THE INFLUENCING OF RISK FACTORS, MANAGEMENT ENTRENCHMENT, AND CORPORATE GOVERNANCE QUALITY ON EQUITY RISK PREMIUM

Saiful, Saiful and Aminiar, Trevia (2014) THE INFLUENCING OF RISK FACTORS, MANAGEMENT ENTRENCHMENT, AND CORPORATE GOVERNANCE QUALITY ON EQUITY RISK PREMIUM. In: Asia Emerging Economy Toward Global Economic Integration, 18-20 Oktober 2012, Palembang.

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Abstract

The purpose of this study is to examine the influencing of firm size, leverage, beta, management entrenchment, managerial ownership, and independent board on equity risk premium of indonesia public listed companies. The 70 companies were selected randomly as the samples of this study. This research found that beta, management entrenchment, managerial ownership, and independent board is positively and significantly impact on equity risk premium, while the firm size and leverage are negatively and significantly affect equity risk premium. These results indicate that the higher the ability of management to maintain their position (management entrenchment), the higher investment risk, so investors will tend to expect a higher return as well. The result also indicates that small firm more risky than large firms so that investors expect the equity risk premium is greater for small firms. Meanwhile an independent board to indicate that number of proportion of independent board at the company will lead to difficult decisions and unable to play the role to oversee the management, so the company’s risk will be increase.

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