The Effect of Bank Monitoring as an Alternative of Corporate Governance Mechanism on the Borrowers’ Firm Value: Evidence from Indonesian Listed Firms

27 Pages Posted: 22 Aug 2011 Last revised: 1 Mar 2014

Date Written: October 22, 2011

Abstract

The objective of this research is to examine the effect of bank monitoring as an alternative of corporate governance mechanisms on the borrowers’ firm value. The strengths of bank monitoring on the borrowers are measured based on the magnitude of the bank loan, the size of the loan from banks with high monitoring quality, the length of a bank loan outstanding period, and the number of lenders. The research hypotheses were tested using multiple regression model with a sample of 230 companies listed in Indonesia Stock Exchange during 2009. The empirical results show that only the size of the loan from banks with high monitoring quality and the number of lenders significantly influences the borrowers’ firm value. These findings imply that only banks with high monitoring quality could play an important role in the corporate governance and therefore increasing the firm value by their monitoring function. Furthermore, bank monitoring is less effective if a company borrows from many banks, and therefore decreasing the firm value.

Keywords: corporate governance, bank monitoring, bank loan, firm value

JEL Classification: G21, G30

Suggested Citation

Hermawan, Ancella Anitawati and Dina, Alexandra Ryan Ahmad, The Effect of Bank Monitoring as an Alternative of Corporate Governance Mechanism on the Borrowers’ Firm Value: Evidence from Indonesian Listed Firms (October 22, 2011). 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1914444 or http://dx.doi.org/10.2139/ssrn.1914444

Ancella Anitawati Hermawan (Contact Author)

University of Indonesia (UI) ( email )

Jl. Prof. Sumitro Djojohadikusumo
Depok, DKI 16424
Indonesia

Alexandra Ryan Ahmad Dina

University of Indonesia (UI) ( email )

Jl. Prof. Sumitro Djojohadikusumo
Depok, DKI 16424
Indonesia

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