Corporate Governance and Financial Performance in Emerging Markets: The Mediating Role of Intellectual Capital in Indonesian Manufacturing Firms

Abstract

This study examines the effect of Good Corporate Governance (GCG) on financial performance and investigates the mediating role of Intellectual Capital in Indonesian manufacturing companies. The implementation of effective corporate governance is expected to enhance organizational efficiency, strengthen monitoring mechanisms, and improve the utilization of strategic resources, ultimately leading to better financial performance. This research employs Agency Theory, Stakeholder Theory, and the Resource-Based View (RBV) as the theoretical foundations to explain the relationships among governance mechanisms, intellectual capital, and firm performance. The study uses secondary data obtained from the annual reports and financial statements of manufacturing companies listed on the Indonesia Stock Exchange (IDX) during the 2021–2024 period. Good Corporate Governance is proxied by the board of directors, board of commissioners, and audit committee, while financial performance is measured using Return on Assets (ROA). Intellectual Capital is measured using the Value Added Intellectual Coefficient (VAIC) model. Multiple linear regression and mediation analysis are employed to test the proposed hypotheses. The findings indicate that the board of directors, board of commissioners, and audit committee positively influence Intellectual Capital. Furthermore, Intellectual Capital has a significant positive effect on financial performance. The results also reveal that Intellectual Capital mediates the relationship between corporate governance mechanisms and financial performance, indicating that effective governance contributes to higher firm performance through the enhancement of intellectual resources. These findings highlight the strategic importance of Intellectual Capital as an intangible asset that strengthens the effectiveness of corporate governance practices in creating sustainable competitive advantages and improving financial outcomes.