Proceeding International Conference On Governance 2014

PROCEEDING
2014
International
Conference
on Governance
Hotel Sari Pan Pacific, Jakarta, Indonesia
13th-15th February, 2014
FACULTY OF ECONOMICS
TRISAKTI UNIVERSITY
JAKARTA
All Rights Reserved. No part of this publications may be
produced, translated, stored in retrieval system, or transmitted in
any form or by any means, electronic, mechanical, photocopying,
recording or otherwise, without the prior permission of Trisakti
University, Jakarta
Tittle of book : Proceeding 2014 International Conference

on Governance
Editor : Scientific Committee
Published by : Faculty of Economics, Trisakti University,
Jakarta
Printed : February, 2014
ISBN : 978-979-3634-24-1
ii 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

CONTENTS
Foreword by the Rector........................................................................................................... v

Foreword by the Dean............................................................................................................. vii
Foreword by Conference Chair................................................................................................ ix
CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT

Demographic Factors, Corporate Social Responsibility, Employee Engagement And
Corporate Reputation In Hotel Industry........................................................................ 3
Corporate Social Responsibility and Value Added Intellectual Capital.................................... 17
Accounting Information System and Intellectual Capital Support Sustainable
Development of Management...................................................................................... 29
The Existence of Corporate Social Responsibility as a Moderating Variable The Effect
of Firm Size and Prior Year Going Concern Audit Opinion on The Probability of
Receiving Going Concern Audit Opinion....................................................................... 41
The Influence of Capability on Performance Organizational with Feedback Control
and Feed-forward as Variable Antecedents.................................................................. 59
Probe Effect Level of Education, Knowledge Management, Motivation and Capabilities
on Managerial Performance at the Logistic Industry in Banten Province, Indonesia.... 75
CORPORATE GOVERNANCE AND FIRM PERFORMANCE

Corporate Governance-Driven toward Value Creation Efficiency and Sustainable
Performance (An Empirical Study in Indonesian Banking Industry).............................. 89
Corporate Governance of Intellectual Capital to Maximising Shareholder Value................... 109
Corporate Governance and Bank Efficiency: The Case of Indonesia....................................... 119
Effect of Corporate Governance on Performance Mediated Working Capital Company,
Empirical Study on Company the LQ-45 index Indonesia Stock Exchange Listing
Period 2007-2011.......................................................................................................... 135
Analysis on Corporate Governance Influences Toward Banking Efficiency with
Bank Category as Moderator Variable.......................................................................... 163
SOCIAL AND ENVIRONMENT ACCOUNTING AND REPORTING-2

Factors Influencing Students’ Ecological Behavior Intention in Surabaya............................... 181
Environment Management System (EMS) Implementation In A Malaysian Local
Government: Isomorphism Perspective........................................................................ 195
The Relationship Between Capital Structure and Size Of The Firms In Indonesia................... 215
The Factors Affecting Profit Distribution: An Empirical Study On Islamic Banking.................. 233
Corporate Governance Code and Development in Indonesia - An Updatte............................ 243
Using Manipulative and Deceptive Devices in the Malaysian Capital Markets:
A Legal Analysis............................................................................................................. 259
Looking at the Motivations of an Australian Retail Industry in Engaging Extended Social
and Environmental Performance Reporting: “A Study on Supply Side Perspective”..... 313
Internet Reporting Quality As Variable That Moderate The Corporate Social Responsibility
Disclosure On Corporate Governance Practice In Indonesia........................................ 339
2014 INTERNATIONAL CONFERENCE ON GOVERNANCE iii

CORPORATE GOVERNANCE AND FINANCIAL REPORTING-1
Corporate Governance: A Study of Factors Influencing Managers’ Decision Making for
Voluntary Disclosure for Transparency in Corporate Reporting.................................... 387
Simultaneous Relationship Analysis between Financial Reporting Quality and
Corporate Governance.................................................................................................. 405
The Effect of Corporate Governance Mechanism on Earnings Management Practice
(Case Study On Indonesia Manufacturing Industry)..................................................... 421
The Effects of IFRS Convergence and Corporate Governance on Earnings Quality:
Evidence from an Emerging Market ............................................................................. 453
ISSUES IN PUBLIC SECTOR GOVERNANCE

Satisfaction on Municipal Services: A voice of MPSPK’s Residents......................................... 455
Customer Satisfaction On Local Affairs Among Community Leaders And Resident
Associations In Sungai Petani Local Authority............................................................... 463
How Can Governance of Marine Protected Areas (Mpas) Support Sustainable
Development of Fisheries in South Mediterranean...................................................... 473
Influence of Training and Clarity of Goal in the Use of Regional Financial Information
System on Individual Performance................................................................................ 487
Bridging Civil Society in Electronic Government Participation................................................ 499
CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND SUSTAINABILITY REPORTING-2

Sustainability Disclosure on Malaysian Hotel Websites.......................................................... 513
Integration of Balanced Scorecard, ISO 26000, United Nation Global Compact And Global
Reporting Initiatives: Building an Integrated Measurement Standard for
Measuring Sustainability Performance......................................................................... 529
Content Analysis Method: A Proposed Guideline For Quantitative And Qualitative
Disclosures.................................................................................................................... 545
Corporate Social Disclosures in Annual Reports: A Preliminary Study in Southeast Asia........ 561
The Quality of Stakeholder Engagement Disclosures in Sustainability Reports:
A Preliminary Study from Indonesia............................................................................. 579
SMALL-MEDIUM ENTERPRISES AND PUBLIC SECTOR REPORTING AND GOVERNANCE

Analysis Effect of Members, Scale Cooperative and Total Liabilities Request for
External Audit and Implications on Financial Performance of Cooperation
in East Java Indonesia.................................................................................................... 603
Understanding Financial Reporting Standards of Cooperative And Msmes:
Phenomenological Approachin Wedoro Indonesia ...................................................... 611
The Evaluation of Internal Control And Good Governance on Effectiveness Level on
Islamic Pawning Services Case Study Pegadaian Syariah Kramat Raya......................... 629
Unqualified Opinion Within Governance Framework: Compliance Statement of Budget
Realization (LRA) with Government Accounting Standard Statement (PSAP) No.2
(A Study At Local Government of West Nusa Tenggara)............................................... 643
Analysis of Gap Between Small Medium Enterprise Tax Collection Model And Small
Medium Enterprise Taxpayer Condition (Survey of Small Medium Enterprise
Taxpayer In Bandung, West Java, Indonesia)................................................................. 657
iv 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

CORPORATE SOCIAL RESPONSIBILITY, CORPORATE GOVERNANCE AND FIRM PERFORMANCE
Corporate Sustainability : The Important Role of Good Corporate Governance &
Corporate Social Responsibility for Firm Financial Performance.................................. 675
The Effect of Sustainability Reporting And Corporate Governance Mechanism on
Company Performance: Evidence in Indonesia............................................................. 695
Analysis Influence of Corporate Social Responsibility Disclosure and Corporate
Governance of The Company Performance As Well As The Implications for
the Value Companies of Publicly Traded In Indonesia.................................................. 709
The Association between Corporate Social Responsibility and Corporate Financial
Performance . ............................................................................................................... 725
Performance And Its Implication On Company Value (Study On Listed Manufacture At
Indonesia Stock Exchange/Idx) For 2004 -2009)........................................................... 745
CORPORATE GOVERNANCE AND FINANCIAL REPORTING-2

The Effect of Corporate Governance Mechanism and Audit Quality on Information
Asymmetry (Study on Property and Real Estate Industry Listed in the Indonesian
Stock Exchange In 2009-2011)...................................................................................... 767
Behavior, Management Decision And Financial Statement Fraud........................................... 787
The Impact of Audit Rotation Regulation on Audit Quality..................................................... 801
The Effect of Expensing Incentive Compensations on the Role of Compensation Gaps in
Earnings Management Activities................................................................................... 821
When Accountability of Humanitarian Fund Management is Questioned in the Disclosure
of Realization that Distributed...................................................................................... 835
ISSUES IN PUBLIC SECTOR AND UNIVERSITY GOVERNANCE

Introducing the Urban Metabolism Approach for a Sustainable City: A Case of Jakarta,
Indonesia....................................................................................................................... 859
Governance for Public-Private Partnerships: Are the Issues in Developed and
Developing Countries Different?................................................................................... 871
The Study of Economic Potencies and Management Direction of Coastal Areas at
Outermost Inhabited Small Island in Bengkulu Province.............................................. 891
A Quest for University Governance: An Institutional Approach within Indonesian Legal
Framework ................................................................................................................... 905
Factors that Influence the Performance of Accountant Educators.......................................... 923
TAX ISSUES
Modernization of the Tax Administration System of Indonesia: Contribution of
Account Representatives to Tax Compliance Improvement Agenda............................. 939
Analysis of Permanent Establishment Tax Policy As an Aspect of International Taxation
Under The Law of Income Tax....................................................................................... 955
The Influence of the Tax Audit and Simplification of the Tax Return to Tax Planning
and Tax Compliance of Tax Payer in Jakarta.................................................................. 975
2014 INTERNATIONAL CONFERENCE ON GOVERNANCE v

vi 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE
Foreword by the Rector
Trisakti University, Jakarta, Indonesia
Praise be to the Almighty Allah SWT for granting us the opportunity to organize 2014
International Conference on Governance. I would like to welcoming all our guests to this
conference.We are pleased to have you here, my warm regards and honor particularly to :
1. The DKI Jakarta Provincial Governor.
2. The representatives from reputable companies and institutions
3. The representatives from Universities
4. The Dean of Trisakti Universities, and
5. All the distinguished guests
Thank you for your attendance and participation on ICG-2014
This conference’s theme: “DO GOVERNANCE IMPLEMENTATION SUPPORT SUSTAIN-
ABLE DEVELOPMENT?”, presents us with a strong line of thought. I am sure you have taken
a great deal of time to brainstorm on the theme and attempt to seek the conclusion. It is
expected, thus, that the discussions could conclude to some extent that possibly adopt
at policy level, both national and international stage.
It’s good to be here and have the opportunity to talk about sustainability and gov-
ernance in different countries so we can learn each other. Taking the positive that could
be applied in our situation and not to be prejudice to others as we also have different
background. Respect and highly mutual understanding is what I’m expecting in bringing
a scholar spirit to this forum.
We are all here because of the desires, dreams and aspirations, as well as putting
the same voice to support sustainable development by applying good governance. This
should not only for companies, but also for institutions, including universities. However,
before we move forward, I would like to ask whether we, as academicians have done
something in order to support the sustainable development? Where should be our role
to balancing the world with socio-economic-and environmental development? Please
take these two questions for us and putting your ideas into publications. Perhaps, this is
an idea to show our role.
Back to this international conference, I would like to congratulate the committee and
all scholars who are involved in this event. I hope that this conference will be a memo-
rable, highly educational, and “not-to-be-missed” event.
Thank you very much for coming and for your attention. I pray to Allah SWT to guide
us all in our work for the betterment of our life.
Sincerely,
Prof. Dr. Thoby Mutis

