What Drives Firm-level Anti Corruption and Bribery Mechanism in
Indonesia?
Miranda Tanjung
Graduate School of International Development, Nagoya University, Nagoya, Japan
Keyword: Anti-Corruption, Anti Bribery, Corporate Governance, Compliance, Indonesia, Logistic Regression
Abstract: The article seeks to provide empirical findings on the determinants of anti-bribery and corruption efforts in
the context of the Indonesian market. Datasets are collected between 2003 and 2013 from companies listed
in the Indonesia Stock Exchanges. By applying a logistic model, this study predicts that the key factors of
the implementation of anti-bribery and anti-corruption systems are the size of the firm, age and the positive
influence of the firm’s supervisory board (board of commissioners). Further evidence reveals that foreign
firms and state-owned companies are more likely to engage in bribery and corruption prevention than
family-run businesses. In particular, the most interesting finding in this paper is the empirical evidence that
firms are less likely to employ anti-corruption and bribery mechanism during the financial crisis.
1 INTRODUCTION
Anti-bribery and corruption principles have been
integrated into the global corporations` strategy in
recent years. Since the beginning of the 1990s, the
development of newer provisions and the adoption
by many countries have become increasingly rapid.
Past literature and surveys by think-tanks (e.g.,
ADB, OECD) and plenty of private firms have been
exploring and rating anti-bribery and corruption
mechanisms, including the extensive cross-country
studies and firm-level research.
The recent increase of interest of the
international governments and institutional investors
in corporate governance provisions should be
welcomed as good news in the global campaign
against corruption and bribery. To add, more
attention should be paid to bribe payers rather than
focus solely to bribe-takers, or the demand side.
While research that focuses on-demand aspect of
corruption provides a fairly pessimistic perspective
on the global actions to deter bribery (Beets, 2005),
the assessment of corruption and bribery in this
article provides a reason to be more optimistic. It is
in the interests of the key actor, the firms, to
improve their efforts in curbing corruption and
bribery and adopting the values of corporate
governance. Corporate governance provisions, in the
form of anti-corruption and anti-bribery measures,
can also play well in the strategy to end the violent
cycle of bribery and corruption in Indonesia seeing
that corporations are the main contributors of the
supply side (Wu, 2005).
The consequences and implications of bribery
and corruption have been extensively discussed in
the past literature. Most of the studies highlight the
cost of corruption and bribery for corporations (Cai,
Fang, & Xu, 2005; Gaviria, 2002) and countries
(Asiedu and Freeman, 2009; Beuselinck et al., 2017;
Hakimi and Hamdi, 2017). Even though findings
and implications vary and inconclusive in many
ways (Quah, 1999), we should not neglect the fact
that corruption and bribery are among the top
governance issues since the early 20s. For Indonesia,
the cost of bribery and corruption are associated
with excessive firm production costs and higher
business risks (Kuncoro, 2004, 2006), poor public
service quality and social costs (Alatas et al., 2009),
and natural resources damage and environmental
issues (Palmer, 2001). In the financial sector, corrupt
practices are linked to lower firm valuations, poor
governance, and higher cost of capital (Ng, 2006).
It is apparent that the qualities of anti-bribery and
corruption compliance vary among countries and the
micro-level of inter-firm basis. Do family-owned
firms comply with less than widely-held or foreign-
owned firms? What possible key factors contribute
to high governance and transparent business
practices? The set of questions are intriguing.
Unfortunately, we cannot find adequate literature
Tanjung, M.
What Drives Firm-level Anti Corruption and Bribery Mechanism in Indonesia?.
DOI: 10.5220/0009401801870196
In Proceedings of the 1st International Conference on Anti-Corruption and Integrity (ICOACI 2019), pages 187-196
ISBN: 978-989-758-461-9
Copyright
c
 2020 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
187

and empirical findings to satisfactorily address them,
especially in the context of the large Indonesian
corporations. The inconclusive answers and
empirical findings pose a challenge to scientifically
supporting applicable and non-biased evidence.
