The Effect of Good Corporate Governance and Environmental Performance on Financial Performance of the PROPER Listed Company on Indonesia Stock Exchange

This research aimed to determine whether the environmental performance and Good Corporate Governance (GCG) mechanisms, such as managerial ownership, institutional ownership, the proportion of independent commissioners had effects of the audit committee on measured financial performance by using Return on Equity (ROE). This research population was manufacturing company listed on Indonesia Stock Exchange that participated in PROPER 2012/2013 and 2013/2014. Based on the multiple regression analysis, audit committee partially had a significant effect on financial performance, while the others did not. Meanwhile, the analysis result shows that environmental performance and all GCG mechanisms simultaneously have significant effects on financial performance.


INTRODUCTION
One of the benchmarks used by stakeholders to assess the merits of a company is through financial performance. A good financial performance can encourage the interest of investors to invest in the company. Return on Equity (ROE) is the ratio used to measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested. Hermuningsih (2013) found that larger ROE would result in the better financial performance of a company.
Management, as a party given the delegation of the owners of capital to operate the company, needs to be constantly monitored. Different interests owned by the owners of capital and management can lead to the disintegration in the company. With Good Corporate Governance (GCG), the authority of all parties in the company can be arranged and the supervisory function can be optimized to reduce the occurrence of fraud committed by various parties in the company for its sake. The existence of GCG is expected to reduce conflicts of interest that may occur that impede the progress of the company's financial performance (Xu & Xia, 2012).
GCG mechanisms that can be applied are managerial ownership, institutional ownership, as well as the establishment of independent director and audit committee. Ahmed et al. (2013) found that internal governance mechanisms have material effects on firm performance. Managerial stock ownership and institutional ownership are considered able to reduce the risk of abuse of authority by the management. With the contribution of share ownership, management may be motivated to do the working performance better, and also to work harder in the interests of shareholders. Arifani (2013) claimed that if something went improperly in the decision-making, and financial performance of companies did not have a good condition, the management would also get affected. Beside managerial ownership, stock ownership by other institutions is also able to improve the oversight of management to be more optimal, and to encourage the management to be more motivated because they intend to show great performance to external parties.
GCG implementation can also be done by appointment of the independent commissioner. The presence of independent commissioners coming from external parties is a form of optimization for oversight of the company to be in the balance and interests of all shareholders, majority, and minority, as well as other stakeholders (Chandra, 2010). Implementation of GCG also can be done by the establishment of an audit committee comprised of independent parties that have no interest to management. Through the independence and the ability of the audit committee in overseeing the company's activities that include conducting audits in the company, the performance of the company is expected to be more effective, transparent and accountable.
Non-financial performance such as environmental performance also has been an important concern for the stakeholders. Hana and Rahman (2013) suggested that investors chose companies that had good business ethics as well as a high concern for the environment. Indonesian government creates a program called PROPER which aims to encourage awareness of good environmental management efforts. This program is held annually. The result of the program will be announced through the official website of The Ministry of Environment and Forestry of the Republic of Indonesia.
Several studies have been conducted to determine the effect of the mechanism of corporate governance and environmental performance on the financial performance of the company such as (Cao et al., 2013). Moreover Waskito (2014) found that managerial ownership had no effect on the financial performance of the company. Meanwhile, Kurlelasari (2013) and Diandono (2012) found that institutional ownership has an effect on financial performance. Then, Nugrahani and Nugroho (2010) pointed out that the proportion of independent commissioners had an impact on the financial performance of the company, while Arifani (2013) and Triwinasis (2013) found that audit committee affected company's financial performance. Beside the GCG mechanism, Suratno and Al-Tuwaijri, as cited by Pujiasih (2013), stated that environmental performance was also able to affect financial performance. In contrast, Yu et al. (2009) did not find a positive relationship between firm environmental performance and financial performance. The differences of the research findings related to the influence of corporate governance and environmental performance to company's financial performance motivate researchers to do further research on this particular topic. The uniqueness of this research is the use of PROPER rating as a measurement of environmental performance.