Rector, Trisakti University Jakarta Indonesia
2014 INTERNATIONAL CONFERENCE ON GOVERNANCE vii

viii 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE
Foreword by the Dean
Faculty of Economics, Trisakti University
Jakarta, Indonesia
Praise be to Allah SWT, the Most Beneficent, the Most Merciful for His divine bounty
to organize 2014 International Conference on Governance “DO GOVERNANCE IMPLE-
MENTATION SUPPORT SUSTAINABLE DEVELOPMENT?”.
Welcome to 2014 International Conference on Governance, especially to:
1. The representatives of the Financial Services Authority / Otoritas Jasa Keuangan
(OJK) – Indonesia.
2. All the distinguished guest, sponsors, and participant.
Faculty of Economics Trisakti University is pleased and feels honoured to be the

host of this conference. It is therefore a great pleasure to welcome all of you, speakers,
presenters and participants who come from near and far to this auspicious conference.
Welcome to Jakarta!
This is the second ICG conference held by the Accounting Department Faculty of
Economics Trisakti University Jakarta, after the first on 2008. Within five years, Gover-
nance implementations and Sustainable development issues have developed rapidly all
over the world including in Asian countries. And they are nowadays becoming important
topics of discussions. 2014 International Conference on Governance is dedicated to the
advancement of knowledge and practice of governance implementations and sustainable
development. It provides a platform of interaction between governance implementa-
tions and sustainable development and their social, economic, institutional and political
environments.
This Conference aims at sharing and discussing on the above issues, both on theo-
retical and practice on international stage. As concrete management methods, we pick
up governance, sustainability, and social and environmental accounting, and explore
their feasibility from multifaceted perspectives. After the presentation of studies, we
expect there are stronger awareness among academia and professional to enhance our
expertises to support the practice of governance in implementing sustainability in a more
comprehensive context.
As this conference is one of few international conferences conducted in Indonesia, in
terms of university with international standard, it is always a learning process to achieve
good quality of discussions and research papers. I do hope that everyone will benefit
from this conference and will bring new perspective in Governance and Sustainability.
On behalf of Faculty of Economics Trisakti University, I would like to take this oppor-
tunity to thank the organizing committees, all sponsors and supporting partners as well
as individuals who have been dedicated to ensure the success of this conference.
2014 INTERNATIONAL CONFERENCE ON GOVERNANCE ix

I pray to Allah SWT to bless the conference with His Mercy and Bounties. I wish you
all the best and hope your presence in Jakarta would be a memorable one.
Thank you and Wassalam
Dr. Bambang Soedaryono, MBA

Dean
Faculty of Economics Trisakti University
x 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

Foreword by Conference Chair
Faculty of Economics, Trisakti University
Jakarta, Indonesia
Dear Conference Delegates,
As Chairman and on behalf of the organizing and scientific committees, I am delighted

to welcome delegates from Australia, Algeria, Netherlands, Japan, China, UK, Malaysia,
Taiwan, New Zealand and of course, from different cities in Indonesia. Welcome to the
second international conference on Governance, with shaping the topic of ‘Do Gover-
nance Implementations Support Sustainable development?’.
This existing forum is entirely dedicated to recent developments in sustainability
and governance issues globally. The international journals of accounting have noted that
these two topics are greatly developed during the last 3 years, especially in developing
countries. Issues around sustainable supply chain, social environmental accounting and
reporting, as well as good corporate and university governance have been ready to be
discussed in this forum.
The Jakarta Province Government is supporting this conference. It is greatly appre-
ciated to think that the Government is concern during this hard situation that refer to
many agendas for them to be done soon, for example in managing environmental and
infrastructure in Jakarta due to flood recently.
The publication speeds for several journals that support this conference, including
Emerald and EBCSO Publishings. Thus, I would like to encourage all the authors to select
which journal is the most appropriate for them to publish. Of course, publication in in-
ternational journals needs serious efforts and thus, there are processes that should be
followed. There is no such thing of instant of international publications because this is a
learning process that we have to learn together.
Please allow me to share my notes about receiving of total 85 papers from Malaysia,
Netherlands, Australia, New Zealand, Algeria, UK, Japan, and of course, from Indonesia,
with various topics and knowledge background. From these total papers, we are gladly
to accept 60 papers to be presented during the conference.
First, the academic English writing that really needs to be improved in major cases.
We received lots of comments from the reviewers who did not really understand the
meaning of paper, due to lacking of English expression. Second, we need to pay attention
to the topics selected in writing interesting paper to be published. Most of the papers are
reflecting very general discussion without come to something ‘new’. Thus, the papers are
not really contributing to the research area. Third, being ‘on time’ in submitting papers
in international conference or other publications are very important to be self-trained
disciplinary. I understand that we are abundant with many works, but again, researchers’
behavior should be put forward.
I am delighted to say that this is in no small part due to the hard work of the editorial
board and reviewers, in not only refereeing the papers submitted but raising the standard
of the quality of papers that we receive. I ask that we do not stop here but carry on with
2014 INTERNATIONAL CONFERENCE ON GOVERNANCE xi

this work and further improve the papers published, and hence I encourage all of you to
participate in coaching session that will closely discuss about international publications.
As such, to all of the scientific committees, I give my personal thanks and congratulations,
while also at the same time, we are grateful to the authors for their enthusiasm and fol-
lowing the evaluation process.
This conference committee has put together a truly unique program that addresses
the opportunities for scholars in really understand the ambiance of international con-
ference, especially in meeting the standard of international publications. A series of
plenary presentations will be presented by internationally renowned experts and will be
accompanied by breakout sessions of oral presentations, as well as a special coaching
session. Thus, we expect that all these activities will bring lots of benefits, not only for
the participants, but also for us as organizers.
This conference is the foremost platform for sharing and discussing our own research
with key opinion experts across the countries. Bringing the same ideas to provide insights
of knowledge, as well as enlarging networks are the opportunities that we can experience
through this event. Thus, enjoy every single moment being around with all participants.
Finally, I would like to thank all sponsors, committee members and also all of you who
have allocated your time to be here, in Jakarta. I also apologize for any inconvenient that
you may have during this event.
I hope this conference will prove to be an inspiring and truly transformative experi-
ence for you.
Conference Chair
Deni Darmawati, CA, M.Si
xii 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

CORPORATE SOCIAL RESPONSIBILITY AND
SUSTAINABLE DEVELOPMENT
2 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE
Demographic Factors, Corporate Social Responsibility,
Employee Engagement And Corporate Reputation
In Hotel Industry
Zico Dian Paja Putra

zico.putra@gmail.com
Trisakti University, Jakarta
JuniatiGunawan
yuni_gnw@hotmail.com
Trisakti University, Jakarta
ABSTRACT
Hotel as a hospitality industry should manage its reputation as a valuable asset for the business continuity.
The hotel’s reputation isbuilt up bythe employee’s perceptions of treatment, sense of belonging and sense
of engagement of the hotel.
The purpose of this study is to analyze employee’s perceptions of CSR activities, Employee Engagement
and Corporate Reputation that has been undertaken by the hotelindustry in Jakarta and how demographic
factors influence these perceptions. The Structure Equation Model (SEM) was implemented to find each of
these variable influences. Samples were taken from hotel employees who work in five-star hotels in Jakarta
with 221 respondents(response rate 78.9%). The results have indicated that CSR activities significantly
influence employee engagement and corporate reputation; and at the same time, employee engagement
significantly influences corporate reputation.
Keywords: Demographic Factors, Corporate Social Responsibility, Employee Engagement, Corporate Repu-
tation.
Introduction
Data of Jakarta’s Culture & Tourism Division (2011) have shown that there were 108
hotels of the hospitality industry in Jakarta.So it is not surprising that the hotel industry
ranks as the second largest contributor to economic growth in Jakarta under the manu-
facturing industry (Central Statistical Agency of Jakarta, 2011).
Hotel has an important role in the business world. This is because hotels provide social
and economic benefits due its activities; it creates jobs (Grasbois, 2012). Nevertheless, a
hotel also has an unfavorable impact on the natural, social and economic environment as
contributing to climate change, air and water pollution, as well as other socio-economic
issues (Grasbois, 2012).
Therefore the hospitality industry should be able to cope with such problems as part of
its business ethics. One way to reduce the negative impact of the hospitality business activ-
ity is to conduct activities related to social responsibility (corporate social responsibility).
In the development of the hospitality industry, they are required to conduct their
activities in an ethical manner to boost their reputations (Jung et al, 2010). Research
conducted by Jung et al (2010) revealed that the hotel manager, who works ethically,
would make more proactive decisions. So the influence of managers and employees in
CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT 3

particular are generally very influential on the hotel’s reputation.
Karani (2011) stated that in addition to enhancing the reputation, CSR activities can
also affect patterns of work and a sense of ownership to the employees of the hotel
where they work; sothey become more productive. Sense of belonging, ownership and
building the company’s reputation, are not separated from the perception of the workers
themselves. Perception that arises is influenced by demographic factors.
Formulation of Problem
This study aims to answer the following questions:
(1) How do good demographic factors significantly influence CSR, Corporate Reputation
& Employee Engagement, in terms of age, job title / position, division, education, and
years of work?
(2) Is CSR a significant influence on Corporate Reputation?
(3) Is CSR a significant influence on employee engagement?
(4) Is Employee Engagement a significant influence on Corporate Reputation?
Review of Theory
Corporate Social Responsibility Theory
CSR is the continuing commitment by business to act ethically and contribute to eco-
nomic development of the local community or society at large, along with an increase in
the living standards of workers and their entire family (Kotler and Lee, 2005).
The International Finance Corporation (Kotler& Lee, 2005), has defined CSR as:
“The commitment of business to contribute to sustainable economic development
working with employers and their representatives the local community and large to
improve quality of life, in that are both good for business and good foe development.”
Stakeholder Theory
Stakeholder, an entity that can be affected by the results of that in which they are
said to be stakeholders, i.e., that in which they have a stake.Stakeholder theory, a theory
that identifies and models the groups which are stakeholders of a corporation or project.
Stakeholder policy means as a collection policies and practices relating to the stakeholders,
values, compliance with legal requirements, respect the community and the environment,
as well as commitment to the corporate world to contribute to sustainable development
(Freeman et al, 2002).
The survival of the company depends on the support of stakeholders and the support
should be sought so that the activity of the company is to seek the support; social disclo-
sure is considered as part of the dialogue between the company and stakeholders (Gray
et al, 1995). The company is not only an operating entity for its own sake, for the support
of stakeholders; companies must provide benefits to the stakeholders (Gray et al, 1995).
Corporate Reputation Theory

According to Fomburm (1996), the theory initiates the reputation of corporate iden-
tity as the first point that is reflected through the company’s name and other views; for
example from annual reports, brochures, product packaging, office interiors, employee

uniforms, advertising, media, written materials and audio-visual.
Fombrun (1996) defines corporate reputation:

“ Is a perceptual representation company’s past action and future prospects that
describe the firm’s overall appeal to all of its key constituents when compares with
other leading rivals.”
According to Formburm (1996), there are four sides of a reputable company that
need to be addressed: credibility (credibility in the eyes of investors), trustworthiness
(trustworthy in the eyes of employees), reliability (reliable in the eyes of consumers), and
responsibility (responsibility in the eyes of community).
Diagram 1. Interaction of Corporate Reputation
Credibility Reliability
Trustworthiness Responsibility
Source:Formburm (1996)
Reputation differs from image because it is built for a long period and not just a per-
ception at any given time. Reputation is different from the identity because reputation
is a product of the company’s internal constituents. A strong reputation has strategic
implications for a company, as written by Fomburm (1996).
Employee Engagement Theory

Employee engagement has been used extensively and has become a popular term
(Saks, 2006). Even so, Saks (2006) also stated that there is still a bit of academic and
empirical research on the topic which has become so popular. Saks (2006) revealed that
employee engagement is the emotional connection and high intellectual owned by the
employee towards his job, organization, manager, or co-worker who affects to increase
discretionary effort on the job.
Employee engagement in the academic literature has been defined as a unique and
distinct constructs containing components of cognitive, emotional, and behavior related
to individual performance. Furthermore, engagement can be distinguished from several
related constructs, such as organizational commitment, organizational citizenship behavior,
and job involvement (Saks, 2006).