Challenged by data availability and accessibility,
Indonesia is relatively under-researched with only
minor empirical works which focused on the specific
subject of anti-bribery and corruption and the micro-
level actual implementation by the key actors. Since
studies on this specific topic are still, results from
this paper are expected to expand knowledge about
how anti-corruption and bribery mechanisms to
operate and converge in a unique institutional setting
such as Indonesia.
2 DETERMINANTS OF ANTI
BRIBERY AND CORRUPTION
The main objective of this study is to identify and
investigate the determinants of micro-level anti-
bribery and anti-corruption implementation in the
Indonesian public listed corporations. Indonesia is
relatively under research with only minor empirical
works which focused on the specific subject of
corporate governance elements and the effective
implementation by the business community.
What are the consequences of rampant corruption
and bribery offenses for Indonesia? Previous papers
identified that economic growth, political stability,
business, and public sector are severely threatened by
corruption and bribery (Gaviria, 2002; Hakimi and
Hamdi, 2017; Jain, 2001). For this reason, in order to
deter and prevent the offenses, the Indonesian
government introduced Corruption Law No.20 Year
2001. Anti-corruption and bribery policies for public
companies had also been published by the Indonesia
Financial Service Authority. This paper argues that it
is crucial for the corporation to have an internal anti-
corruption and bribery policy as it sends signals that
any misconduct will be punished in compliance with
regulations and the applicable laws. To add, frauds
and severe conflict of interests also can be deterred
by the firm.
Since studies on this specific topic are still
limited in Indonesia, this study is expected to expand
knowledge about how anti-corruption and bribery
mechanisms, as part of corporate governance
principles, operate and converge in a unique
institutional setting such as Indonesia. To meet the
objective, the article proposes the following research
questions:
1. What are the determinants of firm-level anti-
bribery and anti-corruption compliance in
Indonesia?
2. In times of crisis, do firms more engage in
anti-corruption and bribery prevention?
The article identifies variables that can be
considered as determinants of high governance
compliance. These variables are grouped into 4
clusters: (1) firm type and ownership structures, (2)
family control, (3) financial characteristics, and (4)
financial crisis. Next sections will further explore
the key elements of this study. The author identifies
each element or variable that is highly correlated
with the firm's motivation to comply with corporate
governance requirements and principles set by the
financial market regulator.
2.1 Firm Types and Ownership
Structures
Agency theory was developed from the original
work of Jensen and Meckling (1976). This theory
has been able to explain various issues that arise
concerning the separation of corporate ownership,
control, and management. The effect of the
separation of ownership and management was the
subject of debate by Berle and Means in 1932
(Stigler and Friedland, 1983). The literature states
that agency cost is the result of a contract made by
the owner of the firm (the principals) who hire
outsiders (the agent) to perform services for the firm
on behalf of the owner, a contract which includes an
arrangement of delegation and power-sharing in the
firm’s decision-making (Jensen and Meckling,
1976). This contract was designed as a measure of
the owners’ decision to improve corporate values by
delegating authority to managers.
The study gathers ownership data from firms’
financial and corporate information. Datasets are
extracted from the Indonesian TICMI, firm annual
reports and financial filings, and other publicly
available data. The author identifies the ownership
structure by retrieving the company's shareholder
information and disclosure in the annual reports and
financial statements. By using these data, the author
can identify the controlling shareholder(s) of the
firms and how much voting rights they hold. In this
study, the controlling shareholders are grouped into
family and non-family firms. Non-family firms can
be identified further as (1) state-owned companies,
(2) foreign-owned companies, and (3) widely-held
firms with dispersed ownership. In this paper, the
family firm is defined as a business owned and run
by the founding family.
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Ownerships which are concentrated into blocks
of majority stakeholders play an important role in
the firm’s operational and strategic goals. The
majority shareholders have better positions and
chance to access the company’s information; and, in
fact, the majority shareholders also have the power
to remove managers with poor performance and to
hire new agents to maximize shareholders’ wealth.
