Corporate Governance and the Profitability of Insurance Firms in Indonesia

By: Kenny Vincent, Mohamad Ikhsan Modjo and Amelia Limijaya

This study is driven by the growing importance of insurance companies in Indonesia and corporate governance as determinants of their profitability. Corporate governance is crucial in insurance companies as they provide instruments for risk transfers and savings mechanisms and promote investments in an economy. Our research examines the impact of implementing good corporate governance regulation POJK 73/2016 on the profitability of insurance companies in Indonesia. Using samples of all listed Indonesian insurance companies across 200 observations by employing LSDV panel data and 2SLS models, we found that the regulatory reform is negatively related to the company’s profitability and thus reduces performance. The outcomes of this study advocate for the continuation of fine-tuning of existing regulations so it could deliver the stated objectives.

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