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Jurnal Dinamika Manajemen, 7 (2) 2016, 117-128

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CASH HOLDING, GOOD CORPORATE GOVERNANCE AND FIRM VALUE

Prana Wahyu Nisasmara, Musdholifah 



Faculty of Economic, Universitas Negeri Surabaya, Surabaya, Indonesia

Info Article Abstract


History Article: fte company’s main goal is to maximize the long term value of the company. fte company’s
Received Juni 2016
ability to generate value for the company was favorably affected by management’s ability to
Approved July 2016
Published September 2016 manage the company. ftecompany expects the financial manager will do the best for the com-
pany to increase the value of the company and create wealth for owners and shareholders. ftis
Keywords:
Firm Value;
research aims to understand the influence of profitability, capital structure, cash holding, and
Profitability; GCG (Good Corporate Governance) on firm value. fte samples of this study were the prop-
Capital Structure; erty sector and real estate companies listed on Indonesia Stock Exchange (IDX) in the period
Cash Holding; of 2008-2013. fte data used from the annual report company. fte methods of data analysis
Good Corporate Governance
were multiple regression models and analyzed using IBM SPSS software. fte results of this
study are profitability has no influence on firm value, capital structure has positive influence on
firm value, cash holding has no influence on firm value and GCG a has a positive influence on
firm value.


Correspondence Address ISSN
Jl. Ketintang, Ketintang, Gayungan 2086-0668 (print)
Kota Surabaya, Jawa Timur 60231 2337-5434 (online)
Email: musdholifah@unesa.ac.id
Jurnal Dinamika Manajemen, 7 (2) 2016, 117-128

INTRODUCTION to be careful in determining investment deci-


sions. This is because if the decision incorrect,
Companies as an economic institution the investor not only loses return but also all the
have short-term and long term goals. In the initial capital invested will be lost (Astuti & Se-
short-term, the company aims to earn a return tiawati, 2014).
to the maximum by using existing resources. Santi (2011) showed that the positive ef-
The company’s main goal is to maximize the fect on the profitability of the company’s value.
long term value of the company. The company’s The results of this study stated that the greater
ability to generate value for the company was the profits, the greater the company’s ability to
favorably affected by management’s ability to pay dividends. Furthermore & Yuliana (2013),
manage the company. The company expects Wardoyo and Veronica (2013), Astuti and Se-
the financial manager will do the best for the tiawati (2014) also stated that profitability had
company to increase the value of the company a significant positive relationship to the value
and create wealth for owners and shareholders. of the company. However, Wibowo and Aisjah
Companies with good performance will ref- (2014) reported the results of different studies
lect the company’s good value too. This can be that partially profitability has no significant ef-
reflected in the stock price. According to Sari fect on the value of the company. Similarly,
(2013) the value of the company is reflected in Sambora (2014) shows that profitability has a
the stock price is a market perception from in- negative correlation and no significant effect on
vestors, creditors and other stakeholders on the the value of the company. Results of research
condition of the company. Mardiyati et al. (2012) reported that the higher
Potential investors get an idea on the va- the profit value obtained, the higher the value of
lue of assets owned by a company through the the company. Due to the high profit will give an
stock price. If the stock price increases, the va- indication of the company’s prospects are good,
lue will rise and vice versa. This information is so it can lead investors to increase demand for
useful to investors in making investment deci- stocks. Demand rising stocks will cause the va-
sions. In this case, the investor considers that lue of the company increases.
profitability has objective value for making in- As for the other factors that affect the va-
vestment decisions. Profitability is the result ob- lue of the company is its capital structure. Ac-
tained through the efforts of the management of cording to Wahyuni (2012) capital structure is
funds invested shareholders. Investors can also essential for any company, because of the good
determine the ability of the company in return and bad capital structure will have a direct effect
on investment and dividend payment in cash on the financial position of the company. To-
or shares to investors through the company’s day, the business world is highly dependent on
profitability. This will push the stock price has funding issues. Therefore, the company’s ma-
increased. nagers are expected to take effective measures
Shares of companies that have a high le- in determining the capital structure. The goal
vel of profitability will be more attractive to is to achieve the company goal that is to ma-
investors than companies with low profitabi- ximize the value of the company. Companies
lity levels. High profitability also shows the can obtain the funding requirements from both
company’s prospects are good, so it will create internal and external. The funds will be used
a positive sentiment for the shareholders that to strengthen the capital structure of the com-
the company’s value will increase (Sujoko & pany, so the company is able to control capital
Soebiantoro 2007). Profitability gives an ob- appropriately.
jective value of the value of investments in a The decision to choose the source of
company. Therefore, the profit of a company is funds used to strengthen the capital structure of
the hope for investors, but investors also need a company is a simple decision, but it has strong

