, 1995). Purposes of CSR Freeman (1984) stated that CSR was an optimal choice to minimize the expense of transaction and the potential conflict with the stakeholders. CSR is an effective tool to improve the reputation of the company and to reduce the risk of the politics of the interests and law action. Another purpose of CSR is to serve as a means to improve the competition benefit for the company, in order to protect the values of stakeholders (Husted, 2003). The implementation strategy of CSR activities should be in line with the mission and vision of the company and the expense of CSR can be minimized to get a higher return on investment (ROI) (Husted, 2003). In a competitive business environment, where the available resources are limited, the top management is forced to carefully act in making the investment decision. The top management is requested to give its responsibility to the society. The top management should make the decision to conduct CSR activities not only for the social benefit (the society), but also for the sake of the economic benefit of the company. The approach of stakeholders-agency (Hill & Jones, 1992) can reduce the agency expense, such as the profit management, because as an agent, a manager is monitored by different stakeholders. CSR can reduce the agency expense, because stakeholders also monitor the manager. Thus, the manager should conduct the CSR activities in a way to satisfy the interests of different stakeholders. The stakeholder theory has a deep root in CSR (Carroll, 1979; Freeman, 1984), which is used to satisfy the stakeholders for the sake of the long-term viability and the success of the company (Freeman, 1984; Waddock & Graves, 1997). Stakeholders who have relevant resources are willing to offer the resources they have to the company. Thus, the company can improve its financial way of work (Jones, 1995; Hilman & Klein, 2001). CSR and GCG CSR and GCG can be done together in a company. The trend of GCG has been changed from the traditional concept upon maximizing the property of the shareholders to a broader concept, i.e., paying attention to the needs of stakeholders. The managerial decisions influence the investors and other stakeholders, such as employees, customers, and society where the company is located etc. (Tirole, 2001). Barnea and Rubin (2005) stated that CSR was a source of conflict among different capital owners. The insiders, consisting of the corporate managers and blockholders who affiliate with the company, have interests in improving the expenditure of CSR to a higher level compared with maximizing the values of the company. They do those things, because they want to obtain the benefit of CSR. A good rating of CSR can improve the company’s reputation and can satisfy the employees, community, environment, and the care  

CORPORATE SOCIAL RESPONSIBILITY (CSR), GOOD CORPORATE GOVERNANCE (GCG) 1487 about the society. This is in accordance with Castka, Balzarova, Bamber, and Sharp (2004) and Smith (2007) who stated that the company could control three things, namely, environment, society, and economical aspects of the company. The institutional investor is a sophisticated investor, who can improve the values of the company, which is measured by Tobin’s Q (McConell & Servaes, 1990, 1995; as cited in Barnea & Rubin, 2005). The institutional investor improves the way of work for the executives (Hartzell & Starks, 2003; as cited in Barnea & Rubin, 2005) and reduces the agency expense between shareholders and bondholders (Bhojraj & Segupta, 2003; as cited in Barnea & Rubin, 2005). Barnea and Rubin (2005) found that insiders’ ownership and leverage were negatively related to the social rating of firms, while institutional ownership was uncorrelated with the social rating of firms. These results supported their hypotheses that affiliated shareholders induced firms to over-invest in CSR when they did not bear much of the cost associated with it. Furthermore, Ingley and Van der Walt (2004) stated that large institutional investors were urged by academics, shareholder activists, and others to adopt a greater role in monitoring, enforcing governance standards, and influencing the corporations in which they invested. From the above description, the hypothesis of the research can be generated as follows: H1: Institutional ownership has a positive influence on CSR rating. The empirical evidence of the action of CSR and the company’s way of work is still not consistent. CSR is an activity, and the status of the company is related to the perception of the society and obligation towards stakeholders (Brown & Dacin, 1997; Luo & Bhattacharya, 2006; Sen & Bhattacharya, 2001; Varadarajan & Menon, 1988). The result of the relationship between CSR and the company’s way of work is still inconsistent, for example, the return towards CSR is found to be positively related in some researches (Fombrun & Shanley, 1990; Luo & Bhattacharya, 2006; Solomon & Hansen, 1985). On the contrary, return towards the CSR is found to be negatively related in the researches of Aupperle, Carroll, and Hatfield (1985), Luo and Bhattarcharya (2006), and McGuire, Sundgren, and Scheeweis (1990). It can be concluded that the relationship between CSR and financial way of work is still not consistent. Luo and Bhattacharya (2006) and Rust, Lemon, and Zeithalm (2004) stated that some researches about the relationship between CSR and ROI (looking backward at the profitability of the company) had been done, but they did not look forward to the market values of the company. Theoretically, the market value is different from ROI, because the accountancy measurement is retrospective and because it examines the historical way of work. On the contrary, the market value of the company depends on the growth prospect and sustainability profits or the way of work expected in the future. The relationship between CSR and the company’s way of work is to expand the company’s strategies and the way of work and to omit the existence of contingency conditions (Sen & Bhattacharya, 2001). From the above discussion, the following hypothesis can be stated: H2: Market capitalization has a positive influence on the CSR rating. According to Barnea and Rubin (2005), CSR is related to GCG. This is because of the perception that the high CSR expenditure and GCG mechanism are found in companies that have ethics and moral. GCG always keeps pace with the CSR, because these two are related to the ethical behavior of the company. GCG is marked by the existence of the proportion of independent board of commissioners and audit committee. The proportion of independent board of commissioners, the audit committee, and the audit quality will improve the rating of CSR. This argument is based on the good management of the company that can improve the CSR rating. From the above discussion, the following hypotheses can be stated:  