According to past studies, the presence of large
shareholders and concentrated ownerships has its
costs and benefits. Management control is effective
when ownership is concentrated as block holders
might control managers and help to foster value-
maximizing resource allocation (Demsetz and Lehn,
1985; Shleifer and Vishny, 1986). However, other
studies indicate a negative relation between
concentrated ownership and agency costs. A large or
block shareholder might be likely to expropriate the
wealth of minority shareholders, by committing
frauds, theft, and other business misconducts,
particularly in an environment where legal
protection for the minority shareholders is weak,
which mainly occurs in the developing capital
market. Therefore, this study employs ownership
structures and firm type as key variables in
examining the determinants of anti-corruption and
bribery compliance.
The author argues that high family ownerships
are detrimental to the adoption and application of
anti-corruption and bribery policies. The work by
Ricardo et al. (2016) highlights that there is an
inverse U-shape relationship between compliance
quality and family stake ownerships. In line with this
view, this study aims to find evidence that non-
family firms’ compliance level is lower than that of
family firms, as a side-effect of agency costs. Family
firms are plagued with high agency conflicts
(conflicts between owner-manager and owner-
minority shareholder), and the controlling families
are reluctant to enforce good governance, for
example, by providing better financial and non-
financial disclosures.
Ownership structures are defined as the
percentages of stakes owned by the family, the
block-holder, and the minority shareholders or the
public. Firstly, family ownerships are the percentage
of voting rights retained by the founding families.
Secondly, block-holder shares are the ratio of the
largest shares held by a party/person (e.g., a firm
may have the largest shareholder who owns 50% of
the firm’s stakes). The expected influence from each
of these variables on firm-level governance quality
is presented in Table 1. Lastly, the expected
coefficient signs of family ownerships, block-
holders and free float ratio are "-," "-," and "+"
respectively. For those reasons, this study develops
hypothesis:
H1: There is a negative association between
family ownerships and anti-corruption and bribery
mechanism.
H2: Non-family firms are more likely to have an
anti-corruption and bribery mechanism.
H3: There is a negative association between
block-holders ownerships and anti-corruption and
bribery mechanism.
2.2 Family Control
The author defines family control following
previous governance literature (Isakov and
Weisskopf, 2014; Saito, 2008). Family control is a
measurement of the representation of the controlling
family members in the firm’s management and
boards. As the founders of the firms and the
controlling family members do not want to give full
control of the firm to the outsiders, they retain some
of the power and control by appointing themselves
into the firm’s board and executive positions. Here,
the author employs a dichotomous variable as a
proxy to measure the active family control, CRONY.
CRONY represents family members who serve as
director or commissioner in the firm boards. Ricardo
et al. (2016) argued that family attachment increases
with higher ownership under the influence of socio-
emotional wealth of the family firms. Consequently,
the adoption of compliance with more stringent
governance practices could limit family interests and
benefits owing to higher family-related control costs.
Following the arguments, the proposed hypothesis as
follows:
H4: There are associations between family
controls and anti corruption and bribery
mechanism.
2.3 Financial Characteristics
Financial characteristics of the firm consist of 16
variables including: firm size (in terms of assets and
revenues/sales), firm age (older firm versus younger
firm issue), firm profitability and values, and firm
leverage ratio. Thus, the hypothesis to test the
relationships between firm’s financial characteristics
and governance compliance is:
H5: There are associations between firm’s
financial characteristics and anti corruption and
bribery mechanism.
What Drives Firm-level Anti Corruption and Bribery Mechanism in Indonesia?
189

2.4 Financial Crisis
The article will test whether during crises firms are
likely to be more or less compliant compared with
non-crisis periods. The author opines that firms
might be more motivated to comply during crisis
periods as a response to secure business and to
maintain investor confidence level. Mitton (2002)
reported that firms which practice accounting
disclosure quality (proxied by the use of the six top
audit agencies) and have higher outside ownership
concentration are rewarded with superior
performance. The results provide a firm-level
evidence which consistent with the view that
corporate governance helps explain firm
performance during a financial crisis. Thus, this
paper posits hypothesis:
H6: There is positive association between
financial crisis and anti corruption and bribery
mechanism.