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Prana Wahyu Nisasmara & Musdholifah / Cash Holding, Good Coperate Governance...
implications for what will happen in the future. ed investors worried that more managers have
Capital structure decision has an effect on the the power to waste resources on projects that
financial position of the company, which in turn damage the company’s enterprise value. The-
will affect the value of the company. Based on se results are supported by Kalcheva and Lins
the theory of capital structure, if the position of (2007). However, in another study conducted
the target capital structure is above the optimal by Srinivasan (2014) showed that cash holding
capital structure, then each increment of debt has a significant positive effect on firm value.
would lower the value of the company (Kusu- Implementation of Good Corporate Go-
majaya, 2011). vernance (GCG) encourages the creation of
Antwi et al. (2012) showed that the ca- healthy competition and good business climate.
pital structure significantly influences the value Therefore, implementation of GCG by compa-
of the company. This statement is supported nies in Indonesia is very important to support
by the results of Chen (2002), Chowdhury the growth and sustainable economic stability.
and Chowdhury (2010), Santi (2011), Hoque Implementation of GCG is also expected to sup-
et al. (2014). The capital structure decision is port the government’s efforts to uphold good
regarding the manager policy in determining governance in Indonesia. Research conducted
the proper proportion between the debt and by Bauer et al. (2003), Amman et al. (2011),
the amount of equity capital in the company in Retno and Priantin (2012), and Randy (2013)
order to maximize the value of the company. In shows the results that there is a significant posi-
contrast to Yuliana (2013) who obtained the tive relationship between the variables with the
findings that the capital structure has no signi- company’s corporate governance. While in the
ficant negative effect on firm value. The use of research Dittmar and Mahrt-Smith (2007) in-
debt is sensitive and tailored to the business dicates that corporate governance can enhance
climate. Due to the use of debt the company shareholder value by applying cash holding fun-
can earn profits and losses. This means that the ction properly.
debt has no effect on the level of the value of In this study, GCG will be the third proxy
the company, because if the cost of the interest variables such as previous research conducted
charged exceeds the benefit provided of debt is by Isshaq et al. (2009). Corporate governan-
used, then the use of debt would harm caused ce mechanism can be seen from the 3 proxies
by conditions or unfavorable business climate or indicators such as board size (the size of
(Hardiningsih & Sofyaningsih, 2011). the board), board independence, and the bo-
Another financial decision that compa- ard or meetings intensity (the amount of the
nies used to increase the value of the company company’s board meeting attendance). The
is cash holding. Ginglinger and Saddour (2008) results of this study indicate that there is a sig-
mentioned that holding cash is the amount of nificant and positive relationship between the
cash held by the company to run the company’s variables of corporate governance that is the
activities. This is valuable information for inves- size of the board of directors and board mee-
tors in making investment decisions. Withhold tings with the firm value, but there is a negative
cash too large to pose a risk as the decline in the relationship between the boards independence
exchange rate are good for goods, services, and with the firm value.
foreign currencies. Amanti and Venusita (2012) states that
Previous research on the effect of hol- corporate governance significantly negatively
ding cash against the value of the company has related to firm value. This may be due to the
done Lee and Lee (2009) showed the value of company’s practice of corporate governance
a company that is proxied by Tobins’Q negati- is implemented, but implementation is not yet
vely affected by cash holding. The results show fully implemented by the company in accordan-
that companies with high cash holdings caus- ce with the principles of GCG, or it can be said

