CHAPTER I

INTRODUCTION

1. Background

Along with the development of the flow of globalization to make the information media
is a basic interest on decisions or actions that need to be done. As an issuer company that
periodically reports its accountability in its annual report. Advances in information
technology make the annual report as a medium of communication to all parties to explain
the achievement of corporate performance and prospects of the company in the future. So the
company's goal to stay sustainable can be fulfilled. Such information is generally used by
investors (shareholders) to invest capital so as to produce a return on capital invested. The
investors need to make an assessment of the capability or performance of the company in
generating returns in the future before investing. The success of a company can be seen in
the size of the companies with a total market value of equity held on the company's
performance.

Company performance information is widely used by various parties, either from

management as a consideration in policy or decision making, as well as for investors and
creditors as a manager accountability for planting or borrowing capital given to the company.
Company performance is presented in annual reports and can be measured by financial
analysis tools as information transparency for users such as investors in decision-making on
capital to be invested. However, the manager as the manager of the company has a different
purpose, especially in terms of improvement of individual achievement and compensation to
be accepted. If, manager of the company performing the acts selfish to ignore the interests of
investors, it will cause the stock price to be too low so as to reduce the interest of investors
and falling investor expectations about the return (return) on the investments made.

Related to competition in the business world which requires companies to improve

performance by one of the market value of equity. Maximizing the market value of equity
will improve the quality of the company which would improve the life of the investor. This is
important because it is the company's goal. The increase in market value of equity into long-
term achievements, which will be reflected in the return of its shares. By increasing the stock
return can use the GCG (good Corporate Governance) is a set of rules and principles which
consisted of transparency, accountability, responsibility, indepedency, and fairness.
Corporate Governance regulates the relationship between the shareholders, the company's
management (directors and commissioners), creditors, employees and other stakeholders
who have an impact on increasing the company's value for investors (Saputra, 2012). Good
Corporate Governance (GCG) in the development of increasingly popular to be one key to
success for the company to grow and profitable in the long term. Referring to previous
studies (Retno, 2012) GCG positive effect on stock returns. Instead of research (Verdana,
2013) suggests that corporate governance had no effect on stock returns. In contrast to
(Untung, 2012) to support research (Retno, 2012) suggests that the GCG effect on stock
returns.

Implementation of good corporate governance applied by each company to change the

corrupt and manipulative habits. As the emergence of various accounting scandals that occur
in companies has resulted in decreased public confidence, especially investors against
financial reporting presented by the company. Based on the report of the Asian Development
Bank are conducting a survey of GCG implementation in the ASEAN countries, the average
score of corporate governance of companies listed in Indonesia was 43.4% with 75.4% the
highest score and the lowest score was 20.8%. Companies surveyed are 100 listed companies
with the largest market capitalization on June 30, 2012. This figure shows that public
companies in Indonesia are still lacking GCG practices based on international GCG
principles (Wahyudi Dudi, 2014). The other reality shows corporate issuers in Indonesia is
still weak in implementing good management and satisfying the company's stakeholders.
Therefore, the implementation of good corporate governance (GCG) becoming a trend in the
world and become one of the pillars of the market economy because it is believed to improve
the business climate in creating a healthy competition of a country's economy.

In an effort to overcome these weaknesses, the Indonesia Stock Exchange (IDX) held
"Investor Day 2016" to encourage listed companies or issuers to apply good corporate
governance practices (Wartaekonomi.co.id). The Indonesian government also encourages the
implementation of GCG by forming the National Committee on Governance (NCG) is one of
the efforts made by the government. At the international level, the Organization for
Economic Cooperation and Development (OECD) has published some basic principles of
implementation of corporate governance that apply universally. Some of these principles
include the rights of shareholders to be properly and appropriately informed. The issuance of
GCG principles is intended to assist both OECD member countries and non-OECD members
in implementing GCG in their country, especially to provide guidance and advice for capital
markets, investors, companies and other parties that have a role in the process Development
of GCG.
 Some institutions in Indonesia give appreciation to companies that are considered to have
applied GCG consistently (Makaryanawati, 2012). In 2016, the Indonesian Institute for
Corporate Governance (IICG) in cooperation with the SWA of 2001 has been Letting CGPI
survey as a tribute to the initiatives and results of the company's efforts in creating an ethical
business and dignity. Over the past 15 years the current survey has shown significant
progress in terms of the number of participants who each year continues to fluctuate and the
score is generally increasing.

In the current development of CGPI value is information that can be used by investors as
a material consideration and valuation of the stock so that it can trigger the movement of the
company's stock value. By reference to the CGPI, investors expect improvements in the
corporate governance will make the better performance of the company so as to provide an
increase in the company's value reflected in higher stock returns in the market (Main and
Abdul, 2013). Participating companies in CGPI consist of state-owned enterprises (BUMN /
BUMD), bank and non-bank financial institutions, syariah financial institutions, and BUMS.
As the state-owned enterprises in Indonesia is obliged to implement or practice the good
corporate governance. SOEs are obliged to apply it is contained in Article 44 (1) Regulation
of the Minister of State-Owned Enterprises PER-09 / MBU / 2012. SOEs shall take
measurements of the quality of GCG implementation implemented annually in the form of an
assessment of the implementation of GCG and evaluation of the follow-up recommendations
of improvements from the results of the previous assessment. The benefits of CGPI are done
to communicate what the company is doing in terms of good governance and can enhance the
company's reputation. The existence of CGPI is highly expected by investors, which can help
investors to facilitate the decision because it can see from the company's long-term business
plan.

Ratings Corporate Governance Perception Index (CGPI) by IICG covers 13 aspects of

assessment, among other commitments, Transparency, Accountability, Responsibility,
independency, Justice, Leadership, Capability Strategy, Risk, Ethics, Culture and
Sustainability. The assessment process consists of 4 stages including; Self Assessment that is
filling the questionnaire by all organs, members and stakeholders of the company regarding
the quality of the implementation of good corporate governance and efforts to achieve
sustainability of the company; Documentation, that the submission of various documents that
describe a set of processes and implementation of good corporate governance in Indonesia
and efforts to achieve sustainability of the company; The paper reports a compliance
assessment describes a series of process and program implementation of good corporate
governance in the company; And Observation as the final stage of assessment in the form of
direct confirmation to the company by the CGPI assessment team.

Based CGPI votes awards as the best company in Indonesia, the writer is interested to
further investigate the extent to which the company's success both on the development of the
return of shares through a market value of equity and appraisal of the implementation of good
corporate governance that is sustainable and to help the national economy. Therefore, the
authors conducted a study entitled "The Effect of Good Corporate Governance of the
Market Value of Equity and Stock Return Implications Corporate Banking, Mining, and
Manufacturing are listed on the Indonesia Stock Exchange (BEI)".

2. Problem Formulation

Based on the background that has been described above, then the formulation of the
issues to be discussed in this study are as follows.