3 METHODOLOGY AND DATA
3.1 Data Sample
The anti-bribery and corruption in this study are
binary variables of "1" if the firm complies with the
governance principle or fulfills the requirement or
“0” otherwise. The sample consists of 135
Indonesian public listed companies and the
observation period spans from 2003 to 2013 (11
years). Since the Indonesian firms’ corporate
governance data are not readily available, samples
data were collected manually from corporate annual
reports and financial statements, websites of the
Indonesian Stock Exchange, the Indonesia Capital
Market Institute, and other publicly available
documents. Firms with missing data on financial
reports and the financial sector are excluded from
the dataset. Finally, this generates a total of 1,485
firm observations. Hence, the estimate of the anti-
bribery and corruption mechanism is as follows:
Anti-Corruption and Bribery,t= Dummy of “1”
or "0" to represent firm compliance in enacting anti-
corruption and bribery policies, "0" otherwise.
Table 1 presents the definition of the variables
employed in this study. Independent variables are
progressively divided into four categories: firm type
and ownership structures, firms’ financial
characteristics, family control, and binary variables
of the crisis years (2008-2009).
3.2 Econometric Methodology
Following previous studies, this study applies the
logistic regression model to assess the link between
the governance index and its determinants (Aren et
al., 2014; Samaha et al., 2012; Stone and Rasp,
1991). The logistic model has become more critical
in recent financial management and corporate
governance literature, especially when the
researchers need to examine binary or dichotomous
dependent variable (Hoetker, 2007). Hence, the
present study formulates the dependent variable as
firms with high index scores or low scores. The
probability of a firm complies with the principles
(y=1) can be written as follows:

=






′

′
[1]
Following the model, the function of the
probability that a firm discloses an in anti-bribery
and anti-corruption mechanisms are as follows:
Anti-Bribery and Anti-Corruption = α + β1 Firm
Type and Ownership Structure it + β2 Crony it + β3
Financial Characteristics it + β 4 Crisis + є it [2]
The objectives of this study are divided into two
parts, as follows: (1) to examine the determinants of
high ICGI score, and (2) to examine the
determinants of high sub-index score in the family-
controlled firms and non-family firms.
Table 1 Definition of Variables.
Variables Acronym Explanation
Expected
Sign
Anti Corruption and Bribery
Policy
ANTICOR A dummy variable that equals one if the firm has internal
anti-corruption and bribery mechanisms, 0 otherwise
Family Firm FAMFIRM Dummy variable that equals one if the family holds a
minimum of 10% (or 30%) stakes and the family members
hold any position in the boards, and zero otherwise
-
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Family members in the
boards
CRONY Total number of family shareholders generations in the
board of directors and board of commissioners
+/-
Age of the firm AGE The observation period minus the date of the establishment
of the firm (in years)
+
Size SIZE Book value of total assets (in IDR billion) +
Tobin`s q TQ The market value of common equity plus the book value of
total assets minus common equity and deferred taxes divided
by book value of total assets (market valuation of a firm's
assets)
+
Return on Assets ROA Net income divided by total assets +
Price to Book Value PBV Price to book value ratio +
Age of the firm AGE Years since inception +
Size of the firm SIZE Assets per IDR 1 trillion +
Sales SALES Annual sales (revenue) per IDR1trillion +/-
Operating Expense OPEX The ratio of total operating expenses to sales +/-
Debt to Equity Ratio
Block holders
DER The ratio of total debt to equity +
BLOCKSHARE The percentage of shares in the hand of the largest
shareholders
-
Family Shareholders FAMSHARE The ratio of the total shares owned by the controlling family -
Financial crisis CRISIS Dummy variable that equals one for the year 2008 and 2009,
and zeroes otherwise
+
Size of the BoC COMSIZE
Total members of the board of commissioners +
Size of the BoD DIRSIZE
Total members of the board of directors +/-
Independent Commissioner INDCOM
Total number of independent commissioner(s) +
Independent Director INDDIR
Total number of independent director(s) +
4 EMPIRICAL FINDINGS AND
ANALYSIS
4.1 Descriptive Statistics and Logistic
Model Results
Table 2 summarizes statistics descriptive for
Indonesia listed firm-samples. The mean of the total
firm-samples is 5.7%, indicating a very low
compliance ratio of the firms.