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Jurnal Dinamika Manajemen, 7 (2) 2016, 117-128

that the practice of good corporate governance based on the consideration of the costs and be-
implemented by the company as a formality nefits of holding cash. The amount of cash hol-
(Amanti & Venusita, 2012). dings of a company due to the benefits derived
Results of previous studies show that the- from transactional motive and precautional mo-
re are differences in the results of research (rese- tive. The advantage of the transactional motive
arch gap) about the factors that affect the value company is able to save on transaction costs by
of the company, so that researchers interested using cash as a payment instrument apart from
in conducting further research on the effect of having to liquidate assets. While the precautio-
profitability, capital structure, cash holding, and nal motive showed the company could collect
GCG (proxied by the size of the board of direc- more cash reserves to avoid the risk in the future
tors, board independence, and the board inten- or financial activity and investment.
sity) against the value of the company.
Agency Theory
Hypothesis Development Corporate governance mechanisms are
Signalling Theory often associated with agency theory, which is
Brigham and Houston (2006) explain where the principals in this case the owner of
that the signaling theory is an action taken by the company delegate operational responsibili-
the management company to give guidance to ty to the company’s agents in this case the ma-
investors about how management views the nager (Kusumaningtyas & Yendrawati, 2015).
company’s prospects. This has been done by Agency relationship is the basis of the perspec-
the management to realize the wishes of the ow- tive that is used to understand corporate gover-
ner. The signal can be known through the infor- nance. Agency theory explains where the agen-
mation about a company’s good compared to cy relationship arises when one or more persons
other companies. (the principal) employ another person (the
According Rahayu and Andri (2010) urge agent) to provide a service and then delegate
the company to provide information, becau- decision-making authority to the agent (Randy,
se there is asymmetry of information between 2013). The relationship between the agent and
the company and outsiders because companies the principal is built so that the company’s goals
know more about the company and upcoming can be achieved with the maximum. Herawaty
prospect than outsiders (investors, creditors). (2009) suggested a separation of ownership by
For investors, this information is important to the principal to the control of the agent
determine investment decisions will be made.
In this study, the signaling theory is used to exa- Firm Value
mine the effect of profitability and capital struc- According to Wibowo and Aisjah (2014)
ture of the company’s value. the value of the company is the achievement of
a company as an indicator of the confidence of
Trade-off Theory the shareholders of the company since the es-
The trade-off theory states that the com- tablishment of the company to date. Meanwhi-
pany is trying to balance between the advanta- le, according to Sujoko and Soebiantoro (2007)
ges of reduced taxes for the interest on the debt the value of the company is an investor percep-
at the cost of financial difficulties due to the high tion of the level of success of companies that are
proportion of debt (Najmudin, 2011). The tra- often associated with stock prices.
de-off theory shows that the value of the compa- Based on the understanding that it can
ny with debt will increase with increasing debt. be concluded that the value of the company is
The trade-off theory in conjunction with an achievement of the founding of the compa-
cash holding, this theory suggests that the com- ny is reflected in stock prices to raise investors’
pany will maximize the value of the company positive perception of the company. The indi-