Managerial ownership is one of the corporate governance mechanisms that aims to provide opportunities to the management to own shares of the company. Daraghma and Alsinawi (2010), and Wahla et al. (2012) found that managerial ownership had no effect on the financial performance of the company. With the contribution of share ownership, the ownership of the company by the management will arise, it will be motivated to work more effectively and to provide maximum performance. Management is also working more carefully and considering the risks in any decision-making because if something goes improperly, the management as one of the shareholders will also be affected. Thus, the managerial share ownership can improve management performance. Besides, it is able to push the company's improved financial performance. Sabrinna and Adiwibowo (2010), Kohl and Schaefers (2012) and Larcker et al. (2007) suggested that the higher the institutional ownership was, the better the company's performance was. This is due to the other institutions that improve the oversight of corporate performance. Share ownership by other institutions reduces the potential for management to commit fraud or do things that are selfish. Besides, institutional ownership also encourages companies to be more careful and considering better with every decision (Leung & Cheng, 2013). Manafi et al. (2015) and Fazlzadeh et al. (2011) found that stock ownership by the institutional party had an influence on the financial performance of the company. According to Kumaat (2013), independent commissioners have a positive influence on the financial performance of the company. The optimal supervision through the presence of independent commissioners is expected to maintain objectivity in the company so that the company's performance can be more effective, and the company's financial performance can be increasing. Alijoyo, as cited by Priantana and Yustian (2011), stated that audit committee in aiding the commissioners in ensuring the effectiveness of the internal control system, and also internal and external audit assignments was expected to optimize the monitoring of the performance of the company. The expertise of audit committee member had a positive association with financial reporting quality (Krishnan et al., 2011). With audit committee, transparency and corporate accountability monitored properly. In, addition, the associated risks of fraud in the audit process and abuse of the company's financial statements can be minimized so that the performance of the company can be more effective, and increasing company's financial performance (Brennan & Kirwan, 2015). Next, Amba (2014) found that the presence of audit committee had a positive influence on the financial performance of the company.
H o 4: Audit committee does not affect company's financial performance H a 4: Audit committee affects company's financial performance According to Tjahjono (2013) and Titisari and Alviana (2012), environmental performance as one of the concerns of investors and other stakeholders, has an influence on the financial performance of the company. Good environmental performance shows that the companies has a good business ethics as well as contributes to sustainable development (Herbohn et al., 2014). The companies that take responsibility for the environment would obtain a positive image in the eyes of the public, including consumers and investors so that investment and consumption in the company increase.
Environmental performance is an assessment of the extent to which the company can perform environmental management. Environmental performance is measured by PROPER ranking. 'Gold' rank is given to a value of 5, 'Green' rank is given to a value of 4, 'Blue' rank is a value of 3, 'Red' rank is for a value of 2, and a 'Black' rank is a value of 1.
The dependent variable used in this research is the company's financial performance as measured by Return on Equity (ROE).

ROE = Net Income
Total Equity (5) To examine the effect of the mechanism of corporate governance and environmental performance on financial performance as measured by ROE, multiple regression analysis is conducted. The descriptive statistical analysis is used to see an overview of the data that has been collected in this research. Classic assumption tests performed are normality test, multicollinearity test, heteroscedasticity test and autocorrelation test. To test the effect of the mechanism of corporate governance and environmental performance on ROE, the partial test or T-test, and F-test or simultaneous test is done. ROE is important as it focuses on the return to the shareholders of the company. Meanwhile, the partial test is implemented to determine the effect of each independent variable on the dependent variable. Then, the simultaneous test is done to determine the effect of the independent variable simultaneously or together on the dependent variable.  (84) Company does not have a complete annual report and financial report (7) Financial report is not reported annually (12 months To get a good regression modeling, the research data must meet classical assumptions. The normality test is performed to ensure that the residuals of a distributed data examined are normal. Based on the results in Table 2, the obtained probability value is equal to 0,000000 in which the rate is less than 0,05.Thus, it can be said that the data are not normally distributed. suggested that outlier is the data with unique characteristics and is very different from other observations that lead to an abnormally distributed data. Thus, the researcher excludes two companies from the sample so that the number of companies used as the sample is 23 companies. Moreover, with two years of total research, the number of samples is 46. From the results in Table 3, the probability is 0,290176, and this value is greater than 0,05. Thus, it can be said that the data is normally distributed.  Moreover, from the results of the output in Table 4, there is no correlation value of more than 0,8. It can be said that there is no correlation between the independent variables in this research. In addition, research data is free from multicollinearity problems.

