Abdul Ghofar, Sardar M. N. Islam
This chapter will expand the literature as elaborated in Chap. 1 by reviewing texts in the area of corporate governance in a contingency perspective. As mentioned in Chap. 1, there are two main arguments in the literature of contingency approach of corporate governance employed in this study, which are: (1) there is a relationship between corporate governance and contingency factors (business environment and strategy), whereby the contingency factors would influence corporate governance; and (2) corporate governance has two roles, namely the performance role and financial control role as reflected in the earnings quality. Following these two arguments of the contingency theory in corporate governance, there are four streams of literature which will be elaborated, namely: (1) the relationship between corporate governance and contingency factors (business environment and strategy); (2) the performance role of corporate governance mechanisms; (3) the financial control or earnings quality role of corporate governance mechanisms; and (4) corporate governance measures. However, since it is also important to explain the basic concepts of corporate governance and contingency theory, these are also discussed. Furthermore, as this study will be using Indonesian companies as samples, corporate governance in the Indonesian setting is also presented. Hence, this chapter is organized as follows. Following the introduction in Sects. 2.1 and 2.2 discusses the basic concept of corporate governance, followed by its principles and mechanisms in Sect. 2.3. While Sect. 2.4 presents literature reviews with regards to the concept of contingency theory; the determinants of corporate governance which include the explanations about the relationship between corporate governance and business environment and business strategy are discussed in Sect. 2.5. The effectiveness of corporate governance in improving performance and earnings quality is presented in Sect. 2.6. The next section, which is Sect. 2.7 elaborates on corporate governance measures. As this study will be employing Indonesian data, corporate governance in the Indonesian setting is presented in Sect. 2.8. Section 2.9 presents the literature gaps and the chapter closes with the summary in Sect. 2.10. © Springer International Publishing Switzerland 2015.
Brawijaya University, Malang, Indonesia; VISES, College of Business, Victoria University, Melbourne, Australia