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Prana Wahyu Nisasmara & Musdholifah / Cash Holding, Good Coperate Governance...
cator used to measure the value of the company ding is the amount of cash held by the company
is Tobin’s Q ratio is considered to provide the to run the company’s activities.
most information is good, because in Tobin’s Q H3: Cash holding has a positive influence on
include all elements of debt and equity shares of firm value
the company.
According to Sujoko and Soebiantoro Forum for Corporate Governance
(2007) the profitability is the company’s ability (FCGI) in the first publication uses the defi-
to generate net income from the activity under- nition of Cadbury Committee, the GCG is a
taken in the accounting period. Profitability is set of rules created to govern the relationship
also a picture of a company in the management between shareholders, managers, creditors, go-
of the company, so the profitability of an indi- vernments, and other stakeholders associated
cator of management performance in managing with the rights and responsibility, or in other
the company’s assets represented by the profit words a system to regulate and control the com-
generated. In this study, the profitability will be pany (FCGI, 2014). In this study, GCG can be
proxied by Return on Equity (ROE). Brigham seen from three proxies or indicators such as
and Houston (2006) stated that the Return on board size, board independence, and the board
Equity (ROE) is the ratio of net income to or- meetings or intensity.
dinary equity to measure the return on invest- The size of the board of directors is a
ment of ordinary shareholders. number of members of the board of directors of
H1: Profitability has a positive influence on the company, which is specified by the number
firm value of units (Isshaq et al., 2009). Each member of
the board of directors can perform their duties
According to Horne and Wachowicz and make decisions in accordance with the di-
(2010) the capital structure is a mix (propor- vision of duties and responsibilities. However,
tion) of long-term permanent financing com- the implementation of tasks by each member of
panies represented by debt, preferred stock the board of directors remains a shared respon-
equity, and common stock equity. Basically sibility.
the company’s funding decision with regard to H4a: GCG proxied by board size has a positive
the determination of the sources of funds used influence on firm value
to finance the investment proposals that have
been decided in advance. If the company meets The Independent Board is a board mem-
the needs of their funds from internal sources, ber who has no affiliation with the other com-
then the company is doing internal funding in missioners, independent board members, and
the form of retained earnings. Conversely, if the the controlling shareholder (Samsul, 2006).
company meets the needs of their funds from The number of independent directors must be
external sources, then the company does exter- at least 30% of the commissioners.
nal financing. In this research, capital structure H4b: GCG proxied by independent board has a
is proxied by Debt to Equity Ratio (DER). DER positive influence on firm value
is a ratio used to measure the level of leverage
(use of debt) to total shareholders’ equity of the The intensity of the Board can be inter-
company (Hidayati, 2010). preted how often a company has a meeting. The
H2: Capital Structure has a positive influence board meeting is a process through which the
on firm value commissioners in making a decision regarding
company policy. Meetings held by the board of
Cash holding is an activity to withstand commissioners aimed at controlling and moni-
a certain amount of cash in the company. Gin- toring the policies that have been taken by the
glinger and Saddour (2008) mentions cash hol- board of directors and its implementation.

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Jurnal Dinamika Manajemen, 7 (2) 2016, 117-128

H4c: GCG proxied by board intensity has a po- response from investors so that investors can
sitive influence on firm value assess by themselves the value of the company’s
shares compared with the book value of the
High profitability of the company will company. The company’s shares will rise and
demonstrate a good prospect of the company increase the value of the company.
and eventually generate higher net income. The
higher the profit will be reflected in the increase METHOD
in ROE which indicates the potential for inc-
reased corporate profits. According Mardiyati This research was causally emphasis on
et al. (2012) the higher the profits obtained, the the quantitative determination of causality. The
shareholders have the perception that the com- data used are secondary data from annual re-
pany is already doing its efficiency in using its ports and financial statements of a firm in pro-
assets, so as to generate a profit. Increasing ROE perty and real estate sector is obtained from the
can trigger an increase in stock prices, because Indonesia Stock Exchange.
this condition is seen as a positive signal to in- The population in this study is proper-
vestors to invest in the company. ty and real estate firms that listed in Indonesia
While in the capital structure explained if Stock Exchange (IDX) in the period of 2008-
the optimal capital structure will affect the profit 2013. The samples in this study conducted by
increases. Profit increases will give a positive sig- purposive sampling method of sampling with
nal to investors, so that the share price increase the intent and purpose set by the researchers.
and enhance shareholder value. Achievement of Samples criteria that used in this study are pro-
optimal capital structure of the company is to perty and real estate firm which has consecutive
increase the proportion of debt that will lead to annual report period 2008-2013 along with in-
selection (trade-off) between corporate profits formation regarding the size of the GCG board
over the tax savings. Profits of companies that of directors, independent board, and the inten-
increase will boost the share price. Stock price sity of the board. There are seven companies
increases will increase the value of the company. that will be used for this research.
Companies can also maximize the value The dependent variable in this study is
of the company based on the consideration the value of the company is proxied by Tobin’s
of the costs and benefits of holding cash. The Q. The independent variables in this study is
company set the optimal level desired cash hol- the profitability, capital structure, cash holding,
ding company, the management through active and GCG proxied by the size of the board of
approach can make decisions on cash holdings directors, independent board, and the board in-
based on a cost benefit analysis. The financial tensity.
performance of the company will increase as The value of firms is an achievement
a result of the optimal cash management. Fi- of the founding of the company is reflected in
nancial performance increases will increase the stock prices to raise investors’ positive percep-
stock price so the value of the company increases. tion of the company. The value of the company
Good Corporate Governance (GCG) will be proxied by Tobin’s Q is calculated by the
proxied be the size of the board of directors, in- following formula:
dependent board, and the intensity of the board.
If the size of the board of directors, independent MVE + D
board, and the intensity of the board have been Q=
BVE + D
effective in a company, it will produce the op-
timal corporate governance. Optimal corporate Profitability is the company’s ability to-
governance will enhance the company’s perfor- Profitability is the company’s ability to genera-
mance. Good performance will get a positive te net income from the activity undertaken in