Perception Theory
Perception is the process of organizing and interpreting patterns of stimuli in the
environment. The study of perception is related to the study of cognitive processes, such
as memory and thinking (Atkinson, 1997). According to Kurt W. Back, perception is like
what we see;it is the concept that people have about themselves and others or other
(Back, 1977).
Demographic Factors With CSR, Corporate Reputation And Employee Engagement
Age, gender, education, and years of workhavesignificant impacts on organizational
commitment (Akintayo and Abu, 2006). Research conducted by Ali et al (2010b) showed
that there is a significant relationship between the organizational commitment and job
satisfaction with CSR. Dan (2010) reported that job satisfaction has positive effect of CSR
and employee engagement.
Age
Research conducted by Akintayo (2003) reported that the turn over intention have a
negative correlation with age. Ali et al (2010b) revealed that there is a significant correla-
tion between organizational commitment to CSR and the desire of turnover.
Title / Position
Based on the results of the study conducted by Akintayo and Abu (2006), the per-
ception of employees on job satisfaction is influenced by the position/positions. Title/
position also affects the feel of the company’s employee engagement (Alfermann, 2011).
Division
In the hospitality industry, the food & beverage division has a crucial function in con-
ducting its operations and has very high ethical standards. If they’re violated, it willaffect
the declining occupancy rates and the reputation of being a bad hotelin addition to the
direct impact on the health of customers (Jung et al, 2010).
Education
The level of education has a significant impact on organizational commitment (Akintayo
and Abu, 2006). Akintayo and Abu (2006) stated that graduated workers have a higher
commitment to the organization than workers having graduated from post-secondary
education.
Years of Work
Research conducted by Akintayo(2003) reported that turnover have a negative cor-
relation with organizational commitment. Based on Akintayo (2003), potential causes of
this situation are age, length of work, career satisfaction and desire to turnover.
CSR and Corporate Reputation

Hoffman (2011) assumed that the company requires recognition and social accep-
tance for the long-term viability (business) with emphasis on the emotional aspects of

reputation building. According to Hoffman (2011), a simple scheme tends to intensify the
perception of higher emotional reactions. On the other hand according to Hoffman (2011),
“secondary positive affective reactions” is a response to events which may be unexpected.
CSR and Employee Engagement

Ma (2011) concluded, if companies execute CSR initiatives based on the values of the
company, the company has the power to improve the employee recruitment, satisfac-
tion and retention. The Massachusetts Business Roundtable (MBR) (2009) supports this
idea by saying that the value’s of CSR activity of the company can become part of the
employee value proposition.
Employee Engagement and Corporate Reputation

The role of employees is essential in the creation and maintenance of the company’s
reputation (Cravens and Oliver, 2006). Cravens and Oliver (2006) through the model,
indicate that the identity of the company is a starting point in the creation of two things:
the company’s image and reputation of the company. Corporate identity consists of goals,
values, strategy, and organizational culture (Cravens and Oliver, 2006). Through communi-
cations toboth internal and external stakeholders, the company can create a reputation.
Framework of Thinking
Diagram 2.
Relationship between Demographic Factors, CSR,
Corporate Reputation and Employee Engagement Framework
Corporate Social
Responsibility(Economic,
Legal, Ethic & Discretionary)
DemographicFactor
H2
H1a : Age
Corporate
H1b : Job Title/Position H3 Reputation
H1c : Division
H
H1d : Education 1 H4
H1e : Years of Work Employee
Engagement(Engagement,
Org. Effectiveness, Pay
Equity, Role Clarity, Growth &
Development)
Research Hypothesis
H1: Demographic factors significantly influence CSR, Corporate Reputation and Employee
Engagement.
H1a: Age significantly influence on CSR, Corporate Reputation and Employee En-

gagement.
H1b: Job title / position significantly influence CSR, Corporate Reputation and Em-
ployee Engagement
H1c: Division significantly influences CSR, Corporate Reputation and Employee
Engagement.
H1d: Education significantly influences CSR, Corporate Reputation and Employee
Engagement.
H1e: Years of work significantly influence CSR, Corporate Reputation and Employee
Engagement.
H2: CSR significantly influence on Corporate Reputation.
H3: CSR significantly influence on Employee Engagement.
H4: Employee Engagement significantly influence on Corporate Reputation.
Research Methodology
This research uses the exploratory quantitative method, using surveys and test hy-
potheses. The development of a questionnaire refers to the various studies that have
been conducted before. For the development of the questionnaire, the CSR variables of
Maigen& Farrell (2001) were adopted with the item statements consisting of four dimen-
sions of CSR (Economic, Legal, Ethics and Philanthropy). The variables of the Corporate
Reputation questionnaire development were adopted from Helm (2007). The variables
of the employee engagement questionnaire development were adopted from Alfermann
(2011).
Determination and Data Collection Methods

This study uses primary data by purposive random sampling and the sample is 5 star
hotels which is located in Jakarta. In total, there are 26 5-star hotels in Jakarta (Depart-
ment of Culture and Tourism Establishments, 2011). By using theSlovin formula (E value
of 20%), at least 13 hotels had been used as samples.
With a population of 12 676 people, the number of samples can be determined by
using the Slovin formula, as follows:
Slovin N total 12.676
n= = 99,2 = 100
Formula: N (e)2 + 1 12.676 (0,1)2 + 1
E = 10 % = 0,1
N total = 12.676
n = 100
Based on the number of respondents who have been determined with the non-proba-
bility random sampling techniques, the sampling techniques allotment (quoted sampling)
had been used and each hotel had been given up to 20 questionnaires and a total of 280
questionnairs were given out.A totalof 221 out of 280 questionnaires were returned and
were able to be used in this study, so that response rateof the study was 78.9 %.
Methods of Data Analysis

ANOVA
The ANOVA procedure of data processing is performed to test for differences in the
mean values between two or more groups. The value of average difference being tested
can be caused by the independent variable.

Conformity Test
Thedata analysis method used in this research is the Structural Equation Model (SEM)
using LISREL software version 8:54.
Result and Discussion

Structural Equation Modeling (SEM)
Based on the output of the SEM analysis (LISREL series 8:54), here are the overall
values obtained by testing the model:
Table 1. Goodness of fit models
Kinds of Mea-
Measurement Result Standard Value Conclusion
surement
Chi-square 148,62
p-value > 0,05 - 0,1 Goodness of fit
p-value 0,14
Absolute Fit
GFI 0,93 > 0,9 close to 1 Goodness of fit
Measures
RMR 0,020 < 0,05 Goodness of fit
RMSEA 0,025 < 0,08 - 0,1 Goodness of fit
AGFI 0,9 > 0,9 close to 1 Goodness of fit
NNFI/TLI 1,00 > 0,9 close to 1 Goodness of fit
Incremental Fit NFI 0,98 > 0,9 close to1 Goodness of fit
Measures CFI 1,00 > 0,9 close to 1 Goodness of fit
RFI 0,97 > 0,9 close to 1 Goodness of fit
IFI 1,00 > 0,9 close to1 Goodness of fit
Parsimonious Normed Chi-square Lower level : 3

3,866 Goodness of fit
Fit Measures (CMIN/DF) Upper level : 5
Source : LISREL result

Table 2. Hypothesis 2 Test Results
Demographic Fac- P-value stan- P-value Conclusion
Variable
tor dard result
CSR 0.852 Not significant
Age CR < 0,05 0.103 Not significant
EE 0.029 Significant
CSR 0.019 Significant
Job title / Position CR < 0,05 0.003 Significant
EE 0.27 Not significant
Division CR < 0,05 0.03 Significant
Education CR < 0,05 0.492 Not significant
Years of Work CR < 0,05 0.49 Not significant
EE 0.01 Significant

Hypothesis Testing
After using the ANOVA for demographic factors, the results of the calculation of p-
value of each demographic factor can be seen in the table below:
Table 2. Hypothesis
Table 2. Hypothesis 22 Test
Test Results
Results
Demographic Factor Variable P-value standard P-value result Conclusion

Age CR < 0,05 0.103 Not significant
EE 0.029 Significant
Job title / Position CR < 0,05 0.003 Significant
Division CR < 0,05 0.03 Significant
Education CR < 0,05 0.492 Not significant
Years of Work CR < 0,05 0.49 Not significant
EE 0.01 Significant
Hypothesis 1
Hypothesis 1
a. H1a: Age only had a significant influence on employee engagement.
b. H1b: Title / Position had a significant influence on CSR and corporate reputation.
c. H1c: Division only has a significant influence on corporate reputation.
d. H1d: Education has a significant influence on CSR.
e. H1e: Years of work only has a significant influence on employee engagement.
Hypothesis 2
Independent Dependent T-Hitung T-Tabel Loading Con
CSR CR 4,40 1,96 0,59 Significant
H2: CSR significantly influence on Corporate Reputation.
Hypothesis 3
CSR EE 6,40 1,96 0,43 Significant
H3: CSR significantly influence on Employee Engagement.
Hypothesis 4
EE CR 4,14 1,96 0,46 Significant
H4: Employee engagement significantly influence on Corporate Reputation.

Analysis and Discussion
Demographic Factors With CSR, Corporate Reputation And Employee Engagement
Age (H1a)
Thedemographic results indicate that employees who are tied to their job are over
40 years old. It is associated with cognitive and emotional components of own employ-
ees perception who had been working in the hospitality industry for a long time. Some
respondents said that for those who are older than 40 years, they no longer desire to
get out of the hotel inwhich they work and they just want to stay put until retirement.
Different results are shown for those between the ages of 18-28. The younger one-
sare lesscommitted due to the long working period at the hotel.So they don’tsense the
cognitive and emotional commitment to the hotel. Less committed can also come from
job enrichment and task accuracy (role fit) that have a positive predictor for meaningful-
ness that is not perceived by young who have less experience.
Job title / Position (H1b)

The results of Jung et al research (2010) says that the ethical manager will make more
proactive decisions and enhance the reputation of the hotel. This corresponds to a posi-
tion of a manager as the mediator between the company with the employees and the
community. Thus, it can be explicitly seen that the manager has an important role in the
implementation of the hotel’s CSR. Themanager is the one who knows and understands
the needs of the day-to-day operations; especially for employees
For the concept of CSR, it is inevitable that the senior manager must be able to de-
fine the long term strategies while the managers are the executorsof the concept. As for
thereputation, to compete in hospitality industry, a senior manager should be maintained
the reputation of the hotel.
Division (H1c)
The results of research conducted by Karani (2011) showed that CSR influences the
desire of employees to work in a hotel which has a good reputation. A good reputation
comes from good employeeswho have gone through a good recruitment system.
Each division has a function with different goals in the hotel. The results showed that
the divisionswhich have a significant effect on the reputation of the company are HR &
GA. It is based on the function of HR itself as part of the employee recruitment process.
So usually the appearances of recruiters (HR) will be the initial reflection of the impres-
sion which is owned by the hotel itself. If good HR personnel appear to be neat, polite,
friendly and qualified, the same will also reflect on the employees of the hotel.
Education (H1d)
The level of education has a significant impact on organizational commitment (Akin-
tayo& Abu, 2006). The results of these studies indicate that workers who have a bachelor’s
degree have higher commitment to the organization compared to their peers who don’t
have it. For the category of education, it is almost the same as the category of office /
position; a manager has usually a minimum education level equivalent to a bachelor’s
degree. This is because the manager is not only required to just run the operations of the
hotel, but it’s also required to teach ethics for its employees.