1488 CORPORATE SOCIAL RESPONSIBILITY (CSR), GOOD CORPORATE GOVERNANCE (GCG)

H3: The independent board of commissioners, the audit committee, and the audit quality of Kantor Akuntan Publik (KAP) Big 41 (audit firms) have a positive influence on the CSR rating; H4: The CSR rating, the institutional ownership, commissioner, the audit committee, and the audit KAP Big 4 have a positive influence on the company’s way of work. Intellectual Property The intellectual capital is from the process of knowledge and intangible activities as an additional value of a company (Bueno, Rodriguez, & Salmador, 2007). In the intellectual capital, there are intellectual properties which include the income from the patent right, the amount of the patents, the registered design, the value of copyright, the expenditure of research and development (R&D), the house mark, and the brand survey. The company, which does the R&D, improves its information technology, introduces a plan and house mark, and creates a new thing to be patented, will obviously improve its way of work and make contributions to the shareholders, the owners of interests, employees, business partners, and the society. Therefore, it is expected that the company which has the intellectual property can improve the company’s way of work. CSR is not a part of the R&D expenditure, such as the researches of waste banishment, the environment preservation, the quality improvement of the products, and the technology improvement to maintain the relationship with the stakeholders. The benefits of CSR include the improvements of economic performance, society, and environment (Hill & Jones, 1992) in that the employees can demand the wages, the customers can demand the quality products with low prices, and the suppliers can demand a stable supply pattern. Furthermore, the society can demand a low level of pollution and the quality improvement of lives. To solve the agency problems, the managers are required to do R&D, to encourage the growth, and to improve the values of the company. H5: Intellectual property has a positive influence on the firm performance.

Research Methodology The Selection of the Sample and the Collection of the Data The selection of the samples, which bases on the purposive sampling from all companies registered in Jakarta Stock Exchange (BEJ) to obtain representative samples, is used to test H1, H2, and H3 with the following criteria: (1) The samples are companies registered in BEJ in 2004 and 2005; (2) The samples must have audited financial statements in 2004 and 2005; and (3) At the time the research is conducted, the CSR rating (the rating from the Ministry of Environment) has not existed yet since 2006. This research uses the CSR rating of 2004 and 2005. To test H5, samples used are as follows: (1) Companies registered in BEJ from 2004 to 2006; (2) The samples must have the audited financial statements in the period of 2004-2006; and (3) The samples’ selection process of intellectual property is that the companies pay the expenses for the patent right, trade mark, information technology, and brand. The Research Design The testing of H1, H2, and H3. H1 to H3 of this research are tested by using the logit:

CSRit = α 0 + β1 INSTit + β 2 KPit + β 3 DKInd it + β 4 Kualaud it + β 6 HTGit + β 7 PPenjit + ε it

(1)

In this case: 1

The Big 4 includes Ernst and Young (EY), Klynveld Peat Marvick Goerdeler (KPMG), Deloitte Touche Tohmatsu, and Price Water House Coopers (PWC).  

