Board Governance Diversity and the International Decision of Indonesia's Service Companies

Abstract

Even though the Board of Commissioners has a significant role in making an optimal international decision, there is a limited empirical finding using data from the Unique Continental corporate governance system, such as Indonesia. This study examines the relationship between the Board of Commissioners diversity and service companies' international decision. Specifically, this study investigates the effect of ethnic, nationality, qualification, and experience diversity of Board of Commissioners on the international decision. A company with a high Board of Commissioners diversity tends to have more effective monitoring the Management Board and therefore reduce the agency cost and the company performance. Ninety-nine service companies listed in Indonesia's stock exchange has participated in this study. As this study using the multivariate regression analysis, the classical assumptions must be satisfied. The result shows that ethnic, qualification and experience diversity have a significant effect on the international decision. Besides, company size tends to have a better position to sell in the foreign market. A company with higher leverage is likely to have a higher international decision. Theoretically, this research implies that board governance diversity in a unique two-tier board model could also be explained by agency theory. This finding also shows that the company can increase the international decision by increasing the Board of Commissioners' qualification and experience diversity. However, the Board of Commissioners ethnic diversity should be reduced to increase the international decision.