The first research question is, "What are the
determinants of firm-level anti-corruption and
bribery mechanism in Indonesia?" Positive impacts
of the firm's financial characteristic in Table 2 are
represented by price to book value ratio, firm size,
and age. These variables correspond significantly
with higher anti-corruption and bribery policy.
Corporate governance mechanism, as shown by the
board of commissioner (supervisory boards), also
presents a positive and significant coefficient. This
finding highlights the importance of supervisory
board roles and function in monitoring the organs of
the firms and the application of corporate
governance provisions by the management of the
firms.
Conversely, the size of the firm, and leverage
ratio negatively influences the firm's behavior to
comply with the governance provision. In addition,
the independent commissioner also correlates
negatively with the likelihood of the firm to set and
manage anti-bribery and corruption policy. In
addition, another important note taken from this
article is that financial crisis negatively affects
firms’ efforts to introduce and enforce corruption
and bribery prevention measures.
Table 3 summarizes results for three dummy
variables of firm types (widely held firm, foreign
firm, and state-owned firm). Results of these
variables provide confirmation of the poor
compliance by family-controlled companies. On the
other note, coefficients of the foreign firm and state-
owned firms are positive and significant, showing
What Drives Firm-level Anti Corruption and Bribery Mechanism in Indonesia?
191

that these two institutions are more likely to engage
in the active anti-bribery and corruption
implementation.
Findings from two sample groups (non-family
versus family firms) are summarised in Table 4. In
terms of family firms, the most important factor for
high compliance to governance provisions is the
firm size. This may translate into a conclusion that
adherence to corporate governance may be costly;
thus, bigger sized firms might be more resourceful to
set up and manage anti-corruption and bribery
prevention mechanisms. The negative influences
come from family ownerships and revenues.
Non-family firms, on the other note, are more
inclined to have anti-corruption and bribery
mechanisms if they were highly valued, older, and
bigger sized institutions. Higher valuations from the
market have a positive influence on non-family
firms to fully comply with the governance
provisions set by the market regulator.
4.2 Robustness Test
The objective of the article is to find contributing
factors of anti-corruption and bribery mechanism by
utilizing the logistic regression. Logistic regression
was selected to minimize the classic econometric
problems found in the corporate governance studies,
such as endogeneity and reverse causality. Previous
literature has tested several robustness checks for
logistic and probit models, and the results showed
that bias and misspecification from both models are
considered minimal or insignificant; thus, the results
of logit and model can be regarded as quite robust
(Cramer, 2007).
In addition, unlike the linear mode, the
robustness tests for non-linear probability model
such as logit and probit are hard to construct since
the coefficients of the logit and probit may change
with the variation of the models. The interpretations
of the coefficients of the logit are also different from
the linear model (e.g., OLS, fixed-effect). To ensure
model specification and the fitness of each model,
the author runs several tests, e.g., link test,
goodness-of-fit test (estat gof), and the classification
statistics (estat classification) in the STATA
operations.
Moreover, the author argues that there are
significant characteristic differences between family
and non-family businesses. It seems that non-family
firms are concerned with market (equity) values than
the family firms. Higher equity, a proxy of a firm’s
market value, positively influences non-family firms
to comply more with the market regulations and
policies. This study suggests that non-family firms
are motivated to send a positive signal to investors
and markets by adopting anti-corruption and bribery
codes. In return, the market is willing to give a
higher or premium price to the firm's share prices
and assets. In the family companies, the level of
concentrated ownerships owned by the family
negatively correlates with anti-corruption provisions.
During financial distress and higher market
uncertainties, family firms are also less likely to
engage in corruption and bribery preventive
measures.
