The Effect of Corporate Governance Mechanisms on Financial Performance in the Basic Materials Sector Listed on the IDX

Abstract

The effectiveness of corporate governance in improving corporate financial performance remains inconclusive, as previous studies have reported inconsistent findings regarding the influence of various governance mechanisms. This issue is particularly relevant for companies in the Basic Materials Sector, which play a strategic role in Indonesia's economy and face increasing demands for effective corporate governance practices. Therefore, this study aims to examine the effect of corporate governance mechanisms on the financial performance of Basic Materials Sector companies listed on the Indonesia Stock Exchange during the 2021–2024 period. This study employs a quantitative approach using secondary data obtained from companies' annual reports. A total of 228 firm-year observations were selected through purposive sampling and analyzed using panel data regression with the Fixed Effects Model. The results indicate that insider shareholding and firm size have positive and significant effects on financial performance, while board gender diversity has a negative and significant effect. In contrast, board size, board independence, and audit committee meetings do not significantly affect financial performance. These findings imply that the effectiveness of corporate governance depends not merely on the existence of governance mechanisms but on how they are implemented to support organizational decision-making and enhance corporate performance.