1. Whether the application of good corporate governance components affect the market
value of equity partially and simultaneously in banking, mining and manufacturing are
listed on the Indonesia Stock Exchange (BEI)?
2. Is the market value of equity effect on stock returns in the banking, mining and
manufacturing are listed on the Indonesia Stock Exchange (BEI)?
3. Whether the application of good components corporate governance impact on stock
returns over the market value of equity in banking, mining and manufacturing are listed
on the Indonesia Stock Exchange (BEI)?

3. Scope of Problem

This study has limitations not covering all areas. Some of the limitations of this study are
as follows.

1. The use of an intervening variable used formula with a market value of equity (MVE).
Independent variable Good corporate governance is using Corporate Governance
Perception Index (CGPI) with four phases (Self-assessment, documentation, papers
report, observation). Dependent variable using Stock returns of companies listed on the
Indonesian stock exchange.
2. This study was only performed on companies listed in Indonesia Stock Exchange and
follows the Corporate Governance Perception Index (CGPI). The period of the year used
 from 2011-2015, as the period indicates the most actual conditions related to the
development of companies that follow the rating assessment by CGPI.
3. The research method used only descriptive statistics, classical assumption test, and path
analysis.

4. Objective Research

Based on the description of the background and the formulation of the problem, the
purpose of the authors conducted this study as follows.

1. To determine whether the application of good corporate governance components affect

the market value of equity partially and simultaneously in banking, mining and
manufacturing are listed on the Indonesia Stock Exchange (BEI).
2. To find out if the market value of equity effect on stock returns in the banking, mining
and manufacturing are listed on the Indonesia Stock Exchange (BEI).
3. T o determine whether the application of good components corporate governance impact
on stock returns over the market value of equity in banking, mining and manufacturing
are listed on the Indonesia Stock Exchange (BEI).

5. Benefit Research

The expected benefits and contributions from the results of this study are as follows.

1. For the Company

Research can provide input that the importance of knowing how to implement good corporate
governance, and market value of equity on stock returns so as to provide an overview and
considerations for the management of the company to be able to do better changes related to
enterprise information presented. This can minimize the risk that companies receive related to
the lack of investor confidence in the issuer company. So that the company can maintain its
domestic market from foreign competitors and expand its scope in order to cover the global
market.

2. For the Academics

This research can be used as a reference in facing the same problem and as a means of science
development. Because the authors acknowledge there are still many limitations owned and
published in this study, of course there are many variables or other factors that can support the
development of this research further.

3. For Investors

This research can be used to find out how the tendency of company performance terms of good
corporate governance and stock returns Companies to provide an overview and consideration
for investors to invest or not in the future. It is expected to contribute thoughts in the company's
assessment and help when making decisions for investment problems faced.
 CHAPTER II

LITERATURE REVIEW

1. Agency Theory

The agency theory assumes that all individuals act on their own behalf. In the company
identifies the existence of parties companies that have various interests to achieve corporate
objectives such as, the issue of ownership of the company through the purchase of shares. In
financial management discusses the relationship between the separation between ownership
and management conducted by managers. Deegan (in Arifani, 2012) states, in the agency
relationship the manager is the party who has information about the company more than the
owner, resulting in information asymmetry is a situation where there are parties who have
more information from outsiders so beneficial to them. This agency relationship is prone to
conflict, ie personal conflicts of interest (agency conflict). This conflict occurs because the
owner of the capital tries to use the best possible funds with the least risk, while managers
tend to make fund management decisions to maximize the often conflicting profits and tend
to prioritize their own interests.

The mechanism used to minimize the conflict between investors and the management is
the application of good corporate governance (GCG). Perspective of agency theory is used to
understand the basic issues of C orporate Governanace and earnings management. The
separation of ownership by the principal to the control by agents in an organization tend to
cause conflict between principal and agent keagenen.

As principal shareholder is assumed to be only interested in the financial result increased

or their investment in the company, while the agents are assumed to receive gratification in
the form of financial compensation and the terms of which participate in this tersebut.Teori
relationship seeks to describe the main factors that should be considered In designing
incentive contracts (Warsidi and Scout, 2009).

2. Corporate Governance

Corporate governance is defined as a system that regulates and controls companies to

create added value for stakeholders. The presence of good corporate governance is a major
concern for the sake of smooth operation of the company so as to support the operational
activities of the company. Corporate governance is concerned with how the investors are
confident that the manager will benefit them and will not steal, embezzle or invest in projects
that are not related from funds that have been invested by the investor, and the investor is
concerned with how to control the managers. Implementation of good corporate governance
is expected to cause investor confidence to the manager as an agent that manages investment
funds (Trisnamatri, 2012).

1. Definition of Good Corporate Governance

Definition derived from Organzation for economic Cooperation and Development

(OECD) defines Corporate governance is a system used to direct and control the
company's business activities. Corporate governance regulate the division of duties,
rights and obligations of those interested in the life of a company, including
shareholders, board members, managers, and all members of the non-shareholder
stakeholders (2004).

According to the National Committee on Corporate Governance (KNKCG):

"Good corporate governance is a process of structure used by the organs of the
company in order to provide added value to the company's sustainable in the long
term for shareholders by showing the interest of other stakeholders, based on
legislation And prevailing norms ". (National Committee on Corporate Governance,
2004).

Based on the above understanding, it can be concluded corporate governance is a

mechanism that regulates and controls the company through the relationship between
shareholders, management (manager) of the company, creditors, government,
employees and internal stakeholders and other esktern so as to enhance shareholder
value. Implementation of good corporate governance to maintain a balance between
achieving economic goals and objectives of the community and distancing the
company from poor management resulting in companies affected by the problem
(Dwitridinda, 2012).

2. Principles of Good Corporate Governance

Principles of Good Corporate Governance is expected to be a reference point

policy makers (government) to establish a framework of implementation of
Corporate Governance. For business actors and capital markets, this principle can
serve as guidelines for collaborating best practices for improving the performance and
sustainability of the company. Principles of Good Corporate Governance according
to the National Committee on Governance (NCG), as follows.

a. Transparency (Transparency)

To maintain objectivity in running a business, the company must provide

material and relevant information in a way that is easily accessible and understood
by stakeholders. Companies should take the initiative to disclose not only the
problems required by legislation, but also important for decision-making by
shareholders, creditors and other stakeholders.

b. Accountability (Accountability)

The company must be able to account for its performance in a transparent

and reasonable manner. For that the company must be managed properly,
measurable and in accordance with the interests of the company by taking into
account the interests of shareholders and other stakeholders. Accountability is a
necessary prerequisite for achieving sustainable performance.

c. Responsibility (Responsibility)

Companies must comply with legislation and to implement responsibilities

towards society and the environment so that it can maintain business continuity in
the long term and to be recognized as a good corporate citizen (good company).

d. The independence (Independence)

To smooth the implementation of GCG principles, companies must be

managed independently so that each company's organs do not dominate each
other and can not be interfered by others.

e. Fairness (fairness)

In carrying out its activities, the company must always pay attention to the
interests of shareholders and other stakeholders based on the principle of fairness
and equality.
Some things needed to fulfill the implementation of Good Corporate Governance, as
follows.