Business ethics stresses that managers and corporations are responsible for imple-
menting ethical principles in their organization and they use moral bases in making deci-
sions, policies and strategies, and dealing with other general issues of the company. In
the context of CSR, managers act as moral actors and are responsible for the conduct of
responsibility (discretion) on their existing management in all aspects of social responsi-
bility to produce results that are socially responsible.
Years of work
Similar to the demographic factors of age, it has been noticed that employee engage-
ment is affected by how long the employee worked at the hotel. Long work affects em-
ployee’s perceptions of the hotel where they work. How do they treat their employees,
can be determine the employees sustainability commitment to the hotel where they work.
Akintayo (2003) reported that the desire of the employee turnover have a negative
correlation with organizational commitment. So it can be said that the larger the organiza-
tion’s commitment to the welfare of employees, the desire to turnover becomes lower.
Thepotential causes are age, length of work and career satisfaction.
CSR with Corporate Reputation (H2)

For hotels, reputation is very important and crucial for their survival in the competitive
business world. The results of the study conducted by Inoue & Lee (2012) showed that
CSR can help build and strengthen the company’s reputation when consumers perceive
the company as an ethical company. Maintaining a good reputation is very important for
any hotel because bad reputation is likely to have an impact on undesirable matters such
as the decline of occupancy rates or the lack of customer wanting to come back to the
hotels (Inoue & Lee, 2012).
Besides consumers, the good reputation of the company can also affect the perception
of workers. A key feature in this connection is how organizational culture affects employee
perceptions of corporate image. Once the identity and image of the company are formed,
the second thing is to deal with matters that can affect a company’s reputation.
Employees are important stakeholders for the company. So whether or not the
company’s reputation depends also on the employees’ perception of the organization/
company as mentioned, CSR can be considered as a medium for the cause or can form
the corporate culture.
CSR with Employee Engagement

Employee engagement with the company is one of the factors that can increase
employee’s loyalty and productivity. In improving employee engagement, CSR could be
one of the tools to achieve this goal. CSR activity based on the company’s values aimed
to improving employee commitment.
CSR initiatives can be derived from the value of the company’s vision, mission, and
culture as well as all employees are to be part of it. Therefore, CSR can have an impact
on employee engagement (employee engagement) to a certain extent and instill pride
in the company’s employees. Increased CSR initiatives progressively raise the amount of
investment from the company in the form of business and money, and they also pay at-

tention to current employees of the company’s reputation with regard to CSR activities
in the corporate workplace.
If hotels do CSR initiatives based on the values of the company, the company has
the power to improve the employee recruitment, satisfaction and retention. The results
of the study showed that the company’s CSR programsare connceted with values of the
company itself, and they further relate to employees. The benefits of this relationship are
to help the company achieving its goals.
Employee Engagement with Corporate Reputation (H4)

The role of employees is essential in the creation and maintenance of a company’s
reputation. Corporate identity is a starting point of corporate image and reputation. Cor-
porate identity consists of goal, value, strategy, and organizational culture. The employee,
which is the core of the company, is a “tool” in terms of creating a company’s reputation.
They must support the values, goals, and strategies of companies that are creating a
culture to maintain a positive corporate reputation.
The good reputation of the company can increase its profits over time. The company’s
reputation can have an impact on financial performance, so it must be actively managed
within the organization. Employees are the first onesmeeting the customers, suppliers,
and other key partners in person, and their actionsmay affect the company whether they
arepositive or negative.
An important part of the process of maintaining the company’s reputation is the train-
ing and education of employees. Managers at various levels in the organization have an
important role in communicating with employees to inform the importance of enhancing
the company’s reputation. Managers monitor, direct, and evaluate the workers who are
empowered to build a reputation and who are beneficial for the organization.
An important component in the control system of management of any organization
is a system of incentives used to encourage managers and employees to achieve com-
pany goals. Without a good incentive system, employees may not have the motivation
or knowledge required to contribute to this goal. This, in turn, leads to the achievement
of company performance and can generate sustainable competitive advantage for the
company.
Conclusion
Based on the ANOVA test, the results showed that the demographic factors that have
a (significant) relationship with CSR are job title/position and education. The issues hav-
ing (significant) relationships with corporate reputation are job title/position related to
the division. Meanwhile,the issues that have a (significant)relationship with employee
engagement are age and years of work.
Based on Structural Equation Model (SEM), the results showed that CSR has a signifi-
cant relationship with the corporate reputation and employee engagement. Meanwhile
employee engagement has a significant relationship with corporate reputation.
Limitation of this study was that it had been conducted only 13 five-star hotelin Jakarta
with the data collection period of 1 month (1 to 30 June 2012) so that the results of the

study can’t be generalized. The study had also only been based on employee perceptions.
Some suggestion for the next study is the need to perform an initial screening associ-
ated with employees’ perceptions and understanding of CSR by conducting pre-test or
by using the method of the FGD. In-depth research can be done by specifying a specific
object such as the manager or director with a qualitative approach.
However, further research may also include variables that are personal such as job
satisfaction, organizational level of commitment and so on; or to expand the research
framework for consumers, suppliers and shareholders.
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Corporate Social Responsibility and Value Added
Intellectual Capital
Bun Devit
(devitbun@gmail.com)
PT Bank Central Asia,Tbk. Jakarta, Indonesia
Juniati Gunawan
(yuni_gnw@hotmail.com)
ABSTRACT
This study aims to determine the interaction between corporate social responsibility (CSR), proxied by social
cost, and value added intellectual capital (VAIC). Control variables have also been applied; namely firm size
and type of company.
A total of 20 annual reports from manufacturing listing industries from 2009 to 2012 have been evaluated
using the regression analysis instrument panel of Eviews 7.0. The results show that there is no significant
association between CSR and VAIC. Future research is strongly needed to provide more evidence inthe rela-
tion of CSR and VAIC, as other variables can be selected.
Keywords: Corporate Social Responsibility, Value Added Intellectual Capital, Company Size, Company Type
INTRODUCTION
Human life can’t be separated from interaction, either with other humans or with
the environment.It is often called symbiosis. The company is a reflection of human it-
self. Activities of the company can’t stand alone. The company is also attachedto the
surrounding environment; the environment also depends on any existing company.This
environment is termed as stakeholders.This form of dependence with stakeholders can
be positive or negative.
The company begins to realize their responsibility towards stakeholders;they’re not
only consisted of the owner of the company and the consumer, but also the surrounding
environment.Thus,the concept of Corporate Social Responsibility or CSR comes into play.
Information about corporate social responsibility becomesvaluable information for inves-
tors in making their decisions. According to the Law on Stock Exchange (Undangundan-
gPasar Modal)no. 8 of 1995 Article 1,“Information or facts or information are important
and relevant facts regarding events; events or facts which may affect the price of securities
on the Stock Exchange, and/or the decision of investors, prospective investors or other
interested parties over such information.” In other words, investors are also concerned
about the role of corporate social responsibility of a company.
Besides, corporate social responsibility is no longer voluntary to be implemented; but
it has been set up as a liability in the Government Regulation(PeraturanPemerintah)no. 47
of 2012. It can be seen that the influence of corporate social responsibility is important
for companies, especially those that go public. They’re involved in all areas ranging from
mining, pharmaceuticals, banking, agriculture, transportation, petroleum, and all other
areas of focus.Companies must move from merely financially to a broader perspective,
namely the impact of any policy on this world, either green or community environment

(Jackson, Boswell& Davis, 2011). Even the corporate social responsibility will provide added
value to the company. For example, it could be a marketing tool in this last decade’s market
share that are concerned about company’s care of environment, health, education, and
so on, so that it can increase the cash inflow for the company.It could be seen that the
corporate social responsibility has a positive impact on the company’s sales, which then
give a good impact to profit; after that giving the subsequent positive effect on the profit
ratio of the company such as ROA (return on assets). The other elements of the company
also will be implicated of the implementation of corporate social responsibility, such as
corporate costs, debt ratio, firm size, market share, fixed assets, and so on. In addition to
these elements, there is one which is always discussed:Intellectual Capital (IC).
If you look the word “intellectual”,it is derived from the word “ intellegent” which
means (1) the ability to achieve and apply knowledge and skills, (2) a set of political and
military-related information, according to Oxford Dictionaries, while “capital” refers to
the wealth in the form of money or other assets owned by a person or organization.
Capital holds an important role for the company in building and running the operations;
in this case, fixed assets are the simple example. However, in the case of IC, the capital
in question is the intangible resources gained from experience and learning process that
will bring benefits in the future (Marr &Moustaghfir, 2005). So the IC is not limited to hu-
man resources (HR), sustainable relationships with customers and suppliers, trademarks,
and so on.
Despite of it, there is no clear definition of intellectual capital (Karp, 2003). Fromthe
HR perspective, the IC draws on the expertise, knowledge, and attitudes of the employees.
While from the perspective of information and technology (IT), IC can be in the form of
applications and software.Added values of Intellectual Capital (VAIC) are often used in re-
search as well as the activity of the financial world in measuring IC. The utilized values are
taken from the audited company’s financial statements, so that they will be objectivity fair.
This study reveals the influence of VAIC to corporate social responsibility. This time, the
VAIC is often used as a measurement of financial performance, in addition to traditional
measures such as ROA, ROI, ROE, ROS, and DCF. The VAIC has been chosen for several
reasons. The first reason, VAICis rarely used in research as a variable to measure social
responsibility. Furthermore, VAIC can explain the qualitative changes in the soft attributes
of associated companies (referred to as the performance of employees, customers and
suppliers relation, and others).
The fundamental reason using VAIC is the existence of change for the creation of value
(value creation) by the importance of the role of knowledge related to companies in es-
tablishing sustainability (sustainability) performance of the company (Aras,Aybars&Kutlu,
2011). This study also uses the character of the company as a control variable to support
the research of that company’s size as measured through the total book value of the as-
sets of the company.
Firm size is associated with agency theory, in which large companies that have greater
agency costs will disclose more extensive information to reduce the agency costs. The
next character that is used is the type of company in which the company is classified
into private companies and state-owned companies to see its effect on disclosure. These
characters are often used in previous research to look at the interaction of corporate so-
cial responsibility to corporate performance. It is expected that this study can be useful,
especially for companies to consider the concept of CSR and VAIC as one of the company’s

focus. Also, the can government pay more attention at CSR and VAIC in designing and
implementing regulations.
LITERATURE REVIEW
Corporate Social Responsibility
Corporate social responsibility (CSR) is defined as an attempt to internalize and in-
stitutionalize externalities resulting from business transactions, as well as the result of a
business strategy that made the company and the incentive of the government’s decision
(Laudal, 2012). That is a result of the company’s positive interaction with employees, labor
unions, local communities, and the environment by building a quality of life. This posi-
tive interaction will affect both the company and the environment. The company began
to understand that business sustainability also depends on the relationship with all the
roles that exist in the world according to the theory of legitimacy.
The company’s relationship with its environment isreciprocal. This linkage is analogous
to a connected chain; all parties can be mutually beneficial or mutually detrimental. The
condition also affects the company’s corporate social responsibility. Financially strong
company may seek to invest in the things that can provide strategic impact in the long
term, as contributing to the community and its employees(Tsoutsoura, 2004). It should
also be an element of the company’s CSR that will determine its future.
Stakeholder Theory
Stakeholder-approach becomes a new approach that is widely used in trying to inte-
grate business interests on one hand and the demands of ethics on the other. With the
idea that all those who have an interest in business activities are involved in order to get
the benefits, the rights and interests of stakeholders must be considered and guaranteed.
Stakeholder theory says that the company is not the only entity. The definition of primary
and secondary groups is as follows (Clarkson Centre for Business Ethics, 1999) :
1. Primary stakeholders are those who have economic interests of the company and
assume the risk. Example: investors, creditors, employees, governments, and local
communities.
2. Secondary stakeholders affect the nature of their relationship with each other but the
company’s economic viability has not been determined by the type of stakeholder.
An example is the media and interest groups such as civil society organizations, trade
unions, and so on.
Although it may seem that the primary group gives a direct and significant impact
on the company’s position, it does not mean that the company can just forget about the
secondary group.
Corporate social responsibility should go beyond measures to maximize profit for
shareholders’ interests (stakeholders).But more broadly,the prosperity that can be created
by the company is actually not limited to the interests of shareholders but also for the
interests of stakeholders; namely all those that have linkages or claim against the company.