CORPORATE SOCIAL RESPONSIBILITY (CSR), GOOD CORPORATE GOVERNANCE (GCG) 1489 CSR = CSR rating of Ministry of Environment, one for the gold, green, and blue rating (the category of compliant companies), and zero for the red and black rating (for non-compliant companies), which are described in Tables 1 and 3; INST = The ownership proportion of institutional investors; KP = The logarithm of market capitalization/market values; DKInd = The proportion of an independent board of commissioners; Kualaud = One if the company is audited by KAP Big 4, and zero if otherwise; HTG = The ratio of total debt to total assets; PPenj = The sales growth, which is calculated as follows:

ΔPPenj =

Salest − Salest −1 ×100 Salest −1

(2)

Control variables consist of HTG (the ratio of total debt to total assets) and the sales growth which also influences the relationship towards the rating of CSR. The testing of H4. The testing of H4 is conducted with the regression and the following formula:

Tobin ' s Qit = α 0 + β1CSRit + β 2 INSTit + β 3 DKInd it + β 4 KOMAUDit + β 5 Kualaud it + ε it

(3)

where: KOMAUD = One if the company has the audit committee, and zero if otherwise. Tobin’s Q is based on the formula of Chung and Pruit (1994) (as cited in Damarwati & Rahayu, 2004). The formula is Tobin’s Q = (MVE + DEBT)/TA as measured by market values, which are the closing price of the stock and the amount of outstanding shares divided by the total asset; In this case: MVE = Closing price of the stock in the end of year book × the amount of outstanding shares; DEBT = (current liabilities – current assets) + inventory book value + long-term debt; TA = Book value of total assets. Tobin’s Q is used to measure the variable of the firm performances’ market value, because it has a comprehensive measurement, i.e., by enclosing the market price of the stock, debt, and the book value of total assets. The testing of H5. The research designs used to test H5 are as follows:

Tobin ' s Qit = α 0 + β1 IntelPropertyit + β 2 KompAktit + β 3 SIZEit + ε it ROEit = α 0 + β1 IntelPropertyit + β 2 KompAktit + β 3 SIZEit + ε it

(4) (5)

Tobin’s Q is calculated by using the abovementioned formula. In this case: ROE is used as the measurement of the operation of the firm performance (Klapper & Love, 2002; as cited in Darmawati & Rahayu, 2004), which is calculated by using the formula ROE = net profit/total equity. ROE is used to calculate the rate of return which gives return to the capital owners. Higher ratio indicates better ways of the firm performance. IntelProperty involves the values of the patent, trademarks, and copyrights (see Table 2). The assets composition is a control variable, because circulating assets and intangible assets are easier to be deflected than tangible fixed assets (Darmawati & Rahayu, 2004). The assets composition is measured by  

1490 CORPORATE SOCIAL RESPONSIBILITY (CSR), GOOD CORPORATE GOVERNANCE (GCG)

using the ratio between fixed assets and sales (Klapper & Love, 2002; as cited in Darmawati & Rahayu, 2004). SIZE is the logarithm of sales. It is a control variable, because big companies develop more soft capital than small companies, such as developing the information technology, researches, and development. Table 1 The Selection of CSR Rating Information Public firms until the year of 2004 Bank and other financial bodies The firm is not allowed in the CSR rating CSR rating firms (samples)

Number of firm (total) 339 66 255 18

Table 2 Intellectual Property Selection Information Public firms until the year of 2006 Bank and other financial bodies Firms do not have the intellectual properties Firms have the intellectual property (sample)

Number of firm (total) 339 66 251 22

Table 3 Corporate Social Responsibility Rating Firm PT London Sumatra Tbk PT International Nickel Ind Tbk PT Medco Energi International Tbk PT Tambang Batubara Bukitasam Tbk PT Timah Tbk PT Tunas Baru Lampung Tbk PT Argo Pantes Tbk PTCentury Textile Industry Tbk PT Indah Kiat Pulp & Paper Tbk PT Suparma Tbk PT Budi Acid Jaya Tbk PT Unggul Indah Cahaya Tbk PT Asahimas Flat Glass Tbk PT Holcim Indonesia Tbk PT Indocement Tunggal Prakasa Tbk PT Kimia Farma (Persero) Tbk PT Kalbe Farma Tbk PT Unilever Indonesia Tbk

Rating level (2004) Blue Red Blue Blue Red Blue Blue Blue Blue Red Blue Blue Blue Green Green Blue Blue Green

Rating level (2005) Blue Red Blue Blue Red Blue Blue Blue Blue Red Blue Blue Blue Green Green Blue Blue Green

Note. Source: The Ministry of Environment and Natural Resources2.

Research Findings and Discussions The Testing Results of H1, H2, and H3 (see Table 4) The CSR rating used is based on the assessment of Ministry of Environment. The given levels are gold, 2

Retrieved from http://www.menlh.go.id.  