1. Companies must ensure the foundation of effective GCG implementation.

Implementation of GCG should encourage transparency and efficient market,
comply with the statutory provisions, and provide a clear division of
responsibilities between supervisory authorities, regulators, and enforcement.

2. Shareholder rights and key ownership functions. The implementation of GCG

should protect and facilitate the exercise of shareholder rights. Important
shareholder rights are primarily the right to safeguard the means of registration of
ownership, transfer of ownership, obtain material and relevant information in a
timely and periodic manner, participate and vote in the GMS, appoint and dismiss
members of the board of commissioners, company.

3. Fair treatment among shareholders. In applying GCG, the company should treat
fairly among shareholders including minority shareholders and foreign
shareholders. All shareholders should be able to have the same opportunity to
seek redress for violations of their rights.

4. Stakeholder Role. Companies must recognize the right of stakeholders built under
law or collective agreements. Companies should also encourage active
cooperation between companies and stakeholders in creating wealth, employment
opportunities, financial sustainability of the company.

5. Disclosure and Transparency. The implementation of GCG must ensure that

accurate and timely disclosure is conducted for all material matters relating to the
company including its financial condition, performance, ownership, and corporate
governance.

6. Responsibilities of the Director and Commissioner. Companies must ensure their

strategic guidelines for the company, effective oversight of management, and
responsibilities of Directors and Commissioners of the company and shareholders.

3. Implementation F actors of Good Corporate Governance

The successful implementation of GCG also has its own prerequisites. Here, there
are two factors that play a role, external and internal factors (Daniri, 2005).
1. External Factors

External factors are several factors that come from outside the company that
greatly affect the successful implementation of GCG, following external factors.

a. The existence of a good legal system so as to ensure the enforcement of a

consistent and effective legal supremacy.

b. GCG implementation support from the public sector / governance

institutions that are expected to also implement the Good Governance and
Clean Government towards Good Governance actual Government.

c. The presence of GCG implementation of appropriate examples (best

practices) that could become the standard GCG yangefektif and
professional. In other words, a sort of benchmark (benchmark).

d. The establishment of a social value system that supports the

implementation of GCG in the community. This is important because
through this system is expected to arise the active participation of various
circles of society to support the application and GCG socialization
voluntarily.

e. Another thing that is not less important as a prerequisite for the successful
implementation of GCG especially in Indonesia is the spirit of anti-
corruption that develops in the public environment where the company
operates with improvements in quality issues of education and expansion
of employment opportunities. It can even be said that improving the public
environment greatly affects the quality and score of the company in the
implementation of GCG.

2. Internal factors
The purpose of internal factors is the driving force for the successful
implementation of GCG practices originating within the company. Some of the
factors in question are.
a. The presence of corporate culture (corporate culture) which supports the
implementation of GCG in the mechanism and system management work
in the company.
 b. Various regulations and policies issued by the company refers to the
application of the values of GCG.
c. The company's risk control management is also based on GCG standard
rules.
d. There is an effective auditing system within the company to avoid any
possible deviations.
e. The existence of information disclosure to the public to be able to
understand every movement and management steps in the company so that
the public can understand and follow every step of the development and
dynamics of the company from time to time.

4. Implementation Benefit of Good Corporate Governance

The following are the benefits obtained with the implementation of Corporate
Governance.

1. With GCG the decision-making process will take place better so that it will
produce optimal decisions, improve efficiency and create a healthier work culture.

2. GCG will enable it to be avoided or at least minimized by the directors' misuse of

authority in the management of the company.

3. The value of firms in the eyes of investors will increase as a result of their
increased confidence in the managers of the companies they invest.

4. For shareholders, with performance improvements referred to in point 1, by itself

will also increase the value of their shares as well as the dividend value they will
receive. For this country will also increase the amount of tax to be paid by the
company which means there will be increased recipients of the State of the tax
sector.

5. D nature GCG employees are placed as one of the stakeholders that should be
managed properly by the company, the employees' motivation and satisfaction are
also expected to rise.

6. With good corporate governance implementation, the level of confidence of the

stakeholders to the company will be increased so that a positive image of the
 company will rise. This of course can reduce the cost (cost) incurred due to the
demands of the stakeholders to the company.

7. Consistent application of corporate governance Will improve the quality of the

company's financial statements. Management tends not to engineer financial
statements, because of the obligation to comply with various applicable
accounting principles and principles and transparent presentation of information.

3. Corporate Governance Perception Index (CGPI)

Corporate Governance Perception Index (CGPI) is a research and rankings program

implementation good corporate governance in public companies and state-owned companies
in Indonesia. The program is implemented since 2001, based on the opinion the importance
of knowing the extent to which companies are applying the principles of corporate
governance. In other words, the CGPI is the result of the conduct of the corporate
governance ratings. CGPI program carried out by the Indonesian Institute for Corporate
Governance (IICG), IICG is an independent institution which was established on June 2,
2000 with the aim to promote the concept, corporate governance practices and the benefits to
business and society at large.

Following assessment conducted on the application of corporate governance practices

include (The Indonesian Institute for Corporate Governance, 2009).