Intellectual Capital
Elementsof a company that is being intensively discussed is intellectual capital. As al-
ready indicated, there is no clear definition of related intellectual capital (Marr &Moustagh-
fir, 2005). Meanwhile, the definition of intellectual capital (Bontis, Crossan&Hulland,
2002) is as follows:
Intellectual capital represents the stock of knowledge that exists in an organization at
a particular point in time. On the other hand, organizational learning broadens the discus-
sion to incorporate behaviors as well as knowledge and provides a means to understand
how the stock changes over time (p. 440 )
Many thought that this resource is only in the form of human resources. According
to Marr &Moustaghfir (2005), intellectual capital should include these components:
1 . Employees ‘ skills and know-how
2 . Organisational culture
3 . Relationships with stakeholders
4 . Organisational image and reputation
5 . Technological infrastructure (ie databases, information systems etc)
6 . Intellectual property rights (ie patents, trademarks etc)
7 . Practices and routines
Moon and Kym (2006) summarized a model of intellectual capital based on various
studies that have been conducted by predecessing researchers to show definition. From
the model they created, the IC can be decomposed into human capital, structural capital,
and relational capital.
According to his theory, intellectual capital has the potential to be a source of prosper-
ity of many organizations in the future.The underlying challenge is to develop the social
capital that is the foundation of intellectual capital which can grow (Karp, 2003).
Value Added Intellectual Capital

Considering the importance of the role played by intellectual capital in the creation of
value, Pulic (1998, 2004)along with his academic colleagues at the Austrian IC Research
Centre developed a new method to measure the level of intellectual capital of the company.
It is called “value added intellectual coerfficient” (VAIC). This method is very important to
measure the contribution of each resource - human, structural, physical, and financial - to
create added valuesto the company (Zeghal&Maaloul, 2010).By calculating the values on
the input and output, measurements of intellectual capital will be more dynamic.
Company Size
Company size is often used as independent variables to explain the diversity of dis-
closures in the financial statements. In some research, eventually company size is used
as control variables (Othman, Darus, and Arshad, 2011). In the context of examining the
disclosure of social responsibility, a positive relationship between company size and CSR
can be found. This is caused by the agency theory which states that the larger the com-
pany will disclose broader information to reduce agency costs. Besides, that extensive
disclosure also reduces agency costs. Company assets and number of employees can be
used as a reference in the size of the company. In this study, the number of employees is

not used because it does not knock the concept of intellectual capital, which one of the
elements is human resources.
Type of Company
In this study, the company will distinguish between private companies and state-owned
enterprises (SOEs). In Indonesia, the definition of SOE according to Law (Undang-Undang)
no.19 of 2003 is as followed: a business entity that is wholly or partly owned by the state
of their capital through direct investments originating from the wealth separated state.
Since 2001, all SOEs or State Owned Enterprises havetheir management coordinated by
the Ministry of State-Owned Enterprise, led by the Minister of SOE. Indonesian state-
owned enterprises are in the form of limited companies, public companies and corporate
offices. The studies using private companies as objectscan often be found, so that we
can see the application of corporate social responsibility or added values of intellectual
capital in private companies. The extent to which state-owned companies care about the
environment and the community needs to be revisited. Moreover,thesecompanies were
formed by government to serve the public in full; so it should be a higher level of concern.
Hypothesis Development
Corporate SocialResponsibility (CSR) has a positive relationship with the dimensions
of intellectual capital, which are human resources, organizational, and relational (Passeti
et. al., 2009). For example, CSR activities in terms of sustainable training to employees will
improve the quality of human resources of the company. New knowledge and expertise
taken by employees will be valuable capital for the company. Not only training, CSR activi-
ties such as “funwalk” or “tree-planting activity” are able to strengthen the relationship
between the company and employees to increase loyalty and motivation of each of them.
The positive impact of CSR activities to the organizational resources or related structural
and cultural strategies are in line with the management agency, so again it will result in
sustainability. Next dimension that will be explained is relational resources, in the form
of brand image, customer, and supplier relationships. These things will build a better
corporate reputation. CSR activities are considered to have a relationship or a positive
influence on the dimensions of intellectual capital : human resources , organizational ,
and relational ( Passeti et. al., 2009; Sveiby, 1987 ). Based on this understanding, thus,
the first hypothesis is stated as:
H1 : Corporate social responsibility has a positive influence on the value added intel-
lectual capital ( VAIC ).
Intellectual capital can increase earnings on an ongoing basis ( Aras , Aybars , &Kutlu ,
2011). With the resources that have been well developed and optimized,a good company
is able to improve its performance. Any desired performance is based on the concept of
sustainability, continuityand positive impact on the environment. Now, the traditional
measurement of financial performance has not provided a clear and comprehensive
overview of the company due to the intangible resources such as intellectual property
and investment processes in corporate social responsibility inexpressible ( Aras, Aybars,
&Kutlu, 2011) . However, it should be tested whether VAIC has an influence on CSR.
Therefore, the second hypothesis is stated as:
H2 : Value added intellectual capital ( VAIC ) has a positive influence on corporate

social responsibility.
RESEARCH METHODOLOGY
Social Responsibility
Social responsibility is often measured using the social responsibility disclosure.
The social responsibility disclosure is investigated by the method of content analysis .
Examples of references in doing content analysis that are often used are the standard
Public Environmental Reporting Initiative ( PERI ) and the Global Reporting Initiative Social
Performance ( GRISP ) issued by GRI and also the items in GAAP. Variables regarding the
social responsibility in this research will use the social costs (cost of social) as an indicator.
In the study of microeconomics, social costs include the production costs and external
costs. Externalities include people (humans) and the environment (forest, sea, and so on).
The social cost in this study is the cost incurred by the company to develop a society
(community). The involvement of the public company covers various fields of health,
education, culture, and so on. Gunawan (2010) has made reference to the disclosure of
corporate social responsibility that includes the items, such as community involvement
including:
1 . Donations of cash, products, community service
2 . As a sponsor for community health projects
3 . Help medical research
4 . As a sponsor for educational conferences, seminars or exhibitions of art
5 . Finance the scholarship program
6 . Provide public facilities or support urban planning
7 . Sponsoring a national campaign
8 . Supporting the development of local industries or programs and community activities
that are undertaken
9 . Know the local/ indigenous communities
10 . Provide assistance or compensation to local communities where the company operates
The tendescriptions of social engagement will be a guide to researchers in conduct-

ing activities related to the categorization of community involvement which would have
implications on the social cost.
Added Value of Intellectual Capital

Significance of Intellectual Capital in generating the value of the company is cur-
rently the main reason for Value Added Intellectual Capital (VAIC).In this study (Aras,
Aybars&Kutlu, 2011) VAIC consists of the following components:
VAIC = CEE + ICE
ICE = HCE + SCE
Intellectual capital efficiency (ICE) has two components: human capital resources
and structural power. All expenses for the employees are included in the human capital
efficiency (HCE). Structural capital efficiency (SCE) of the company is the economic added
valueminus the total salaries and wages. Therefore, ICE is a combination of the efficiency of
human resources and structure. To obtain the overall concept of value-creating resources,

it needs to be added with a coefficient analysis of capital employed efficiency ( CEE ) in
addition to researching ICE. Three proficiency level indicators enableus tounderstand
the overall efficiency of the company and to indicate the intellectual capability. It can be
said that the VAIC measuresthe amount of new values that have generated an amount
of money invested on these resources.
Table 1. VAIC Components & Measurements

Item Kode Definisi
Value added intellectaul capital VAIC CEE + ICE
Capital employed efficiency coefficient CEE EVA/CE

(CE = Book Value of Assets)
Intellectual capital employed efficiency ICE HCE+SCE
coefficient
Human capital employed efficiency coef- HCE EVA/HC
ficient (HC = Total Salary & Wages)
Structural capital efficiency for company SCE SC/EVA

(SC = StructuralCapital = EVA-HC)
Economic value added EVA NOPAT = (WACC*long-term debt + capital)
Net operating profit after taxes NOPAT Operating income*(1-tax)
Weighted average cost of capital WACC WACC = (re*we)+(rd*wd)
Biaya modal re re = rf + β*(rm*rf)

Risk free rate rf Bank Indonesia interest rate
Beta Perusahaan β Covariancefrommarketversus returnstockdivided

by stock marketvariance
Return IHSG rm Average ofIHSG return
Weight for equity we Equity/(Total debt + equity)
Biayahutang wd Long-term debt/(Total debt + capital)
Company Size
Company size (LNASSET) is measured from the total book value of assetsbecause the
size of the company is a reflection of the size of companies featured in the book value of
assets at year-end balance sheet. With a large value of assets, the company should be
able to allocate a greater cost for the benefit of society. The bigger the company gets, the
greater the public’s expectation of help and social development becomes. Therefore, the
size of the company is formulated as follows:
LOG SIZE = TOTAL ASSETS
Type of Company
Type of company in this study is distinguished between private and state-owned
enterprises. The measurementof both types of companies uses dummy data. SOEs will

be marked with 0, while private companies will be marked with 1.
Data Collection Method
This study uses secondary data. The data is taken from information in financial state-
ments, annual reports and sustainability reports of maunfacturing companies listed on
the Stock Exchange from 2009 until 2012. The financial statements have been used to
obtain the book value of total assets, while the information about the social costs are taken
from annual reports or sustainability reports. One source to get the sustainability report
is from the Indonesian company Sustainabilty Reporting Awards (ISRA). SOE corporate
data have been obtained from the site including www.bumn.go.id.
Population and Research Sample

The study population in this study is a manufacturing company located in Indonesia
from 2009 to 2012. Thesampling convenience has been considered for theselection of
the samples. The main reasonsof using this method of sample selection are the following:
1 . Not all companies clearly specify the overall social costs.
2 . The social costs are sometimes only found in sustainability reports, while the fact that
not all companies make sustainability reports.
3. The amount of sample taken is 20 companies for the period 2009 to 2012.
Method of Analysis
In this study, the method of analysis used is a panel regression. The analytical tool
used is Eviews 7.0. The data used in this study is a panel. This data model is a combination
of time series data ( interim ) and cross-section data or between individuals.
The purpose in usingthis method is to estimate or predict the value and the average
value of the dependent variable by the known independent variables. This regression
coefficient is for each independent variable. The coefficient is then useful to predict the
value of the dependent variable. In this case, the purpose of calculating the expected
regression coefficients is to minimize the deviation between the actual value and the
estimated value of the dependent variable data.
EXPLANATION
Descriptive Statistics Analysis
Table 2
Descriptive Stastistics Analysis

VAIC TYPE LNCSR LNASSET
Mean -1.347.317 0,15 6.66E+12 2.096.319
Median -0,282672 0 2.04E+12 2.050.012
Maximum 8.133.842 1.000.000 5.03E+13 2.636.666
Minimum -6.124.191 0 4.76E+10 1.721.671
Std. Dev. 8.120.661 0,359324 1.00E+13 2.245.031
Skewness -5.841.513 1.960.392 2.321.888 0,467013
Kurtosis 4.037.951 4.843.137 8.870.145 2.360.157
Jarque-Bera 5.112.403 6.256.568 1.867.442 4.272.681

Probability 0 0 0 0,118086
Sum -1.077.854 1.200.000 5.33E+14 1.677.055
Sum Sq. Dev. 520.966,60 1.020.000 7.96E+27 3.981.730
Observations 80 80 80 80
Cross sections 20 20 20 20
Based on the output, note that at least 20 samples have been taken. In total, there
have been 20 x 4 years = 80 observations made. From the analysis of the test, VAIC as
the dependent variable showed that LNCSR has the highest average value of 6.66 x1012
with the highest standard deviation of 1x1013 and VAIC variables with the lowest average
value is the standard deviation from -1347317 to 8120661. Variable of LNCSR has high-
est maximum value of 5.03 x1013 and TYPE variables have the lowest maximum value of
1,000,000. PBV variable has the highest minimum value of 4.76 while the variable VAIC
X1010 has the lowest minimum value of -6,124,191.
Testing Instrument Panel Data