CORPORATE SOCIAL RESPONSIBILITY (CSR), GOOD CORPORATE GOVERNANCE (GCG) 1491 green, blue, red, and black. The research findings indicate that the company, which has an independent board of commissioners and obtains the levels of gold, green, or blue, is categorized as a compliant company. Whereas the other categories such as institutional ownership, market capitalization, audit committee, debt, and sales do not have a relationship with the CSR rating. The institutional ownership does not have a relationship with the CSR rating. This result is consistent with the research finding of Barnea and Rubin (2005) that the institutional ownership does not monitor the CSR rating. Table 5 describes the model fit of the CSR rating. It shows that the model is fit and that the log likelihood is 26.025, which descends to 23.350 later. This indicates that the addition of independent variables into the model can improve the model fit. The value of Cox and Snell R square is 0.223. The value of Negelkerke R square is 0.376, meaning that the variability of dependent variables can be explained by the variability of independent variables of 36.7%. If the value of Hosmer and Lemeshow indicates the goodness of fit and if the value is 23.350 and is significant at the level of p < 0.1, then it can be said that the model is fit and acceptable. From that classification, it can be known that the averages of non-compliant companies (Code 0) and compliant companies (Code 1) are six companies and 30 companies respectively. In total, the classification accuracy is 83.3%. Furthermore, the variable of the independent board of commissioners of 7.751 is significant at the level of p < 0.01, indicating that the company, which has the independent board of commissioners, obtains the CSR rating as a company which is compliant to the environmental law and pays attention to the prosperity of the owners’ interests. The audit quality variable is negatively related to the company’s way of work at -0.422 with the significance level of p < 0.002. This indicates that although the company is audited by the Big 4, the fundamental of company’s work is still not good. Table 4 CSR Rating Test Variable Coefficient Std. error z-statistic Prob. C 2.743373 4.888101 0.561235 0.5746 INST -0.025312 0.065358 -0.387285 0.6985 KP -7.86E-14 2.75E-13 -0.285201 0.7755 DKInd 8.980730 3.848783 2.333395 0.0196 KOMAUD -2.874965 2.600506 -1.105541 0.2689 Kualaud 0.968717 1.910969 0.506925 0.6122 HTG -2.337982 3.696196 -0.632537 0.5270 PPenj -1.957271 3.012781 -0.649656 0.5159 Mean dependent variable 0.812500 S.D. dependent variable 0.396558 Standard error of the regression 0.207527 Akaike information criterion 0.807733 Residual sum of squares 1.033621 Schwarz criterion 1.174167 Log likelihood -4.923731 Hannan-Quinn criterion 0.929196 Restriction log likelihood -15.44248 Avg. log likelihood -0.153867 Likelihood ratio (LR) statistic (7 df) 21.03750 McFadden R-squared 0.681157 Probability (LR statistic) 0.003715 Obs with deflection error probable = 0 6 Total obs 32 Obs with deflection error probable = 1 26 Notes. (1) dependent variable: CSR; (2) method: the ML-Binary logit; (3) date: January 23, 2008; time: 08:58; (4) sample: 132; (5) included observations: 32; (6) Convergence is achieved after the iteration; and (7) Covariance matrix is computed by using the second derivatives.

 

1492 CORPORATE SOCIAL RESPONSIBILITY (CSR), GOOD CORPORATE GOVERNANCE (GCG)

Table 5 CSR Rating Test

CSRit = α 0 + β1 INSTit + β 2 KPit + β 3 DKInd it + β 4 Kualaud it + β 6 HTGit + β 7 PPenjit + ε it -2 Log Likelihood Cox and Snell square 26.025 0.223 23.611 23.356 23.350 23.350 23.350

Negelkerke R square 0.376

Hosmer and Lemeshow DKInd 7.813 7.751 (0.099)*** (0.008)*

Classification (%) 0 = 6 (66.7%) 1 = 30 (86.7%) Classification Precision 83.3%

Note. * and *** indicate significance at the levels of p < 0.01 and p < 0.1 respectively.