1. Commitment that shows the seriousness of the company's organs in formulating,

implementing and evaluating the strategy in accordance with GCG principles, and this
seriousness can be felt and can encourage members of the company to come to do it.
2. Transparency that shows the sincerity of the company's organs in delivering various
information about the company in a timely and accurate manner, including information
about the process of formulating, implementing and evaluating the strategy it performs,
and this seriousness can be felt and can encourage members of the company to do it.
3. Accountability that demonstrates the sincerity of the company's organs in accounting for
the whole process of achieving performance in a transparent and reasonable manner,
including accountability of the whole process in formulating, implementing and
evaluating the strategy, and this seriousness can be felt and can encourage members of
the company to participate.
4. Responsibility which indicate the seriousness organ company in ensuring the
implementation of legislation and responsibility towards society and the environment,
 including in ensuring the implementation of the process of formulation, implementation
and evaluation of strategies responsibly, and the seriousness of this can be felt as well as
to encourage member companies to take part to do so.
5. The independence that indicates the sincerity of corporate organs in ensuring the absence
of dominance or intervention from one participant to another participant, including in
ensuring the absence of dominance and intervention from one participant in the process
of formulating, implementing and evaluating the strategy, and this seriousness can be felt
and can encourage members Company to do it.
6. Justice which indicate the seriousness organ of the company in regard to the interests of
shareholders (shareholders) and other stakeholders (stakeholders), including the attention
and consider the interests of all stakeholders in the process of formulating, implementing
and evaluating strategies, and the seriousness of this can be felt and to encourage member
companies to participate Implement it.
7. Competence that demonstrates the sincerity of the company's organs in demonstrating its
ability to use its authority in accordance with its roles and functions, innovative and
creative, including demonstrating its ability to formulate, implement and evaluate
strategies appropriately, and this earnestness can be felt and can encourage company
members to do as well.
8. Leadership which demonstrates its seriousness organ company in showing patterns of
leadership that can transform the organization into a better direction, including in
menununjukkan style of leadership that can guide an organization to formulate,
mengimplementaskan and evaluate strategies, and the seriousness of this can be felt as
well as to encourage member companies to participate do so .
9. The ability to work together that demonstrates its seriousness in the company's organs
showed bekerjasamanya ability to achieve common goals in a dignified manner,
including the demonstrated ability bekerjasamanya to formulate, implement, and evaluate
strategies, and this seriousness can be felt as well as to encourage member companies to
take part to do so.
10. Vision, mission and values that show the seriousness of corporate organs to understand
the points contained in the vision statement, mission and corporate values that will guide
the company in formulating, implementing and evaluating its strategy, and this
seriousness can be perceived And can encourage the desire to grow the members of the
company to achieve these points.
11. Morals and ethics that show the sincerity of corporate organs in applying moral and
ethical values in every business process in accordance with GCG principles, including in
 the process of formulating, implementing and evaluating the strategy, and this
seriousness can be felt and can encourage members of the company to do it.
12. Strategies that show the sincerity of the company's organs in formulating, implementing
and evaluating strategies in response to change so that the company can maintain its
performance in a sustainable manner, and this seriousness can be felt and encourage
members of the company to do it.

GCG through the application of the basic principles of Transparency, Accountability,

responsibility, independence, and Fairness, in this research is reflected and measured by the
four phases of the CGPI with a different weight value. The weight of the assessment is
presented in table 2.1 below.
Table 2.1 CGPI Assessment Weight
No Stages Weight (%)
1 Self Assessment 30
2 The completeness of document 26
Papers that merelfesikan program and the results of the
3 implementation of good corporate governance as a 15
system in the company concerned
4 Observation 29

Source: CGPI Report, 2015

The sequence of processes in the assessment stage of GCG research and ranking can be
explained as follows (IICG):

1. Self Assessment

Self Assessment is a process of objective assessment of a company on itself associated with the
alignment system GCG in all business processes through the establishment, implementation and
evaluation of the company's strategy to achieve corporate goals and objectives of sustainable
(strategic management). Self assessment carried out by filling the questionnaire by all
stakeholders of the company.

2. Corporate Document Collection

At this stage the company was asked to collect documents and evidence to support the
implementation of corporate governance in the company, as well as associated with the
alignment of corporate governance systems in business processes. For companies that have
submitted related documents to the previous year's CGPI administration, simply provide a
confirmation statement on the previous valid document, and if there is any change, the revised
document must be attached.

3. Making Papers and Presentations

At this stage the company is asked to make an explanation of the company's activities in the
GCG system in the business process through the strategic management during the year in the
form of papers with the systematical arrangement that has been determined and then conducted
the discussion and question and answer.

4. Observation to Company

At this stage CGPI researchers will visit the participating companies' locations to examine the
certainty of aligning the GCG system in the company. Implementation of observation in every
participant company CGPI conducted maximum for (half) work day (3 hours) after
presentation, discussion, and question and answer. Companies requested to attend the
observation are representatives of the board of commissioners, boards of directors and
management.

The value of CGPI can be calculated by summing the final value of the above stages. The
results of research programs and ranking GCG implementation on the company participants
by providing scores in accordance with the guidelines that have been made.

CGPI ranking is divided into three categories based on the level of reliable performed based
on a survey of the practices of Corporate Governance CGC generate scores Performance
Index (CGPI) with a rating as follows.
Table 2.2 Rating List CGPI Rating
Very Trusted 100-85
Trusted 84-70
Quite Trusted 69-55

Source: CGPI Report, 2015

One of the benefits that can be obtained from the CGPI is because CGPI is one of the
information entered in the capital market. Information on CGPI is expected to have a positive
impact, especially with regard to investor confidence in the funds invested. The influence of
the CGPI announcement is likely to give investors a positive reaction and be able to change
investor expectations about the company concerned. Given such conditions, stock prices and
trading volume of shares in companies that enter the top ten CGPI will be higher than non
CGPI's top ten companies. In addition, the ranking of corporate governance in the form of
CGPI is possible the difference in reaction between the companies that entered the top ten
and ten non CGPI.

4. Market Value of Equity

Market value of equity is one of the commonly used variables to explain the variation of
disclosure in the company's annual report. The size of a company viewed from the size of the
company that can be expressed in total assets, sales, and market capitalization. One can be
seen through the market capitalization, according to Saiful and Erlina (2010), the greater the
total assets, sales and market capitalization, the larger the size of the company. The greater
the asset, the more capital invested, the more sales the more the velocity of money and the
greater the market capitalization, the greater the company is known by the public. Of the
three variables, the researcher uses market capitalization to measure firm size.

According Miranty (2012), called the market capitalization or market value of equity to
reflect the current value of the company's assets, which is a measurement of the size of the
company. Market value of equity can be obtained from the calculation of the stock market
price multiplied by the number of shares issued (outstanding shares). Market value of equity
(market capitalization) is a measurement of the size of the company in which the company
could suffer a failure or success. Thus, market capitalization represents the total value of all
published shares available, with the calculation can be done by seeking multiplying the
number of shares outstanding at current market prices.

5. Stock Return

Stock return is the result obtained from the investment made by the investor. Return the
maximum is a cool thing every investor in the investment. Stock returns divided into two
Tirrenus return and expected return. Realized returns are returns that have occurred or have
been realized. Whereas, the expected return is the expected return of investors to be obtained
in the future and still be uncertain. Total Return is the overall return on an investment in a
particular period. Total Return is often referred to return alone. Total return consisting of
capital gain (loss) and yield.
 Horne and Wachoviz (1998) defines the following returns "return as benefits related with
owner roomates cash dividend that includes the which I paid last year, togethterwith market
cost or capital gain appreciation shich is realization in the end pf the year". Meanwhile,
according to Jones (2004), "Return is the yield and capital gain (loss)". Where cash flow
yield is paid periodically to shareholders (in the form of dividends), and capita gain (loss) is
the difference aantara share price at the time of purchase by the share price at the time of
sale. Based on these opinions, it can be concluded that stock returns are obtained ownership
advantage investor or its investments, consisting of dividends and capital gain / loss.
Dividends are corporate profits distributed to shareholders in a given periodic. Capital gain /
loss during the period represents the difference between the original stock (beginning of
period) with the price at the end of the period. From such understanding can be underlined
bahw atingkat returns of a stock is not always a positive value when the stock price at the
moment is more rendag than the current share price the investor to make a purchase then the
rate of return of saam negative worth (capital loss).