Testing of the instrument is important as a mean of proper data processing. In this
study,the use data econometrics resulted from the combination of cross–sectional and
time-series of data (number of variables observed over a number of categories and ob-
tained within a certain time period). This data is termed as a panel or pooling of data;
other than that, the model applied to analyze this kind of data is referred to as a panel
data model.
In general, there are three (3) types of panel models that are frequently used in vari-
ous studies: the common effect models (pooling regression), the fixed effect model and
the random effect models. Afterwards, the results of a panel of three models are known
to determine the model that best fits the data as well as the conditions used in this study.
INTERPRETATION
Influence of VAIC on CSR
After some testings, we got the result that VAIC has no significant positive effect on
social responsibility proxy with social costs. It’s in contrast to the research conducted by
Aras, Aybars, and Kutlu (2011) who found no significant relationship between the two.
The surprising result is that researchers get the data which value is negative VAIC or in
other words it doesn’t generate intellectual capitalvalueaddedtothecompany.If you look
at the results of his research and the one of Aras in 2011,it explained that there also
have been external factors that make the VAIC not to affect CSR.This factor is the poor
economic conditions after the Europe financial crisis in 2008 which impacted the next
few years.Although Indonesia is not affected significantly, one can still feel the direct im-
pact.The investors were not local ones.Many Europeaninvestorswere hit by the crisis and
affect their investments in the other countries outside Europe. Keep in mind that while
examining the influence of CSR, the used VAIC control variables are firm size and type of
company. The influences of both were measured in this study. This study suggests that
larger companies tend to invest more in social responsibility to give more appeal to inves-
tors so that they would invest to the company, in addition to the growth of sustainability
development. Stakeholders also tend to demand for more large companies to undertake
social responsibility. In other words, firm size significantlyinfluencesthesocialcosts.

Type the company did not significantly influence the social costs. So the position of
state-owned enterprises and private companies should have the same concerns social
costs.
Influence of CSR on VAIC

Based on the research results by Aras , Aybars , and Kutlu ( 2011 ), it was found that
social responsibility is examined through the disclosure of the social responsibility affecting
the VAIC. In line with these studies, the tests were conducted simultaneously no effect of
social costs and other variables to VAIC control has been found. When test results were
found individually, here is the outcome: ß = - 0.000000000000828 ; Prob = 0.5856 > 0.05
. This figure illustrates that by increasing the level of corporate social responsibility which
is proxied by the cost of social activities, it will tend to reduce the level of VAIC. Even by
looking at the numbers that are too small to be seen, CSR does not affect VAIC. However,
the probability value indicates that the size of profitability does not significantly affect
the level of corporate social responsibility disclosure.
Conclusion of this research

1. VAIC doesn’t significantly affect the CSR disclosed with social cost. In other hands,
CSR also doesn’t significantly affect the VAIC.
2. Company size that is represented by total assets significantly affects CSR but doesn’t
affect VAIC.
3. Type of company significantly affect CSR but doesn’t affect VAIC.
Research Limitation
This research also has some limitations, which are:
1. AlthoughIndonesian companies are starting to be aware ondisclosing corporate social
responsibility inannual reportor reporting sustainability report, information about the
expendedsocial cost are not attached. Social cost and other corporate social respon-
sibility costhave just been disclosed in early 2011. Surelythis data time spancould be
extendedif the company has informed the social cost at the time before 2011. The
other limitation is that the corporate social responsibility cost hasn’t been reported
in details;such asthe environment conservation cost, education development cost,
disaster donation, and so on. Social costthat wasn’t reported in absolute amount is
also a limitation.
2. Using secondary data in this research can be categorized as a limitation. The data’s
validity could not be ensured.
Improvements for next research are:

1. The research can be developed by adding the data time span so that real condition
can be more described.
2. Control variablescan also be added or replaced; for example profitability, structure of
ownership, and so on (Aras, Aybars, &Kutlu, 2011).
3. Approach and measurement of CSR, VAIC, company size, and company type can be
explored.For example company type can be explained by the level of company’s ex-
traction to its surrounding environment and so on. Using primary data to get the CSR
and VAIC could be interesting thing to observed.

4. Future research canuse a different type of industry asresearch object.The result can
vary depending on its industry type.

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ACCOUNTING INFORMATION SYSTEM AND
INTELLECTUAL CAPITAL SUPPORT SUSTAINABLE
DEVELOPMENT OF MANAGEMENT
Vienda A. Kuntjoro
(vkuntjoro@yahoo.com)
ABSTRACT
Purpose – The purpose of this paper is to recognize the importanceof sustainable development of manage-
ment in firms that is based human resource development activities whereas accounting information system
as tools to do data processing with capability of intellectual capital that fit it from certain discipline may
drawn quality of life of one country.
Design/methodology/approach – this study uses meta-analysis as the explanation approach as finding out
the performance of accounting information system with capability of intellectual capital both as the bridges
to sustainable development of management through human resource development activities whereas
automatically quality of life of one country can be drawn and it may necessary be approved by empirical
study for the next future research.
Finding – Accounting Information System and Intellectual Capital both will produce the information standards
that will be performed by human resource development activities that result on the sustainable develop-
ment of management than can be fully implemented.
Originality/value – The accounting information system and intellectual capital value to perform knowledge
that brings quality of life in one country can be counted through human resource development activities
to contribute sustainable development of management and all thosecharacteristics have different kind of
situation will affect different information standard that can be proved by empirical study.
Keywords: accounting information system, intellectual capital, human resource development, sustainable
development of management.
INTRODUCTION
Due to the strong basis of accountability quality of life, achieving of sustainable de-
velopment management becomes awareness of knowledge development.
This writing purpose is to scheme the big picture of the sustainability development of
management based on supporting of both accounting information system and intellectual
capital as a bridge through human resource development activities. One high motivation
reasons for me to write is concerning the poor performance in third world countries and
crisis happening in developed countriesas the human resource development is not yet
working successfully. However, the sustainable development of management thatcomes
out with integrated knowledge may recognize also consciousness and ability to accept
any kind of information that is useful for their living everyday.
Ironically, nowadays, the sustainable development of management faced the un-
certainty for specialized to be predicted remembering the variety of indicator that may
influence the system itself considered have difficulty in their measurement which the
application of disciplined may have not been found yet.
Hereby, I write about the sustainable development of management to support re-
ducing the uncertainty which may put some important basis to be considered based on
description data and also may support the practices to contribute the company perfor-

mance from time to time for necessity of quality of life around the world, or at least for
the countries, primarily for developing countries.
Some previous researchers from The Brundtland Report (1989) defined sustainability
as the capacity to meet the needs of the present without compromising those of future
generation. On the other hand, the meaning of sustainability implies today debated
such as from the question of whether growth and sustainability can ever go together
(Daly, 1990); and from the creation of concept that can drive real sustainability, such as
the BuenVivir (Walsh, 2010), to the urgent of today’s crises. Using purchasing power par-
ity exchange rates, Chen and Ravallion (2007) estimated a time series of the number of
people in absolute poverty.Their results indicated that people living below the extreme
poverty line of USD 1 per day decreased between 1981 and 2004 from 1,470 million to
969 million worldwide. The percentage of extremely poor fell from 40% to 18%.
Collier (2007) proposed different solution for different countries categorized by geo-
graphic differences. Resource of rich countries with high ethnic diversity needs strong
checks and balances on how governments use their power and distribute funding (Yuya-
Kajikawa, 2007).Nieusma (2007) found difficulties in sustainability development projects
arising form the conflict among different languages, such as the languages of market
economics, technology-science, rural development, and local knowledge, used by dif-
ferent stakeholders in different organizations. Sustainability consumption is becoming a
definable area of international environment politics, especially since the Rio Declaration
on Environment and Development, which encourages the reduction and elimination of
unsustainable patterns of production and consumption (Cohen 2005). Marten (2006)
identified the following procedural elements in sustainability science: analysis of deeper-
lying structures of the system, projection in to the future, assessment of sustainable and
unsustainable trends, evaluation of the effects of sustainable policy, and the design of
possible solution through sustainable strategies. The basic components of sustainability
science: goal setting, indicator setting, indicator measurement, causal chain analysis,
forecasting, back-casting, problem-solution chain analysis (YuyaKajikawa, 2007).Sustain-
ability indicators have been proposed and published around the world, and there are 894
entries in the database of Compendium of Sustainability Development Indicator Initiates
(IISD 2010). Sustainability indicators are developed to represent what is to be sustained,
what is to be developed, and for how long (Parris and Kates, 2003).
On the other hand, at the very basic of 14 principles of management – fundamental
rules of management that could be applied to all organizational situations stated as fol-
lowing :
1. Division of work. Specialization increases output by making employees more efficient
2. Authority. Managers must be able to give orders, and authority gives them this right.
3. Discipline. Employees must obey and respect the rules that govern the organization.
4. Unity of command. Every employee should receive orders from only one superior.
5. Unity of direction. The organization should have a single plan of action to guide man-
agers and workers.
6. Subordination of individual interests to the general interest. The interests of any one
employee or group of employees should take not take precendence over the interests
of the organization as a whole.
7. Remuneration. Workers must be paid a fair wage for their services.
8. Centralization. This term refers to the degree to which subordinates are involved in

decision making.
9. Scalar chain. The line of authority from top management to the lowest ranks is the
scalar chain.
10. Order. People and materials should be in the right place at the right time.
11. Equity. Managers should be kind and fair to their subordinates.
12. Stability of tenure of personnel. Management should provide orderly personnel plan-
ning and ensure that replacements are available to fill vacancies.
13. Initiative. Employees who are allowed to originate and carry out plans will exert high
levels of effort.
14. Esprit de corps. Promoting team spirit will build harmony and unity within the orga-
nization.
Based on Mintzberg, Henry, The nature of Managerial Work, 1980, pp. 93-94:
• Interpersonal roles are ones that involve people (subordinates and persons outside
the organization) and other duties that are ceremonial and symbolic in nature. (fig-
urehead, leader, liaison)
• Informational roles involve collecting, receiving, and disseminating information.
(monitor, disseminator, spokesperson)
• Decision roles entail making decisions or choices. (entrepreneur, disturbance handler,
resource allocator, negotiator).
Previous research discussed how a newly appointed CEO of the Fosters Brewing
Group reversed a decline in performance by adopting, among other initiatives, the bal-
anced scorecard approach to management (Sanjoy Bose, Keith Thomas, 2007). Another
researcher provides that sustainability Balanced scorecard is a strong tool for an integrated
sustainability management (Frank Figge, Tobias Hahn, Stefan Schaltegger and Marcus
Wagner, 2002).
Previous researcher compares balances scorecard and intellectual capital and fins
important differences between their theoretical underpinning, which suggest that the
breath of indicators will work differently in organizations (J. Mouritsen, H. Thorsgaard
Larsen, P.N. Bukh, 2005).
In subject related Intellectual capital, one researcher provided the framework of in-
tellectual capital that is compared and measurement of intellectual capital is examined
(Niamh Brennan and Brenda Connell, 2000). Previous research also estimated of intel-
lectual capital in European Union using knowledge model (José Luis Alfaro Navarro, Víct
orRaúlLópezRuiz,DomingoNevado Peña, 2011).
In other subject related Accounting Information System, previous researcher men-
tioned that information system as a reference discipline based on the theories and meth-
ods of these disciplines serve to set the standards by which the quality and maturity of IS
researched should be measured (Richard L. Baskerville, Michael D. Myers, 2002). Another
researcher investigates assessing the impact from information system quality with the
objectives of exploring the system quality based on test integrative model, which includes
system quality as a determinant of the extent of system usage, the benefits derived from
the system and the system impact on the user’s jobs (Tor Guimares, D. Sandy Staples and
James McKeen, 2007). Previous researcher also examines the need for IS assessment
and suggests a comprehensive IS assessment framework linked to the organizational per-
formance using existing IS assessment theory as a base and incorporating measurement

