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Analysis of Good Corporate Governance, Corporate Social Responsibility and Net Profit Margin on Corporate Value in Banking Sector via Regression Tree Algorithm
Last modified: 2024-07-16
Abstract
This paper presented a novel methodology to investigate the impact of Good Corporate Governance (GCG), Corporate Social Responsibility (CSR), and Net Profit Margin (NPM) on Tobin’s Q, within the Indonesian banking sector by leveraging the Regression Tree (RT) algorithm and Multivariate Linear Regression Analysis. The RT algorithm is an algorithm that divides data based on the similarity of the samples. in this way, it is possible to reduce the non-linearity that is present inside the dataset, which renders linear regression to be ineffective. The methodology was validated on a dataset consisting of 435 samples from 29 Indonesian banks collected between 2008 and 2022. Based on the numerical simulation, it was concluded that GCG is the most influential factor in predicting Tobin’s Q, followed by NPM and CSR. The analysis showed that GCG positively correlates with Tobin’s Q, with the RT algorithm showing that a corporation with GCG > 0.71 has Tobin’s Q > 2. Furthermore, it was found also that CSR exhibits a negative correlation against Tobin’s Q. Interestingly, the negative impact of CSR diminishes for firms with higher profitability as indicated by NPM. These findings suggest that Indonesian investors prioritize strong governance practices and profitability over CSR initiatives.
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