6. Previous Research

Researchers used several similar research studies that researchers have done to support
this research. Where in the studies that have been done are a lot of evidence, that there is a
relationship between good corporate governance on stock returns over the size of the
company.
Table 2.3 Similar Research
No. Research Title Objects and Variables Discussion result
Companies that follow
corporate governance
perception index (CGPI)

Independent Variables:
Influence Of Good
Corporate Governance
Scores of corporate Good corporate governance
Through Shares Return
governance perception has a negative effect on stock
1 Price Earning Ratio, Debt
index (CGPI) returns over variable price
Equity and Return on
earning ratio.
Equity (David Nathanael
Dependent Variables:
Sutyanto, 2012)
Stock returns, price to
earnings ratio, debt to
equity ratio and return on
equity.
2 Effect of Good Corporate Companies that are rated Good Corporate Governance
 Governance Toward Stock CGPI and listed on the significantly influence the
Return With Financial Indonesia Stock company's financial
Performance As an Exchange. performance, good corporate
intervening variable governance significant effect
(Nadha Adityara, 2014) Independent Variables: on stock returns, and the
company's financial
Scores of corporate performance has no effect on
governance perception stock returns. Hypothesis test
index (CGPI) results would imply that the
company's financial
Dependent Variables: performance can not mediate
the effect of Good Corporate
return stock Governance on stock returns.

Intervening Variables:

Financial Performance
proxyed with ROE.
Companies that are in the
LQ45 Index in Indonesia
Liquidity Effect of Stock
Stock Exchange (BEI). The absence of significant
Trading Stock Return
influence on the frequency of
Against Company That
Independent Variables: trading with stock returns.
Was In LQ45 Index in
Then the positive influence but
Indonesia Stock Exchange
3 Trade Frequency, Trade not significant to the volume of
Period 2009-2013
Volume, and Market trading with stock returns.
(Empirical Study On LQ45
Capitalization. Then no significant influence
Company In Indonesia
on market capitalization and
Stock Exchange). (Ni Luh
Dependent Variables: stock returns.
Nonik, et al, 2014)
Stock Return.
Manufacturing
companies listed on the
BEI
Influence of Good Implementation of good
Corporate Governance Independent Variables: corporate governance and
Performance Against significant positive effect on
Corporate Finance and Scores of corporate financial performance.
4
Market Value Participants governance perception However, the implementation
Corporate Governance index (CGPI). of good corporate governance
Perception Index (CGPI). did not affect the market value
(Istiqomah, 2009) Dependent Variables: of the company.

The company's financial

performance, the market
 value of the company.

Control Variable:

Opportunity to grow
(growth), firm size (size),
and the company's debt
ratio (leverage).
Companies listed on the The results of this study to
Indonesia Stock simultaneously show the
Exchange which has a significant influence between
Influence Profitability,
score of corporate profitability, leverage, good
Leverage, Good Corporate
governance perception corporate governance, and the
Governance, and Firm Size
index (CGPI) size of the company to the
Of Company Value (Case
value of the company and
Study At Company Listed
Independent Variables: partially show profitability
On The Stock Exchange
5 variables significantly
Indonesia Has Score
Profitability, Leverage, influence the value of the
Corporate Governance
GCG, and the size of the company. However, leverage,
Perception Index (CGPI)
company. good corporate governance,
During the period from
and the size of the companies
2010 to 2013). (Nadya
Dependent Variables: showed no significant effect on
Pratiwi, et al 2014)
the value of the company both
The value of the before and after moderated by
company GCG.

7. Framework of Theoretical

The framework of thinking is a conceptual model of how theory relates to various factors
that have been identified as problems (Sugiyono, 2012). Based on the background, problem
formulation, and research objectives previously described, the authors developed the model
as the theoretical framework in this study, along with the drawing of the framework.

Figure 1. 1 Framework for Thinking

8. Formulation of Hypothesis

The hypothesis to be used in this study relates to the presence or absence of the influence
of independent variables on the dependent variable. The design of this research hypothesis to
prove whether the application of good corporate governance has a relationship with stock
returns by the size of the company, then performed statistical hypothesis testing as follows.
1. Effect of GCG Components Implementation on Market Value of Equity

The Financial Services Authority (OJK) considers that the implementation of

good corporate governance (GCG) is one of the requirements for companies in
Indonesia to compete in the ASEAN Economic Community (MEA). As the Annual
Report is no longer considered to be limited to the reporting of management
accountability in the General Meeting of Shareholders. Currently, the annual report has
also become an effective medium of communication to all parties to explain about the
performance and prospects of the company in the future. As consequence of the
enactment of the MEA then free market competition in the fields of capital and
investment, goods and services, as well as higher labor (Source: media aggregators
Indonesia ). Thus, companies in Indonesia demanded to improve aspects of good
governance by promoting ethics in any business activities and efforts undertaken,
especially through implementation of the principles of accountability and transparency.
Implementation of good corporate governance, is one of the important factors for the
company in Indonesia that the implementation of an enterprise risk management to be
effective. Therefore, by making the Annual Report as transparency of information, it is
expected to create a Corporate Governance ( GCG) was good and beneficial to the
progress of a company.

The company's progress on the implementation of GCG can be seen from the
size of the company. Where the size of the company can be expressed in total assets,
sales, and market capitalization. Researchers used a market capitalization or commonly
called the market value of equity as a proxy on the size of the company. The larger the
market value of equity , the greater the size of the company and the higher the
company's stock price so known by the public (Virawati, 2009). The larger companies
more likely to have agency problems are more anyway, so it requires mechanisms of
good corporate governance is more stringent. Therefore, following an assessment
based on CGPI, the rating has been made by IICG generate performance based on the
quality of corporate governance that is expected to improve oversight for the company,
namely the assessment component.

a. self Assessment

Self-assessment is an independent assessment by the entire organ,

member, and stakeholder companies about the quality of GCG implementation and
 the creation of added value for stakeholders are the ethical and dignified in order to
realize the sustainability of the company. At this stage the company fill out a
questionnaire that explores respondents' perceptions of aspects and indicators were
rated as fair and objective in order to provide feedback and a good evaluation to the
company. Hence in this study whether self-assessment impact directly or indirectly
on the financial performance and stock prices. Based on these explanations can be
formulated hypothesis as follows.