RESULTS AND DISCUSSIONS
Then, based on the output values in Table 5, obtained Prob. F is equal to 0,5256. Compared to the alpha level of 0,05, the value of Prob. F is larger (0,5256 > 0,05). Thus, there is no heteroscedasticity problem.  Based on the output value of F arithmetic is 0,1988 as seen in Table 6. That means this value is greater than the level of alpha 0,05 (0,1988 > 0,05). Therefore, in this regression model, there is no autocorrelation.
The average (mean) count of each variable can be seen through the overview obtained from the descriptive statistics. It can also show the smallest value (minimum) and the largest value (maximum) of each of the variables tested in this research, such as managerial ownership (MAN), institutional ownership (INT), the proportion of independent commissioner (IND), the audit committee (AUD), environmental performance (PRO), and ROE. To find out how large a deviation of each variable is, it can be seen from the standard deviation of each of these variables presented in Table 7. Furthermore, this research conducts multiple regression analysis to determine the effect of managerial ownership, institutional ownership, the proportion of independent commissioner, audit committee, and environmental performance on financial performance as measured by ROE as shown in Table 8.
Regression equation formed is as following: ROE = 0,065902 -0,040098 MAN -0,050068 INT -0,254530 IND + 0,045453 AUD + 0,009240 PRO + e (7) Then, to find out how big a variation of the dependent variable is, it can be done by looking at the independent variables. Besides, testing the coefficient of determination has been done. Based on the output data of multiple regression analysis, the obtained regression coefficient has the value of 0,272957. It means that independent variables in this research can explain that the dependent variable is 27,29%. Meanwhile, the remain is equal to 72,71%, as affected by other independent variables that are not included in this research.
Independent variable of managerial ownership (MAN) has a significance value of 0,8766 which is considered greater than 0,05. Thus, Ha1 in this research is rejected. Hypothesis test results show that managerial ownership does not have a significant effect on the financial performance of the company. The average ownership of managerial obtained in the research sample is very low at only 1,36%. Low stock ownership by management may be the cause of the lack of influence of managerial ownership on the financial performance of the company. Low stock holdings have not been able to drive optimal performance from the management. Therefore, the stock ownership by management has not been able to have a significant effect on the company's financial performance.
Independent variable of institutional ownership (INT) does not affect the company's financial performance. The significant value of the independent variable of institutional ownership (INT) is equal to 0,4259 that means it is greater than 0,05, so Ha2 rejected. Meanwhile, and Ho2 is accepted. This means that institutional ownership has no significant effect on the financial performance of the company. Institutional ownership possessed by the sample is large enough that it appears that the level of 72,48% institutional shareholding. Institutions as outside parties may not have been able to perform the function of optimal monitoring due to the lack of knowledge and information held by the institutions concerning the company's overall monitoring. Consequently, action can not be implemented on target effectively. In addition, the institution as an external party focuses more on short-term profits that have a tendency to be immediately pulled back its shares if the company is considered potentially less profitable for them.  Regression analysis shows that the proportion of independent commissioners (IND) has a significant value of 0,14113 which is greater than 0,05. Therefore Ha3 is rejected and Ho3 is accepted. This means that the proportion of independent commissioners does not have a significant effect on the financial performance of the company. The average proportion of independent commissioners possessed by the sample companies is 37,11% of the overall total commissioner. Although the number of Indonesia Stock Exchange's compliance with the regulations states that the minimum number of independent directors 30% of the total commissioners, it appears that this has not been able to guarantee the good performance of the company. Independent commissioner who is appointed by the company may only meet regulatory demands without considering the competence of the person. As a result, monitoring function could not be executed properly even though the regulations related to independent commissioner have been met. The ability and understanding of the independent commissioner of the company business will greatly influence the decisions made by an independent commissioner. Therefore, when an appointed independent commissioner is not competent, the monitoring function executed becomes ineffective. Louw (2011) found that in fact that many independent commissioners were not able to maintain their independence within the enterprise. This also may be a cause that there is no significant effect on the proportion of independent commissioner on the company's financial performance.
