THE ROLE OF CORPORATE GOVERNANCE MECHANISMS IN ENHANCING PROFITABILITY: AN EMPIRICAL ANALYSIS OF MANUFACTURING COMPANIES

Abstract

This study examines the influence of corporate governance mechanisms—specifically the audit committee, independent commissioners, managerial ownership, and institutional ownership—on financial performance, measured by Return on Assets (ROA), in manufacturing companies listed on the Indonesia Stock Exchange during the period from 2019 to 2023. Using a quantitative approach and panel data regression analysis on 117 manufacturing firms, the research aims to provide a deeper understanding of how governance factors contribute to corporate profitability. The results indicate that the audit committee and institutional ownership do not have a significant effect on ROA, as their roles are more preventive and focused on risk management and long-term governance, which do not directly impact asset performance. Managerial ownership also shows no significant effect, primarily due to its relatively small share proportion and the potential entrenchment effect, which reduces incentives to improve performance. Conversely, independent commissioners have a positive and significant impact on ROA, playing a crucial role in strengthening oversight, enhancing accountability, and driving operational efficiency, which directly contribute to increased company profitability. These findings underscore the importance of independent commissioners in the corporate governance of manufacturing companies to support improved financial performance.