H 1 : Application of Self Assessment affect the market value of equity (MVE)

b. Documentation

Stages system is eligibility assessment documentation in the form of

supply of any document that has been owned by the company related to the
implementation of GCG and the creation of added value for stakeholders are the
ethical and dignified in order to realize the sustainability of the company. For
companies that have submitted documents in the CGPI dipersayaratkan on the
implementation of current year, then next year CGPI enough just to give a
statement confirmed that the documents are still applicable, and if there is a change,
the revised document should be attached. Required documents submitted to the
secretariat IICG after approved by the President or Managing Director or which can
represent. The document assessed and analyzed and then grouped into seven groups
representing governance structure, governance system, process governance,
governance mechanisms, governance, output, outcome governance, and governance
impact. Hence the system documentation to contribute in the fulfillment of the
implementation of Good Corporate Governnace . Based on the above hypothesis is
formulated as follows.

H 2 : Application Documentation effect on the market value of equity (MVE)

c. reports Papers

The preparation of the paper is one of the eligibility assessment

describes a series of processes and programs GCG implementation in the company
and the creation of value-added enterprises. Papers were drafted able to describe the
direction and focus of assessment in accordance with the guidelines set forth
systematic writing as follows.
 General Instructions.

1. Background paper prepared by the systematic preparation of the set in order to

facilitate the assessment procedure. Deviations from the systematics will affect
the ratings.

2. Completeness of the information contained in the paper will help write the
publication of corporate governance practices in the company as a series of
continuing implementation CGPI program each year.

a. Writing format

b. Writing system

c. Ratification is a sheet containing the name of the person in charge of

papers and Timm constituent papers, and signed by the person responsible
papers.

d. The contents of the paper prepared by the parts that have been determined.

e. Presentation of the paper should pay attention to several aspects that are
used in assessing the quality of the presentation of papers.

3. Collection of Papers submitted in the form of so ft copy / file and hardcopy paper.

4. Paper presented at the time of observation with a maximum duration of 30

minutes and turn over the presentation materials ( so ft copy and hard copy ) .

As the format of which have been described so enting in the preparation of

a report on implementation has been done by the company. Thus, the preparation
of reports in this paper is as a mandatory requirement in the judgment where the
principal portion big enough votes. Based on the above hypothesis is formulated
as follows.

H 3 : Implementation Report of paper affect the market value of equity (MVE)

d. Observation

Observation is the final stage of assessment as an important part of

the process of researching and ranking CGPI each year in the form of direct
 observation in the company by the assessment team CGPI to ensure the quality of
GCG implementation and the process of creation of value-added companies
continuously derived from the data and information on all three phases
sebelumnnya ( self-assessment , system documentation and papers). Implementation
of participant observation in each company CGPI done (half) days or 3 hours
effective. Implementation of participant observation in each company CGPI is done
in the form of presentations and question and answer discussion with the Board of
Commissioners, Directors and Management as well as other related party
companies. Besides, with this stage of the research team and ranking CGPI research
can directly verify the data and documentation necessary for the company CGPI a
more accurate assessment. Therefore, observas an important point to look at and
follow up directly how the application that has been done so far in the company.
Based on the above hypothesis is formulated as follows.

H 4 : Implementation Observations effect on the market value of equity (MVE)

As partial hypotheses formulated on the application component of good

corporate governance affect the market value of equity (MVE) . Therefore overall the
researchers formulate hypotheses on the application component of good corporate
governance affect the market value of equity (MVE), namely.

H 5 : Application of self assessment, system documentation, the paper reports, and

observations jointly affect the market value of equity (MVE)

2. Effect of Market Value of Equity on Stock Return

In general, any company that issued the shares has a goal to maximize the
wealth of company owners or shareholders. Shareholder value is measured by
multiplying the price of stocks and shares outstanding. Return the stock is a reflection
of the performance or value of the company and also a reflection of investor
confidence. Return the stock will move in line with the size of the company.
However, the management often have conflicting goals and interests with the
company's main objectives and ignore the interests of shareholders. The interest
difference resulted in the emergence of conflict called the agency conflict. Agency
conflict will lead to the opportunistic management will result in reported earnings
pseudo, and lead the company's value is reduced in the future (Herath, 2008). Such
actions indicate that a large company or a large company that has a size much
 diminiati by investors. As the size of the company's proxy is the market value of
equity (MVE), which are generally large capitalization stocks that became the target
of investors to invest in the long term for the company's growth potential is increased
and the distribution of dividends as well as a relatively low risk exposure. Because
much demand, then the share price is generally higher relative so it will provide a
return that is higher as well. Based on the above hypothesis is formulated as follows:

H 6 : Market value of equity (MVE) affects Return Shares

3. Effect of GCG Implementation Components throughs Return on Stock Market

Value of Equity

Good corporate governance is seen to play an important role in

increasing the value and financial performance. Companies are able to manage and
exploit strategic resources then, the company has been able to create an added value to
the competitive advantage that leads to an increase in the company's financial
performance (Oktavia and Dakjono, 2014). While the stock price changes every
moment and movement followed from the results view application performance
management in the company, many investors see the condition of a company not only
on the report but pertanggungajwaban each period of the stock price as the qualities a
company in the stock market. As the results of the assessment of good corporate
governance by IICG in a company there is a tool to control or supervise the
management and will increase the confidence of investors that the agent (management
company) will not be cheating on welfare themselves.

Their management of good corporate governance (GCG), which is

owned by a company is expected to create added value ( value added ) for the company
so that it can produce a stock price in accordance with the wishes of the investor. Based
on the above it can be formulated the following hypotheses:

H 7 : Application component of good corporate governance affect the return stock

with the size of the company
 CHAPTER III

RESEARCH METHODS

1. Population and Sample

In this study, the authors chose the companies listed in Indonesia Stock Exchange (BEI)
and recorded in the Corporate Governance Perception Index (CGPI) 2011-2015. Companies
used as a population in this study are all companies listed on the Indonesia Stock Exchange
(IDX) which follows the CGPI assessment by IICG. The period used in this study, namely
the period 2011 to 2015. The method used in sample selection using conditional sampling
method, where the sample selection to specific criteria. The considerations used in the
research sample of this study as follows.

1. Companies listed in Indonesia Stock Exchange period 2011-2015.

2. Companies that consistently participates as a participant in corporate governance
perception index (CGPI) in the period 2011-2015.
3. The Company publishes and publishes the 2011-2015 annual report on the idx.co.id
website.

Based on the above consideration criteria, then the number of companies sampled in this
study as follows.
Table 3.1 Research Sample
No. Company name Securities Code
1 BMRI Bank Mandiri Tbk
2 BBNI Bank Negara Indonesia Tbk
3 BBRI Bank Rakyat Indonesia Tbk
4 BBTN Bank Tabungan Negara Tbk
5 NISP Bank OCBC Nisp Tbk
6 ANTM Aneka Tambang Tbk
7 PTBA Bukit Asam Mining Tbk
8 JSMR Jasa Marga Tbk
9 TINS Timah Tbk

Source: Indonesia Stock Exchange

2. Types and Sources Data

 The author in doing this research using secondary data. Secondary data are data collected
and published from time to time to provide an overview of the progress of an activity during
the specific periods observed by the organization. The data used include the audited annual
financial statements of the companies, published on the Indonesia Stock Exchange, and in
SWA magazines related to CGPI rating results for the 2011-2015 period. The company's
annual financial statements can be obtained through the website of Indonesia Stock Exchange
( www.idx.co.id ) and report the results through website ranking CGPI Indonesian Institute of
Corporate Governance (www.iicg.org).