The Testing Results of H4 Table 6 is used to test H4: The CSR rating, the institutional ownership, commissioner, the audit committee, and the audit KAP Big 4 have a positive influence on the company’s way of work. This testing aimed at finding the empirical evidence of influences of CSR, the institutional ownership, and governance towards the market work of the company (Tobin’s Q). The used observations are 36 companies, consisting of 18 companies per year during a period of 2004-2005. The result reveals that the CSR rating variable (β = 0.297; p < 0.1) and the institutional ownership variable (β = 0.008; p < 0.05) are positively related to the company’s work. From Table 6, it can be seen that F-test of 2.501 with the significance level of 0.052 means that the model can be used for testing hypotheses. Table 6 The Association of CSR, GCG, and Firm Performance

Tobin ' s Qit = α 0 + β1CSRit + β 2 INSTit + β 3 DKInd it + β 4 KOMAUDit + β 5 Kualaud it + ε it α0 -0.487 (-1.665) (0.106)

β1 0.297 (1.926) (0.064)***

β2 0.008 (2.118) (0.043)**

β3 -0.127 (-0.405) (0.688)

β4 -0.323 (-1.268) (0.214)

β5 -0.422 (-3.373) (0.002)**

F-value 2.501 (0.052)**

Adjusted R2 0.177

Note. ** and *** indicate significance at the levels of p < 0.05 and p < 0.1 respectively.

The Testing Results of H5 Tobin’s Q (see Table 7). The company’s work is measured by Tobin’s Q. Before doing the double regression test, the classical assumption test is done. The result fulfilled the requirements. The result of F-test is 31.328, p < 0.01. Thus, the model can be used to predict the values of the company (Tobin’s Q). Since H5 (Tobin’s Q) is supported, it can be concluded that the intellectual property and the company’s size are positively related to Tobin’s Q. It can also be said that the intellectual property possessed by the public companies in Indonesia can improve the values of the companies. It can also be said that the investors consider the intellectual property to be important. ROE (see Table 8). This test is aimed at finding empirical evidences of the influences of intellectual property towards the operational work of the company, as measured by ROE. The observations used are 66

 

CORPORATE SOCIAL RESPONSIBILITY (CSR), GOOD CORPORATE GOVERNANCE (GCG) 1493 companies, consisting of 22 companies per year for three years, i.e., from 2004 to 2006. Before doing the double regression test, the classical assumption test is done. The result fulfilled the requirements. The result of F-test is 28.176, p < 0.01. Thus, the model can be used to predict the company’s work (ROE). The intellectual property is positively and significantly related to ROE (p < 0.01). Therefore, the intellectual property can improve the operational work of the company. These findings indicate that the intellectual property also contributes the value creation to the company’s income, which can improve the net profit of the company. Table 7 The Association of Intellectual Property and Tobins’ Q

Tobin ' s Qit = α 0 + β1 IntelPropertyit + β 2 KompAktit + β 3 SIZEit + ε it α0

β1

4.262

β2

4.56E-11

-0.007

(3.057)

(9.077)

(-0.326)

(0.003)**

(0.000)*

(0.744)

β3 -0.072 (-2.684)

F-value

Adjusted R2

31.328

0.583

(0.000)

*

(0.009)*

Note. * and ** indicate significance at the levels of p < 0.01 and p < 0.05 respectively.

Table 8 The Association of Intellectual Property and ROE Test

ROEit = α 0 + β1 IntelPropertyit + β 2 KompAktit + β 3 SIZEit + ε it α0

β1

-39.878

2.82E-10

(-2.585) (0.012)*

β2 -0.255

β3 7.958

(5.082)

(-0.103)

(2.897)

(0.000)*

(0.917)

(0.005)*

Adjusted R2

F-value 28.176 (0.000)

0.556 *

Note. * indicates significance at the level of p < 0.01.

Conclusions and Limitation Conclusions The results of H1, H2, and H3 indicate that the proportion of the independent board of commissioners has a positive relationship to CSR rating. This indicates that the company, which has the independent board of commissioners, has a good CSR rating. Whereas other variables, such as the institutional ownership, market value, audit committee, and audit quality do not relate to the rating of CSR. The result of H4 testing indicates that CSR rating and the institutional ownership are positively related to the company’s work as represented by Tobin’s Q and ROE. This reveals that the intellectual property has an important role in the values of the company. The intellectual property can improve the values of the company and investors, who consider the variable of intellectual property as an important thing. Limitation The limitation of this research is that the data for rating the CSR are very limited and that not all public companies in Indonesia follow the CSR rating. Besides, the corporate governance just consists of the institutional ownership, proportional board of commissioners, audit committee, and the audit quality by KAP Big 4. The subsequent researchers have to try to include more variables and use a larger sample size.  

1494 CORPORATE SOCIAL RESPONSIBILITY (CSR), GOOD CORPORATE GOVERNANCE (GCG)

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