concepts from other disciplines (Barry L. Myers, Leon A Kappelman, Victor R. Prybutok,
1997). More, previous study provides the first empirical test of an adaptation of DeLone
and MCLean’s Model in the user-developed application domain. The model provided
strong support for the relationships between perceived system quality and user satisfac-
tion, perceived information quality and user satisfaction, user satisfaction and intended
use, and user satisfaction and perceived individual impact. (Tanya McGill, Valeerie Hobbs,
Jane Klobas, 2003); also, study using DeLone-McLean Model to show that perceived system
quality and perceived information quality are significant predictors of user satisfaction
with the system, but not of system use. User satisfaction was found to be strong predic-
tor of individual impact, whereas the influence of system use on individual impact was
insignificant (JuharniLivari, 2005). Previous research describes the information system
effectiveness to senior management (Mary C. lacity, Rudy Hirschheim, 1994); Information
System (IS) function support in evaluating performance in one organization (Ahmad A.
Rabaa’I, Guy G. Gable, WasanaBandara, Erwin Fielt, 2010).
More, The uncontrollable human resource development has the highest value to do
the controlling not the machine. The brain development to control the resources may
involve the economy system cycle that automatically will perform the balancing of the
quality of life in one nation.
Advancing sustainability will require choice and decision making, and values are a
fundamental part of this process (Lockwood, 2005). Values may be defined as broad
preferences concerning appropriate course of actions or outcomes (Wood et. la., 1998,
p. 107). Values in practice represent a person’s sense of right and wrong, or what ought
to be. We must also keep in mind that concepts of the future may depend upon ethnicity,
linguistic background, lifestyle, and life expectancy (Crabbe, 2006).
LITERATURE REVIEW
Both Accounting Information System and Intellectual Capital are as bridge to achieve
sustainable development of management and human resource development activities.
Based on Al Qur’an, Ibrahim 24 :
See you not how Allah sets for a parable? A goodly word as a goodly tree, whose root
is firmly fixed, and its branhes (reach) to the sky (i.e. very high)
Based on Al Qur’an, Ibrahim 25 :
Giving its fruit at all times, by the leave of its Lord, and Allah sets forths parables for
mankind in order that they may remember.
The example words above from Ibrahim 24, and Ibrahim 25 involved such big pictures
ofgood quality of life and the proof of sustainable development of management with using
intellectual capital and accounting information system as bridge through human resource
development activities, and the capability of information standard to be processedbrings
the sustainability development of management from time to time in well manner. To be
remembered that variety of human being activities in organization sized can be categorized
on different knowledge generation and information requirement.
According to K.P Tripathi, Information requirements consists of source, scope, level
of aggregation, time horizon, currency, required accuracy, and frequency of use. On the
other side knowledge generation assuming on certainty, transferable, beneficial, useful-

ness, applicable, change from time to time, continuously, and growth.
In general, the pictured cycle consist activities as following:
1. Acknowledgement : when certain knowledge can be adopted
2. Observation : when the samples may represent of information standardization
3. Integrated : when the purpose of the living standard may achieved the appropriate
performance
4. Assessment : when life expectancy strictly performed
5. Controllable : when the highest value goes to brain development appreciation
6. Sustainable : when the cycle growth on and on
7. Development : when education in charge in appropriate manner
Firstly, subject related to sustainable development has been defined as the Brundt-
land Report:
“Sustainable development is development that meets the needs of the present without
compromising the ability of future generations to meet their own needs. It contains
within it two key concepts:
• the concept ofneeds, in particular the essential needs of the world’s poor, to which
overriding priority should be given; and
• the idea oflimitationsimposed by the state of technology and social organization
on the environment’s ability to meet present and future needs.”
The essence of sustainable development is simply this : to provide for the fundamental
needs of humankind without doing violence to the natural system of life on earth (Pim
Martens, 2006). This idea arose in the early 1980s and came out of a scientific look at
the relationship between nature and society. The concept of sustainable development
reflected the struggle of the world population for peace, freedom, better living conditions,
and a healthy environment (NRC, 1999).
Previous studies have been, and are being conducted that develop and use sets of
indicators for measuring sustainability (Bell & Morse, 2003; Bossel, 2001; Gustavson,
Lonergan&Ruitenbeek, 1999; Schultink, 2000; Walker & Reuter, 1996).
Further research is needed to keep the knowledge base growing and to ensure that
sustainable development becomes ever more effective (Wilderer, 2007).
Secondly, subject related to intellectual capital of mankind as the dominant factor for
controlling matters. Example, for some reasons, the crises may come from the wrong-
interpretation and mismanagement intellectual of mankind that supporting only certain
entities that conflict with public interest that may cause the injury of the economy system
that supposed to be implemented. The mankind intellectual as the most important con-
troller may bring about sustainable development of management talks about the precise
accounting information and watching the existing environment to perform higher future
profit. The mankind intellectual is building the foundation of the sustainable develop-
ment of management may involve such as knowledge management, Risk management,
Property management, .and strategies management.
Mankind intellectual may provide best assumption as long as the restricted imple-
mentation of ruled based does not become the power of expenditure for numbers of
property. For example, Entities have to concern between the long lasting of natural

resources that are provided and the number of property that have been managed. The
Number of property is not supposed to be performed only in financial accounting report
for investors but also it is necessary to assess the entities activities in giving environment
protection as the result of the entities activities.
Thirdly, subject related Accounting information system contain of five components :
1. People that operate the system and do the tasks
2. Procedures, manual and automatic that involve collecting, process and saving file of
the organization activities
3. Data of business organization processes
4. Software that is used to process the organization data
5. Information technology infrastructure, including computer, peripheral device and
communication networking
Three functions of Accounting information system in organization are as following:

1. Collecting and saving data of organization activities, resource that influenced by
those activities, and the people that involve in those activities so that management,
employees other side can review the event that have occurred
2. Changing the data become useful information for management for decision making
in planning, implementation and monitoring activities
3. To provide the right controlling to keep up the organization assets, including organiza-
tion data to ensure that data are provided is needed, accurate, and accountable
First, Accounting information system (AIS) can identify any situation that needs man-
agement actions. For example, cost report with different variance could be stimulated
the management to investigate, to take the correction actions. Second, with reducing
the uncertainty, accounting information give basic thought for choosing the alternative
actions. For example, accounting information can be used for dispute price and credits.
Third, information that brings the decision give valued feedback that can be used to re-
covery the next decision making.
AIS subsystems process financial transactions and nonfinancial transactions that
directly affect the processing of financial transactions. For example, changes customers’
names and addresses are processed by the AIS to keep the customer file current.
AIS is composed of three major subsystems :
1. The transaction processing system (TPS) is central to overall function of the information
system by converting economic events into financial transactions; recording financial
transactions in the accounting records (journals and ledgers); and distributing essential
financial information to operations personnel to support their daily operations. The
TPS consists of three transaction cycles : the revenue cycle, the expenditure cycle,
and the conversion cycle.
2. The general Ledger /financial reporting system (GL/FRS), which produces the tradi-
tional financial statements, such as the income statement, balance sheet, statement
of cash flows, tax returns, and other reports required by law.
3. Management Reporting System (MRS), which provides internal management with
special purpose financial reports and information needed for decision making such
as budgets, variance reports, and responsibility reports.
Fourthly, the quality of mankind (human resource) to be develop in term of reaching

the sustainable development of management has dominant activities because the key
success factor of the sustainable development of management is to perform the better
quality of life expectancy that may involved the each country’s mankind intellectual.
MAIN DISCUSSION
Urgency of Financial
The human intellectual may involve for many assumptions for providing the financial
reporting and minimize the loss as much as they try to reach higher profitability without
having damage of the environment.
Urgency of Information
The content of information standard would never end as the human being recognizes
the number of profit that needs reducing the environmental damage by its costs and
reducing the loss that may cause mismanagement in the future through the number of
profit that is accounted. The sustainability of environment damage recovery is the way
to perform sustainability profit for the next generation. The environment has to be pro-
tected and to be avoided from ruin.
Urgency of Policy development
The law enforcement to perform firm activities through human resource development
is implicitly to reach their profit goals. Entities have to be guided by rules and so does
the environment management. When the policy goes to low enforcement, the high risk
organization may return injured and the entities reputation in public.
Urgency Society measurement
The appropriate measurement involve the good corporate governance indicators may
bring the better society environment through not only the society culture supporting the
entities but also providing the entities system as the prototype of society environment in
measurement so that the life expectancy can be fulfilled.
Urgency of Human ecology
Environmental quality system is built by human being. The environment quality system
will be upgrading from time to time related to its influence to human resource develop-
ment as the environmental changed based on sustainability development management
that may discover and accounted for the power of firm profitability and performed good
quality of life.
A starting point in Intellectual Capital and Accounting Information System are as the
bridge between Sustainable Development of Management and Human Resource Devel-
opemnt.
Preliminary – Human resource development activitiesthat supported by Intellectual
Capital and Accounting Information System are essentially to do decision making.
In related to this, the management has to know how to choose varieties of information
system which each plays a different role in organizational hierarchy and decision making
process (AsefehAsemi, PhD, Ali Safari, PhD., AdelehAsemiZavareh, PhD., 2011).
To support the observation above, Sustainable Development of Management is do-
ing by management level know how well whereas the management using the existing

and available information in order to perform his or her organization by having beneficial
through Accounting Information system that it is supporting growth of the quality of
information itself.
As a key consideration, Sustainable Development of Management used by manage-
ment may necessarily evaluate the expert of human resource who used the accounting
information system in order to do decision making in term of management control activi-
ties. Management control system influences the behavior of organizational resource to
implement organizational strategies (Dr. HabibollahSalarzehi, Dr, BaqerKord, 2010).
Essentially, the sustainable development of management who used the system has
to be established their system in getting information in Accounting Information System
for management to be controlled. Previous researcher presented research model that
examined the relationship between the design and use of management control systems and
their direct or indirect impact on IT performance (Son Sertac, Wietzel, Tim, Gladyszewski).
Furthermore, Accounting Information System with good quality information is very
crucial in helping business checked and balanced in order to keep management control
system properly. The researcher provides a framework to estimate the perceived value
of management control in IT organizations. (Son Sertac, Wietzel, Tim, Gladyszewski).
In addition, most Accounting Information System will do updating of the occurrences
in company or system. Still, Accounting information system (AIS) is very easy to be im-
proved and programmed by the owner to conduct certain actions in certain times. Every
organization needs their complete and comprehensive system for all organizations (Dr.
HabibollahSalarzehi, 2010).
As fundamental point, Sustainable Development of Management will help managers
to do more accurate actions with multitask that will increase efficiency in a company or
organizations.
On another level, Accounting information system gives huge contributing to manage
information that is very useful for the company in order to do decision making when the
management level implement sustainable development of management for achieving the
good quality of life in general, and the company performance specifically.
Again, Accounting information system is supporting sustainable development of
management with its operation on systematic methods of operations. Accounting Infor-
mation System (AIS) tends to be more practical business tools and well performed to do
decision making.
Finally, Intellectual Capital in operation method while using Accounting information
system will supporting sustainable development of management activities daily based
on the human resource development activities and based on playing all role and operate
all the system in order to take decision making.
Suggestion and Discussion
When the sustainable development of management is fully implemented, it becomes
the issued to apply the recognizing of the certain discipline such as accounting performance
that is supported by technology uses; the better the management, it will automatically
had been implemented in its performance in the terminology of increasing not only the
value of entities but also to have better profitability performance. Other concern that
counted as most influence issue is how to perform the sustainability mankind intellectual

through knowledge transfer in human resource development activities as the key factor
of sustainability firm performance.
Conclusion
However, numbers of property becomes high interesting information among the
mankind intellectual. Since then the differences point of view to find the assumption
must result tosuch as numbers of accuracy, continuously, growth, etc., in intellectual
capital and also showing the re-engineering of reporting on accounting performance itself.
Hereby, the mankind intellectual has tasks to perform the best assumption in providing
information at all costs as well as they earned including to show the certainty of future
prediction through their reporting.
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The Existence of Corporate Social Responsibility as a
Moderating Variable The Effect of Firm Size and Prior
Year Going Concern Audit Opinion on The Probability of
Receiving Going Concern Audit Opinion
Dody Hapsoro
(dodyhapsoro@gmail.com)
Department of Accounting STIE YKPN
Yogyakarta, Indonesia
Khoirunnisa Cahya Firdarini