3. Data Collection Method

Data collection method in this research is documentation study, that is studying document
related to all data needed in research. The author uses secondary data contain financial and
non-financial information through annual reports (annual report) which is derived from the
Indonesian Stock Exchange and the CGPI report published by IICG cooperate with SWA
magazine. The data retrieval in this study during the five periods intended to test stability
between the regression of 2011-2015.

In addition, to obtain and complete the study and theoretical basis in this study, the
authors do literature study by describing theories related to the discussion, studied previous
research journals, data obtained and presented by others, the internet, As well as resources
that have relevance to the discussion and literature related to the research.

4. Operational Definition and Variable Measurement

This study was conducted to determine the effect of Good Governance corpoarte on
stock returns over the size of the companies listed on the Indonesian Stock Exchange (BEI)
and follow the rating CGPI 2010-2015.
Table 1.2 Operational Measurements and Research Variables
VARIABLES INDICATOR SCALE
Independent
Self Assessment Score results of the NOMINAL
Documentation assessments have been NOMINAL
Papers Report made based on several NOMINAL
Observation aspects of the assessment. NOMINAL
Intervening
The number of outstanding
Market Value of Equity NOMINAL
shares owned is multiplied
 by the closing stock price
Dependent
The closing share price of
the current year was
reduced by the closing share
Stock return RATIO
price of the previous year
divided by the previous
year's stock price.

The variables that become the subject of this research consist of five independent
variables and one dependent variable, as follows.

1. Independent Variable

The independent variable is the variable that influences or causes the change or
the emergence of the dependent variable (Sugiyono, 2013). In this study, the
independent variables used are the result of corporate governance ratings category
perception index (CGPI) which categories this assessment is based on the
components of transparency, accountability, responsibility, independence and
fairness. Here are the CGPI free variables with the results of the rating categories.

a. Self Asses s ment

Self-assessment is an independent assessment by filling the questionnaire

by all organs, members, and stakeholders of the company regarding the quality of
GCG implementation and efforts to achieve sustainability of the company. Where
at this stage is divided into internal and external respondents that the filling is
done through several options, including online methods IICG survey on the
website or by a method electronically charging, and charging directly on the
printed sheet statement.

b. Documentation

Stages of the documentation system is the fulfillment of the assessment of

the submission of various documents that have been owned by the company
related to the implementation of GCG and efforts to realize the company's
sustainability. The required documents are divided into several aspects,
commitment, transparency, accountability, responsibility, independence, fairness,
leadership, capability, strategy, risk, ethics, culture, and sustainability.
 c. Papers Report

The paper report is one of the fulfillment of the assessment requirements

that describes a series of GCG implementation processes and programs in the
company and efforts to realize the company's sustainability. The paper reports are
structured to illustrate the direction and focus of the assessment in accordance
with established systematic writing guidelines.

d. Observation

Observation is the final stage of assessment as an important part of the

CGPI research and ranking process each year, in the form of direct confirmation
to the company by the CGPI assessment team to ensure the quality of GCG
implementation and the company's efforts to achieve sustainable economic, social
and environmental oriented sustainability that obtained from the data and
information on all the three previous stages (self-assessment, documentation,
reports the paper).

2. Intervening Variable

Variable interface (intervening) is a variable that theoretically affect the

relationship between the dependent variable becomes independent with no direct
relationship and can not be observed and measured (Sugiyono 2013). In this study
were used as an intervening variable that is the size of the company proxy with a
market value of equity or market capitalization companies. Market capitalization is
the value of a company based on the calculation of the number of shares outstanding
multiplied by the closing stock price of the company. Market value of equity is one of
the ways used in assessing the size of the company to show growth in the enterprise
market. The greater the capitalization of shares owned by the company the more
expensive the stock price of a company and the more the number of shares circulating
in the market. Here is a formula MVE (Agus Purwanto, 2010).

3.4.3. Dependent Variable

 The dependent variable is a variable that is influenced or which becomes due to
the existence of free variable (Sugiyono, 2013). In this study, the dependent variable
used is the company's stock Return Which is produced and listed on the Indonesia
Stock Exchange. return stock The company is calculated by the closing share price of
the current year minus the closing share price in the previous year and divided by the
closing share price in the previous year.

Based on the return, that the return of a stock is the same as the result of investment
by calculating the current stock price difference with the previous period regardless of
dividend, it can be written the formula (Ross et al., 2003: 238) as follows.

Where:

Rt = Return eke shares at period-t

Pt = Stock price observation period

P t-1 = The share price prior to the observation period

Investor interest in buying the company visits of stock returns. Stock

returns become a benchmark for investment decisions. The higher the rate of return on
investment, the more investors who will invest in the company, the company's stock
will rise in price caused by rising stock demand by investors and increase the rate of
return on the investment.

5. Method Analysis

The purpose of the data analysis is to obtain the relevant data that is researched and use
the result to solve a problem. One of the programs used for data processing was SPSS
(Statistical Product and Service Solution). SPSS is the most popular and widely used statistic
program in the world. Researchers use it for various purposes such as market research,
completion of research assignments (thesis, thesis, dissertation) and so on.

In this study, there are three variables to be studied, namely the independent variable for
Self Assessment, System Documentation, paper reports, and observations, intervening
variable for the market value of equity and the dependent variable is the stock return. Both
variables will be analyzed by multiple linear regression technique with SPSS software.
However, previously performed classical assumption test consisting of normality test,
multicollinearity, autocorrelation, and heterokedastisitas.

1. Descriptive Statistics

Descriptive statistics is a statistical technique used to provide an overview of the

various characteristics of a data set. The purpose of statistical descriptive test to
combine and provide a simple explanation of the maximum, minimum, average and
standard deviation of each variable to be studied. Descriptive statistics are used to
develop a company profile that becomes a descriptive statsitik sample related to data
collection and upgrading, as well as the presentation of the improvement results
(Ghozali, 2012).