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Prana Wahyu Nisasmara & Musdholifah / Cash Holding, Good Coperate Governance...
the accounting period (Sujoko & Soebiantoro, oners around conducting meetings, such as at-
2007). Profitability will be proxied by ROE is tendance at meetings, preparation for meetings,
calculated by the following formula: and participation of members in meetings.

Earning After Tax Each Board Attendance


ROE = Proportion Board Attendance =
Equity ∑ Board Meeting

The capital structure is a mix (propor- ∑ Proportion Board Attendance


Independent Board =
tion) long-term permanent financing com- ∑ Board Meeting
panies represented by debt, equity preferred
stock, and common stock equity (Horne & Data analysis technique used in this rese-
Wachowicz, 2010). The capital structure will arch is multiple linear regression analysis pre-
be proxied by DER calculated by the following viously performed classical assumption test,
formula: which includes normality test, multicollineari-
ty, autocorrelation and heteroskedatisitas test.
Total Debt Multiple linear regression analysis using the
Debt to Equity Ratio =
Total Equity program processed by Statistics Product and
Service Solutions (SPSS) 19. Simultaneous and
Cash holding is an activity to withstand partial significance test, regression equation and
a certain amount of cash in the company. Cash the coefficient of determination test are perfor-
holding can be measured by the log of cash and med after fulfilling the classical assumption test.
cash equivalents.
RESULT AND DISCUSSION
Cash holding = Log (cash and cash equivalents)
Based on the test result of the classical
The size of the board of directors of a assumption obtained by the graph analysis sho-
number of members of the board of directors of wing the pattern of normal distribution, it can
the company, which is specified by the number be seen that the dots indicating data spread
of units (Isshaq et al., 2009). Formulated as fol- around the diagonal line and follow the direc-
lows: tion of the diagonal line. While the value of K-S
(Kolmogorov-Smirnov) is 0.497 which value
Bdsize = Log ∑ Number of Board Director is greater than 0.05 so it can be concluded that
the data were normally distributed. Multicolo-
Independent board is measured by the ra- niarity test results show the value of tolerance is
tio between the number of independent board more than 0.10 and VIF is less than 10. so it can
compared with the number of commissioners be concluded that no symptoms of the regressi-
in the company, expressed in the form of units on model multicoloniarity.
(Isshaq et al., 2009). Formulated as follows: Autocorrelation test results using the
test Durbin Waston (DW) obtained DW value
∑ Number of Independent Board of 2.782 satisfies the equation 4-du < d < 4 - dl
Independent Board =
∑ Number of Commisioner Board is 2.1549 < 2.782 < 2.7978, which means that
there is a positive correlation in the regressi-
The Board intensity is how often a com- on model. Due to the results did not meet the
pany has a meeting. The effectiveness of the- requirements, then it repaired using the lag of
se meetings can be affected by several factors the residual obtained a yield of 2.020 satisfying
such as the frequency of meetings of the board the equation du < d < 4-du is 1.8451 < 2.020 <
of commissioners, and behaviors of commissi- 2.1549. Based on these equations, the regressi-