Table 2 Statistics Descriptive
Dependent Variable Mean St. Dev Min Max
Anti-Corruption and Bribery Policy
0.057 0.231 0.000 1.000
Independent Variables Mean St. Dev Min Max
Tobin’s q 1.338 0.893 0.142 4.465
RoA 0.062 0.087 -0.310 0.310
PBV 2.040 5.472 -0.834 167.556
Age 33.985 19.455 4.000 154.000
Size 5.569 14.949 0.017 213.994
Sales 0.239 2.503 -0.862 95.380
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5 IMPLICATIONS OF THE
FINDINGS
The logistic regression models presented in Table 3
shows the determinants of anti-bribery and
corruption mechanism in the firm-level dataset.
Taking into account the findings, the author argues
that the key factors of governance are firm size, age,
and the size of the board of commissioners. Bigger
and older firms (probably also the market leader in
the industry) are more likely to comply with the
regulations than smaller-sized corporations.
Profitable and healthy firms also comply more, as
shown by the coefficient of price-to-book value
(PBV) ratio. In contrast to these results, sales, debt,
financial crisis, and independent commissioners
negatively influence firm’s decision to be in
compliant with the good governance provision.
Table 3 Logistic Regression Results of the Anti Bribery and Corruption
VARIABLE
Y=1 if a firm has anti-bribery and anti-corruption mechanisms, "0" otherwise
Coeff. Std. Err. Sig. Odds Ratio Std Err.
Widely-held Firm
0.0699 0.9317 1.0724 0.9991
Foreign Firm
1.8408 0.8473 ** 6.3015 5.3390
State-owned Firm
4.3548 0.8926 *** 77.8527 69.4893
Tobin’s q
0.2209 0.2036 1.2471 0.2539
RoA
-1.9757 2.0487 0.1387 0.2841
PBV
0.0309 0.0109 *** 1.0314 0.0112
Age
0.0199 0.0073 *** 1.0201 0.0074
Size
0.1333 0.0227 *** 1.1426 0.0260
Sales
-0.1574 0.0256 *** 0.8543 0.0219
Opex
-0.0408 0.8022 0.9600 0.7701
Debt
-0.1315 0.0604 ** 0.8768 0.0529
Blockholder
-0.0120 0.0085 0.9881 0.0084
Family shares
0.0135 0.0091 1.0136 0.0092
Opex 4.900 13.143 0.000 193.880
Debt 0.259 2.337 0.008 89.400
Blockholder 1.616 2.531 0.000 27.547
Family shares 50.052 21.665 3.130 99.740
Crony 30.255 31.218 0.000 98.000
Crisis 4.422 1.944 2.000 14.000
Comsize 4.924 2.104 2.000 13.000
Dirsize 1.537 1.050 0.000 7.000
Indcom 0.127 0.535 0.000 7.000
Inddir 1.338 0.893 0.000 4.465
What Drives Firm-level Anti Corruption and Bribery Mechanism in Indonesia?
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Crony
0.0350 0.0964 1.0356 0.0998
Crisis
-2.4955 0.6478 *** 0.0825 0.0534
Comsize
0.3008 0.1179 ** 1.3510 0.1592
Dirsize
-0.0928 0.1044 0.9113 0.0952
Indcom
-0.4051 0.2051 ** 0.6669 0.1368
Inddir
-0.1423 0.2698 0.8674 0.2340
Year dummy Included
Log Likelihood function -168.8384
Prob (Chi2>value) 0.0000
Pseudo r-squared 0.4633
Chi-square 231.36
Number of obs 1350
Goodness of fit Yes
Link test Yes
Note: The table represents results of the logistic
regression, showing variables that have significant
influences on anti-bribery and corruption mechanism. Y
equals 1 if the firm has an internal mechanism to prevent
and deter corruption and bribery offenses.
Table 4 Differences between Non-Family Firms and Family Firms
VARIABLE
Model 1: Family Firms Model 2: Non-Family Firms
Y=1 if a firm has anti-bribery and anti-
corruption mechanisms, "0" otherwise
Y=1 if a firm has anti-bribery and anti-
corruption mechanisms, "0" otherwise
Coeff.
Std.
Err. Sig.
