Exploring the Correlation Between Corporate Governance and Financial Performance of Listed Companies in Indonesia’s Stock Market

Abstract

This study explores the correlation between corporate governance practices and the financial performance of listed companies on Indonesia’s stock market. Utilizing a qualitative research method through a comprehensive literature review, the study synthesizes various academic articles, corporate reports, and financial analyses to identify the key factors that influence corporate governance in Indonesia. The research highlights the importance of transparent management, board structure, shareholder rights, and audit practices in enhancing the financial performance of companies. A significant focus is given to the role of institutional investors, regulatory frameworks, and the impact of cultural factors on governance practices. The findings suggest that robust corporate governance mechanisms are positively correlated with higher financial performance, as they contribute to better decision-making processes, improved risk management, and increased investor confidence. However, challenges such as inconsistent enforcement of regulations and the influence of family-owned businesses in Indonesia’s corporate sector remain prevalent. The study concludes with recommendations for improving corporate governance frameworks in Indonesia to ensure more sustainable financial performance. This study contributes to the existing literature by offering insights into the specific dynamics of corporate governance within the Indonesian context, providing valuable implications for policymakers, corporate managers, and investors.