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Jurnal Dinamika Manajemen, 7 (2) 2016, 117-128

on model is not autocorrelation. Heteroscedas- The amount of R2 is 0.525 or 52.5% me-


ticity test using a scatter graph shows that the ans that the ability of the model to explain va-
data points spread above and below or around riations in the dependent variable by 52.5%,
the numbers of 0 only and does not form a pat- which means that 52.5% of companies affected
tern. While on glejster test, the significance va- by the value of the variable profitability, capital
lue is greater than 0.05. It can be concluded that structure, cash holding, and GCG proxied by
the regression model does not contain any hete- the size of the board of directors, independent
roscedasticity. Multiple linear regression analy- board, and the intensity of the board, while the
sis of the results obtained in Table 1. remaining 47.5% is explained by other variables
outside the regression model.
Table 1. Statistical Result
The Effect of Profitability on Firm Value
Variables Sig. F Sig. t T 2
(R ) This study found that there is no effect
Regression 0.000 0.525 between the profitability on firm value. In this
Profitability 0.181 1.365 study, the profitability measured by ROE to as-
Cap_Structure 0.007 2.843 sess the profitability of the company based on
Cash_Holding 0.237 1.202 efficiency in the use of equity. However, the
Board_Size 0.021 2.425 absence of significant effect shows that the gre-
Board_Indep 0 .005 2.991 ater the profitability of a company then it will
Meeting 0.399 0.853 not affect the amount of value of the company.
The results of this study indicate that the inves-
Based on the multiple linear regression tor hopes to return in the foreseeable future is
analysis in Table 1 showed that the F test of not affected by the size of firm value. Investors
0.000 where the value of less than 0.05 indicates decided to buy company shares at a price that
that independent variables (profitability, capital will tend to increase. The results of this study
structure, cash holding, and GCG proxied by are not in line with the existing signaling theory
the size of the Board of Directors, independent that explains the relationship between profitabi-
Board, and the Board intensity) affect the de- lity and firm value.
pendent variable (firm value) simultaneously. Although most of the research data sho-
The t-test showed that profitability does wed ROE has increased every year, but this
not affect the value of companies in which a does not affect the value of the company. The
significant level of 0.181 > 0.05. Capital struc- insignificant impact on the profitability of the
ture affects the value of companies in which the firm value is also supported by previous rese-
level of significance 0.007 < 0.05. Cash holding arch conducted by Sambora (2014). This study
does not affect the value of companies in which identified that the shareholders have to take into
a significant level of 0.237 > 0.05. The size of the account the amount of value of ROE, because
board of directors affects the value of companies the amount of ROE affects stock price changes
in which the level of significance of 0.021 < 0.05. in the stock market. Same result, Wibowo and
Independent board affects the value of compa- Aisjah (2014) states that the partial profitabili-
nies in which the level of significance 0.005 < ty has no significant effect on the value of the
0.05. The intensity of the board does not affect company.
the value of companies in which a significant le-
vel of 0.399 > 0.05. The regression equation as The Effect of Capital Structure on Firm Value
followS: Based on the multiple linear regression
analysis proved that there is a positive and sig-
Firm Value = -2.274 + 0.302 Cap_Structure + nificant impact of capital structure on the firm
1,199 Board_Size + 1.172 Board_Indep + e value. When viewed from the direction of the