The regression results indicate that the hypothesis Ha4 is accepted and Ho4 is rejected, evidenced by the significant value of AUD below 0,05 which is 0,0104. This means that the audit committee has a significant impact on the financial performance of the company. The average number of audit committee owned by the sample companies is 3 where the number is already in accordance with the regulations set forth. Results of regression modeling of the audit committee in this research come out in a positive value (0,045453) so it can be interpreted that the audit committee has a positive influence on the financial performance of the company. The audit committee is a mechanism that can optimize the corporate governance oversight of the company's performance related to financial reporting, audit, risk management, and internal control. The results of this research prove that the audit committee owned by the sample companies does not only meet certain regulations but also has the competence and independence to carry out oversight of the implementation of the audit, financial reporting and risk management of companies to increase the confidence of investors and shareholders.
The regression results show the significant value of the variable PRO at 0,6249 that is greater than 0,05. Hence, Ha5 is rejected and Ho5 is accepted. It shows that environmental performance has no significant effect on the financial performance of the company. In this research, environmental performance is measured through the PROPER rating where the average rating for the sample companies is 'Blue' rank. Companies with PROPER 'Blue' rating are a company that has been managing the environment in accordance with the minimum standards without doing environmental management that goes beyond those standards. Therefore, it is possibly considered that the company carries out environmental management as a formality in order not to be penalized as a result of poor environmental management. If the company does better environmental management and exceeds the standards set (environmental excellence), it will likely increase the company's image. Moreover, it may possibly be considered good by all stakeholders, including investors and consumers that the company's financial performance can be improved. In addition, PROPER may still not widely known by the public and investors that it becomes one of the causes of the lack of a significant effect on the environmental performance of the company's financial performance.
The value of F test at the regression results shows a significance value of 0,021492, which means less than 0,05. It can be said that simultaneously all independent variables in this research have a significant effect on the financial performance of the company.

CONCLUSIONS
This research aims to determine whether the independent variables such as environmental performance and GCG mechanisms measured by managerial ownership, institutional ownership, the proportion of independent commissioners, and audit committee have an influence on the dependent variable, namely the company's financial performance as measured by ROE. The research is conducted on manufacturing companies that participates on PROPER 2012/2013 and 2013/2014. Moreover, samples are selected by purposive sampling with 50 samples.
From the analysis, managerial ownership has a significance value of 0,8766. It can be concluded that it does not affect the company's financial performance. Then, institutional ownership has a significance value of 0,4259, which is considered not to affect the company's financial performance. Next, the proportion of independent directors has a significance value of 0,14113. It can be considered that it does not affect the company's financial performance. Menawhile, the audit committee has a significance value of 0,0104, so it can be concluded that it has significant influence on the company's financial performance. Last, environmental performance has a significance value of 0,6249, which can be concluded that it does not affect the company's financial performance.
This research is expected to provide an understanding of Good Corporate Governance and environmental performance, their influence on the company's financial performance, and additions to the literature. Suggestions to the next researchers are to use a sample of companies from all industries that are listed in Indonesia Stock Exchange and to increase the number of periods so that research results can be more generalized. In addition companies are expected to continue improving and evaluating the quality of the audit committee to continue operating effectively so that the company's financial performance can be improved in accordance with what has been demonstrated in this research. Moreover, it also expects the investors to assess and consider the implementation of GCG and environmental management by a company before investing.