Odds
Ratio Std Err. Coeff.
Std.
Err. Sig.
Odds
Ratio Std Err.
Tobin’s q
0.386 0.215 1.472 0.317 0.378 0.276 1.460 0.402
RoA
-0.009 2.397 0.991 2.376 -3.364 3.959 0.035 0.137
PBV
0.003 0.030 1.003 0.031 0.042 0.016 ** 1.043 0.017
Age
0.010 0.007 1.010 0.007 0.047 0.011 ** 1.048 0.012
Size
0.080 0.021 *** 1.084 0.023 0.330 0.063 * 1.391 0.088
Sales
-0.080 0.025 *** 0.923 0.023 -0.359 0.071 * 0.698 0.049
Opex
-0.015 0.048 0.986 0.047 -3.769 2.389 0.023 0.055
Debt
-0.107 0.080 0.899 0.072 -0.589 0.425 0.555 0.236
Blockholder
0.013 0.008 1.013 0.008 0.010 0.012 1.010 0.012
Family shares
-0.012 0.006 ** 0.988 0.006
Crony
-0.091 0.085 0.913 0.077
Crisis
-1.693 0.847 ** 0.184 0.156 -0.913 1.472 0.401 0.590
Comsize
0.349 0.144 ** 1.417 0.204 -0.019 0.208 0.981 0.204
Dirsize
-0.010 0.120 0.990 0.119 0.010 0.154 1.010 0.155
Indcom
-0.364 0.228 0.695 0.158 -0.520 0.404 0.595 0.240
Inddir
-0.272 0.337 0.762 0.257 Omitted omitted
Year dummy Included Included
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Log
Likelihood
function -124.85144 -49.137038
Probability
(Chi2>value) 0.0000 0.0000
Pseudo R-
squared 0.3412 0.5894
Chi-square 140.55 74.78
Number of
observation 887 411
Goodness of
fit Yes Yes
Link Test Yes Yes
In contrast, there is no evidence that financial
performance (such as negative income or loss) might
lower the probability of the firm to comply with
market governance regulations. Regarding firm size,
the finding depicts a positive relationship between
firm size and compliance quality.
This study also identifies that impacts of family
share ownerships and the block-holders are not
significant, as well as the involvement of family
shareholders (CRONY) in the boards.
The results of this study offer some policy
implications for the academic community and
policymakers. The short-term national agenda might
be started by policymakers and regulators; they can
design policies or specific anti-corruption and
bribery programs for small-sized and young firms.
The author expects that firm-level governance issues
will soon be more vital; thus, a designated body or
task force to monitor and evaluate governance
practices and to design specific benefits for high-
compliant companies will be beneficial in the long
run.
6 CONCLUSIONS
The incidence of corporate failures and economic
crisis in the past decades possibly was the major
reason for the emerging phenomenon of ethical and
transparent business practices in the global market.
Scholars and large corporations have seen good
governance as an effective mechanism to restore
confidence and trust from the market and key
stakeholders.
Thıs study constructs a test to observe the
determinants of firm-level anti-corruption and
bribery mechanism. The anti-corruption and bribery
index is constructed using the Indonesian public
listed firms’ datasets comprising 11 observation
periods. The logistic regression model has been
chosen since the tested dependent variables are
dichotomous or binary variables.
The purpose of this study is to present empirical
findings on the determinants of firms’ anti-
corruption and bribery efforts in the context of the
emerging Indonesian market. The author believes
that this study will be beneficial for various parties,
including policymakers, market regulators, and
corporations in strategic decision making. Empirical
results from the present study suggest that firm size,
age, and supervisory board have sizeable and
significant influences on bribery and corruption
prevention system.
Results of the study support theoretical
arguments that family businesses are plagued with
issues of poor governance compliance. In the
meantime, market and regulatory authority should
design effective methods to promote and
compensate for high compliance and engagement in
a sound and transparent business environment. The
author expects that the findings and discussion from
this study to enhance the understanding of anti-
corruption and bribery development and the actual
adoption in Asia as the region with the most rapid
corporate governance adoption.
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