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Prana Wahyu Nisasmara & Musdholifah / Cash Holding, Good Coperate Governance...
relationship, the regression coefficient with a Lins (2007), Lee and Lee (2009) shows the re-
positive direction explains that the more optimal sults of research that cash holding cash had no
capital structure of a company, the higher the significant effect on firm value. Similarly, Isshaq
value of the company. Optimal capital structure et al. (2009) stated that cash holding does not
can maximize the balance between risk and re- affect the value of the company.
turn. Thus maximizing the share price is establis-
hed by balancing the benefits of tax savings over The Effect of Board Size on Firm Value
the use of debt to bankruptcy costs. This positive Testing hypothesis about the board size
effect shows that increasing debt has a positive and firm size to prove that there is a positive and
signal to investors and it affected the firm value. significant correlation between the board size
The positive influence between capital on firm value. When viewed from the direction
structure and firm value is also in accordance of the relationship, it has a positive effect means
with the signaling theory which states that the that the optimal proportion of the size of the
company is able to generate profits tend to in- board of directors of a company, the higher the
crease the debt due to the additional interest value of the company. The positive correlation
paid will be offset by income before taxes. The between the board size and firm value is accor-
positive influence of capital structure to the ding to the agency theory.
company’s value is also supported by previous Purnamasari and Ardiana (2014) states
studies conducted Santi (2011) states that the that the addition of one member of the Board
use of debt in the capital structure provides the at the board size, either from the board of di-
company the opportunity to grow, thus increa- rectors, independent board of commissioners
sing investment and affects the value of the com- as well as non-independent can improve the
pany. In addition, research is also supported by effectiveness of decision-making. The same re-
Chen (2002), Antwi et al. (2010), Chowdhury sult was shown by previous studies conducted
and Chowdhury (2010), as well as Hoque et al. Isshaq et al. (2009) showed that the board size
(2014) which states that the capital structure or the size of the board of directors has a signifi-
had a significant positive effect on firm value. cant positive effect on firm value.

The Effect of Cash Holding on Firm Value The Effect of Board of Independent on Firm
Testing the hypothesis regarding the ef- Value
fect of cash holding on firm value showed no sig- Based on the result of multiple linear reg-
nificant relationship between cash holding and ression analysis found significant levels is lower
firm value. This result explains that regardless of 0.05, indicating independent board has a posi-
the amount of cash holding does not affect the tive and significant effect on firm value. When
rise and fall of the firm value. In general, compa- viewed from the direction of the relationship, it
nies are financially controlled by the corporate has a positive effect means that the more opti-
governance tend to invest more cash and spend mal proportion of independent board of a com-
the available cash faster. Therefore, weaker cor- pany, the higher the value of the company. The
porate governance has consequences on cash presence of independent board of a company
management, so managers on weak corporate in large numbers indicates that the company is
governance have smaller cash reserves. The re- able to perform a supervisory function that is
sults of this study do not support the theory that getting better. The positive influence between
describes the trade off between cash holding re- independent board and firm value can be exp-
lationship with the value of the company. lained by agency theory which states that the
The insignificant effect on the value of optimal proportion of the board of directors
cash holding companies is also supported by shows that the company is able to perform the
previous research conducted by Kalcheva and supervisory function better.

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The Effect of Board Intensity on Firm Value GCG proxied by an independent board
This study found that there is no effect has a positive and significant impact on firm va-
between the intensity of the board on the firm lue. The more optimal proportion of indepen-
value. The absence of significant effect showed dent board of a company, the higher the firm va-
that irrespective of the intensity of the board of lue. This indicates that the optimal proportion
a company then it will not affect the amount of of independent board considered by investors
value of the company. The results were not sig- in making investment.
nificant between the intensity of the board with GCG proxied by board intensity does not
the company’s value because not all investors affect the firm value. Any intensity of the board
regard it as an indicator for assessing the pros- of a company then it will not affect the amount
pects of a company. of firm value. This shows that the amount of the
This result is not supported by the agency intensity of the board is not considered by in-
theory that explains the increasingly fierce inten- vestors in making investment.
sity on the board of a company can minimize the This study has several limitations, among
conflicts between various parties and have a po- others; there are some variables that are not sig-
sitive impact on the board of directors that will nificant and the low value of the coefficient of
work more effectively, so as to improve the per- determination. Based on these limitations it is
formance and increase the value of the company. suggested for further research using and adding
. in addition to ROE ratios as an indicator to me-
CONCLUSION AND RECOMMENDATION asure the profitability variable and choose the
ratio of cash holding others as a tool to measu-
Based on this study, profitability does not re variables of cash holding in order to be more
affect the firm value. High and low profitability effective in the disclosure of the effect on firm
as measured by ROE will not affect the amount value.
of the firm. This research shows that companies
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