2. Classic Assumption Test

The classical assumption test or prerequisite test is a preliminary test or pre-

requisite condition before using from an analysis used to test the proposed hypothesis
(Sugiyono, 2013). In the research data must meet the test of classical assumption
because to get the result that is not biased and efficient so that result of regression
model later can be said feasible. The following tests were performed in this study.

a. Normality Test

Normality tests are used to show that samples are drawn from normally
distributed populations. This study used normality test to know normal distributed
data or not and tested the normality of data used in histogram graph comparing
the cumulative distribution of the normal distribution. As it is well known that t
and f assume that the residual values follow the normal distribution. If this
assumption is violated then the statistical test becomes invalid for a small sample
count. To test the normality of data, this research uses graph analysis. Normality
testing through graph analysis is by analyzing the normal probability plot graph
that compares the cumulative distribution of the normal distribution. Normal
distribution will form a straight line diagonal, and the residual data pieces will be
compared with the diagonal line. The data is said to be normal if the data or the
largest points around the diagonal line and its distribution follow the diagonal
line, (Ghozali, 2012). In performing normality test using graph analysis and
statistical analysis. When using the method of statistical analysis, the data
 normality was tested using one test-sample Kolmogorov-Smirnov Test (KS) where
the results of this calculation are two sides greater than 0.05 then, the data were
normally distributed (Sugiyono, 2013) and for normality graph analysis can be
detected by looking at the histogram of its residuals.

b. Multicolinearity Test

Multicolinearity test was conducted to test on the regression model found

the correlation between independent variables. If there is correlation then there is
a multicollinearity problem. A good regression model should be free of
multicolinality or no correlation between independent variables. To detect the
presence or absence of multicollinearity in the regression can be seen from the
tolerance value and the variance inflation factor (VIF). The multicollinearity-free
regression model has a tolerance value above 0.1 or VIF below 10. If tolerance
variance is below 0.1 or VIF above 10, then multicollinearity occurs (Ghozali,
2012).

c. Autocorrelation Test

Auokorelasi test is done to determine whether there is a correlation

between the dependent variable with itself on the regression equation that is
formed. This test is performed to test in a linear regression model there is a
correlation between user error period one with error in period t-1 (previous year)
(Ghozali, 2012).

A good regression model is a regression independent of auto correlation.

Testing whether there is autocorrelation can be seen from the Durbin-Watson test
(DW), and the test results are determined based on the value of the Durbin-
Watson (DW). Here is a description for the Durbin-Watson statistical
interpretation.

1) There is autocorrelation: dW <dL or dW> 4 - dL

2) Can not be concluded: 4-dU <dW <4 - dL

3) There is no autocorrelation: dU <dW <4 "dU

d. Heteroscedaticity Test
 This test is used to test a regression model of variance inequality of the
residuals from another observation. A good regression model is that there is no
heterokedastisity. To find out used a scatter plot graph, namely by looking at
certain patterns on a graph (Ghozali, 2012). One way to detect the presence or
absence of heterokedastitas is to use a scatterplot chart between the predicted
value of the dependent variable (dependent) ie residual SRESID ZPRED
premises. When the significance probability value above five percent confidence
level and a scatterplot graph, the points spread above or below zero on the Y axis,
it can be concluded regression model did not contain any heterocedastity
(Ghozali, 2012).

In addition, the authors used another heteroskedasticity test with the

Glejser test. The glejser test is performed by regressing the independent variable
with its residual absolute value. If the significance value between independent
variable and absolute residual is more than 0.05 then there is no problem of
heteroskedastsity (Priyatno, 2014).

3. Path Analysis

To test the intervening variable in this study used path analysis method (Path
Analysis). Path analysis is the need of multiple linear regression analysis to estimate
the causality relationship between predefined variables based on theory. In path
analysis there is a variable that doubles as independent in a relationship (Priyatno,
2014). However, it becomes dependent variable on other relationship considering the
existence of tiered causality relationship (Ghozali, 2012). To test the path analysis in
this study there are two substructures as follows.

Substructural I

Substructural II

Where:

MVE = Company size (market value of equity)

SA = Self Assessment
 SD = System Documentation

LM = Report of Paper

OB = Observation

RS = Return Shares

= Constants

b 1 = coefficient MVE Strip with SA

b 2 = coefficient of MVE Strip with SD

b 3 = coefficient of MVE with LM Track

b 4 = coefficient MVE Strip with OB

b 5 = coefficient RS line with MVE

'1 = Another factor that affects and is outside the study variables

'2 = Another factor that affects and is outside the study variables

4. Hypothesis Testing

Hypothesis testing in this study regression path analysis. Where this hypothesis
test is a decision-making method based on data analysis, either from controlled
experiments, or from observation (uncontrolled). The author uses hypothesis test as
follows.

a. Partially Test (T-Test)

The statistical test t basically shows how far the influence of the
explanatory variables or independent individual that corporate governance
mechanism is proxied by self-assessment, system documentation, reports the
paper, and observation in explaining the variation of the dependent variable,
namely the return stock with variable intervening, namely the size of the
company proxied by the market value of equity. Steps used to test the hypothesis
 with t test was to determine the level of significance that used by 5% or ( ) =
0.05. If sig. T is greater than 0.05 then Ha is rejected. However if sig t is smaller
than 0.05 then Ha is accepted, it means there is significant influence between
independent variable with dependent variable (Ghozali, 2012)

b. Simultaneously Test (F-Test)

F test is used to test the influence of independent variables simultaneously

or simultaneously to the dependent variable. How the test is to use a table
Analysis of Variance (ANOVA). The null hypothesis (Ho) states that all
independent variables included in the model have no mutual influence on the
dependent variable, while (Ha) states that all independent variables have a
significant influence on the dependent variable. If the value of f arithmetic is
greater than f table, then Ho can be rejected and Ha accepted. Conversely, if f
count is smaller than f table then Ho accepted and Ha rejected. When based on
probability value or sig. F> 0.05, then Ho accepted and Ha rejected. Whereas if
the probability or sig. F <0.05, then Hoditolak and Ha are accepted. (Ghozali,
2012).

c. Determination coefficient (R 2)

The coefficient of determination (R2) essentially measures how far the

ability of independent variables (Corporate governance perception index with
components of self assessment, system documentation, reports the paper, and
observation) in explaining the dependent variable (stock return) through the
intervening variables (size of the company with your proxy market value of
eequity). The coefficient of determination is between zero and one. A value close
to one means the independent variable provides almost all the information needed
to predict the dependent variable (Ghozali, 2012).

The fundamental weakness of the use of detrmination coefficients is the

bias against the number of independent variables entered into the model. Each
additional independent variable, then R 2 is definitely increasing no matter
whether the variable significant effect on the dependent variable secar. Therefore,
this study uses Adjust the value of R 2, which can go up and down when the
ditanbahkan independent variables in the model. If the value of the Adjust R 2 is
equal to 1 means that fluctuations entirely dependent variable can be explained by
the independent variable and there are no other factors that menyerbabkan
fluctuations dependent variable. Adjusted R 2 ranges between 0 and 1. If
approaching 1 means the stronger the ability of independent variables can explain
the dependent variable. Conversely, if the value of Adjusted R 2 is getting closer to
the number 0 means that the weak ability of independent variables can explain the
dependent variable fluctuations (Ghozali, 2012).