(firdanias23319@gmail.com)
Department of Accounting STIE YKPN
Yogyakarta, Indonesia
ABSTRACT
This research examines the effect of financial performance, prior year going concern audit opinion and firm
size to the probability of receiving going concern audit opinion and also examines the effect of corporate
social responsibility as moderating variable on this effect. Control variables that employed are liquidity and
leverage ratio. The population of this research is high profile companies listed in BEI (Bursa Efek Indonesia)
from 2008-2012. Based on purposive sampling method, total sample of this research is 95 firm-years. Data
sources are both annual report and financial report of companies. Hypothesis testing used is logistic regression
analysis. This research also uses bootstrapping method as additional test to ensure that the result is robust.
Both logistic regression analysis and bootstrapping method’s result show that only prior going concern
audit opinion has positive and significant effect to the probability of receiving going concern audit opinion.
Financial performance, firm size and control variables are not significant affect to the probability of receiving
going concern audit opinion. The research also failed to prove the existence of corporate social responsibility
as moderating variable on the model was proposed.
Keywords: Financial performance, prior going concern audit opinion, firm size, corporate social responsibil-
ity (CSR), and going concern audit opinion.
INTRODUCTION
Independence and professionalism are the main requirements for an auditor. SPAP
Section 220 states that an auditor must be honest, free from the obligations of the client
and the client has no interest in either the management or owners. However, auditor
independence has been questioned since the disclosure practices of financial statement
fraud committed by one of the giant companies in the United States, namely Enron Cor-
poration in 2001 which was then audited by the public accounting firm Arthur Andersen.
Enron’s financial statements previously expressed an unqualified by the public accounting
firm Arthur Anderson, one of the public accounting firm in the ranks of the big four, but
in the end the company is declared bankrupt (Januarti, 2008).
Enron scandal not only affect the Enron Corporation and Arthur Andersen, but also
affects the perception of the independence of all auditors in the public eye, so the auditors
on the basis of the case in Indonesia is obliged to disclose going concern problems faced by

the company for one year after the issuance of the audit report. The obligations stated in
the Standards on Auditing (SA) of Section 341 that the auditor is responsible for assessing
whether there is substantial doubt on the company’s ability to survive (going concern)
in a period of time not exceeding one year from the date of the audit report (IAI, 2001).
However, administration of the company’s going-concern opinion is not an easy task (Koh
and Tan, 1999, in Fanny and Saputra, 2005). The problem that often arises is the difficulty
of predicting the survival of a company that causes the auditor experienced between a
moral and ethical dilemma in giving a going concern opinion. The difficulties caused by
self fulfilling prophecy hypothesis which states that if the auditor gives a going concern
opinion, then the company will become insolvent faster because it will cause investors to
cancel their investment or creditors withdraw their funds (Venuti, 2007). Another cause
is the absence of going-concern status determination procedures is structured (Joanna,
1994 in Surbakti, 2011).
This study examined the influence of financial and non-financial factors to the going-
concern audit opinion. Financial factors include the company’s financial condition as
measured from financial ratios (Zuraidah, 2010), whereas non-financial factors are factors
beyond the company’s financial performance is expected to affect the administration of
going concern audit opinion.
Financial factors used in this study are financial performance that is measured by us-
ing the ratio of profitability (return on assets). Return on assets (ROA) is used as a proxy
for financial performance because this ratio is the ratio of the most important among the
existing profitability ratios (Ang, 2007) and is able to demonstrate the effectiveness of
management in the use of assets to earn income (Permanasari, 2011).
Non-financial factors used in this study are the size of the company and going concern
audit opinion prior year. Firm size was measured by using the total assets of the company
which reflects the resources owned by the company, while the going concern audit opinion
prior year audit opinion is given by the auditor to the company (auditee) in the previous
year which shows how well the company’s ability to maintain its viability.
The population used in this study is a high-profile companies listed in Indonesia Stock
Exchange in 2008 until 2012. Consideration of high-profile companies selected as the
study population because these types of companies generally attract people’s attention
due to its operating activity that involves a lot of interest (Mardi, 2010 in Rinaldi, 2011).
Robert (1992 in Handy, 2011) mentions several criteria for high-profile companies, includ-
ing companies that are more sensitive to the environment, have a higher political risk or
has the level of competition.
Determination of the type of high profile industry in this study is based on a clas-
sification according to Patten (1991) and Roberts (1992) in Handy (2011) and Hackston
and Milne (1996). Patten (1991) classifies the oil industry, chemical and paper as a high
profile, while Roberts (1992) classifies the automobile industry, aviation and oil as a high
profile. Hackston and Milne (1996) expand the category of high-profile industry by adding
agriculture industry, liquor and tobacco as well as media and communications. Based on
the classification done by several researchers over and after adjusting to the economic
and social conditions in Indonesia, this study will use the industry engaged in the oil and
mining, chemical, forestry and agribusiness, paper, automotive, tobacco, pharmaceuti-
cal, infrastructure, public services and transport as well as food and beverage industry as
a high-profile categories that will be used as the study population. Based on the above

background, the researchers used the title “The Existence of Corporate Social Responsi-
bility as a Moderating Variable Influence of Firm Size and Going Concern Opinion Issued
Previous to Admission Going Concern Opinion”.
MATERIALS AND METHODS
Separation of ownership and management of the company according to agency
theory could potentially lead to a conflict between the agent and the principal. This con-
flict occurs because they have conflicting interests. If the agent and the principal seeks
to maximize their own interests and have different desires and motivations, it can be
believed that the agent (management) do not always act in accordance with the wishes
of the principal (Jensen and Meckling, 1976). Managers will tend to act opportunistically,
by prioritizing self-interest can lead to agency conflicts so that the necessary role of the
third party, namely the independent auditor to give an opinion about the fairness of the
financial statements presented by management. In addition, the auditor is also required to
disclose going concern issues that companies face when auditors doubted the company’s
ability to maintain its viability.
The survival of the company is not solely determined by whether the poor performance
of the company during the period. Legitimacy theory states that the company operates
in society via a social contract that the company must make an agreement to undertake
a range of actions desired by the community in return for the receipt of the goal, the
survival of enterprises and other awards (Guthrie and Parker, 1989 in Widianto, 2011).
One of the actions that can be done is to apply the company’s CSR. According Djakman
and Machmud (2008 in Purwanto, 2011), by applying the company’s CSR is expected to
gain social legitimacy and maximize long-term financial strength so that the company’s
business continuity will be assured.
In addition to meeting the demands of society, companies are also required to meet
the expectations of its stakeholders. Stakeholder theory states that the existence of a
company is determined by its stakeholders, so that companies seek their support in
running their operations. In this case, the disclosure of corporate social responsibility is
considered as part of a dialogue between the company and stakeholders. Implementation
and disclosure of corporate social responsibility is expected to strengthen stakeholder
support to the company so as to ensure its survival in the long term.
Previous empirical research on the factors that affect the going concern audit opinion
ever undertaken by several researchers, including research conducted by Mutchler (1985
in Surbakti, 2011), Hani et al. (2003), Rahayu (2007), Januarti and Fitrianasari (2008) and
Widyantari (2011). Mutchler (1985 in Surbakti, 2011) did discriminant analysis to include
items of financial ratios, contrary information, mitigating factors, trends and the type of
audit opinion prior year. His findings indicate that the model with financial ratios and
type variables prior year’s audit opinion has the highest overall prediction accuracy, the
amount of 89.9 % compared to other models. These results indicate that the financial
ratios and the type of audit opinion prior year can be considered in predicting the going-
concern opinion decision.
Hani et al. (2003) examined the effect of profitability on a going concern audit opinion
is proxied by return on assets (ROA) and the interest margin of loans (IML). The study
used a sample of 24 banks listed on the JSE during the period 1995 to 1997 and of the
results of logistic regression testing, it is found that the profitability negatively affect on
the going concern audit opinion.

Rahayu (2007) investigated the influence of profitability and going concern audit
opinion prior to provision of the going-concern audit opinion. These variables refer to
the research conducted by Hani et al. (2003) and Carcello and Neal (2000). Similar to
the research conducted by Hani et al. (2003) previously, these studies also using logistic
regression models and sample banking companies listed on the JSX and SSX in 2000 to
2005. The results showed that the previous year’s audit opinion proved to significantly
influence the going-concern audit opinion. However, this study rejects the hypothesis
that profitability affects the going concern audit opinion.
Research of Januarti and Fitrianasari (2008) using a sample of companies listed on the
JSE in 2000 to 2005 to examine the effect of profitability ratios, going concern audit opinion
prior year and the size of the company on going concern audit opinion for the year. Based
on logistic regression testing performed, it is known that only a going concern audit opin-
ion prior year which significantly influence the going-concern audit opinion for the year.
Widyantari (2011) examined the factors that affect the going concern audit opinion.
Some of the variables used in this study refers to the variables used by Januarti and
Fitrianasari (2008) and extend the observation period until 2009. The results show that
profitability, previous year’s audit opinion and firm size significantly influence the going-
concern audit opinion.
Research on CSR has been done by several researchers both regional and global in
scope, among others, Carroll (2004), Simon and Fredrik (2009), Chambers et al. (2003)
and Chen et al. (2011). Carroll (1991) conducted research on the type of corporate social
responsibility that is arranged in a pyramid shape. The pyramid describes the overall
perspective of what society expected of a company, both economically and socially. The
pyramid can also be used as a tool to clarify the various types of corporate responsibility
that must be met to achieve the legitimacy of the local community and its stakeholders.
Type these responsibilities include economic responsibilities (business to generate revenue
and maximize profits which is one of the primary responsibilities of the company), legal
responsibilities (public expectation that companies comply with applicable laws and regula-
tions), ethical responsibilities (expectations of the people that run the company business
ethically, such as following the norms are not written, the standards and expectations of
its stakeholders) and philanthropic responsibilities (where the company hopes that the
community can benefit them). Philanthropic responsibilities may differ between regions or
countries according to where the company is located and doing activities (Carroll, 2004).
Simon and Fredrik (2009) construct a pyramid of social responsibility in Indonesia with
reference to Carroll’s CSR Pyramid (2004), as follows:
Figure 1
Indonesian CSR Pyramid Version of Simon and Fredrik (2009)
Based on Carroll’s CSR Pyramid (2004)

Philanthropic
Responsibility

Legal Economical
Responsibility Responsibility
Ethical Responsibility

Ethical responsibility is placed at the base of the pyramid that represents the founda-
tion of CSR performance in Indonesia. This is because the cultural values, norms, ethics,
and religion are seen as one of the most complex problems for companies doing CSR in
Indonesia.
Chen et al. (2011) attempted to explore empirically the relationship between CSR of
company and the auditor’s behavior. According to them, the company that has a strong CSR
is more likely to survive in adverse economic conditions, legal and regulatory challenges
faced in comparison to its peers with weaker CSR, so the company has a better chance
to continue its survival. Strong CSR can also reduce the effort required audit because of
reduced risk of external regulation, litigation and reputation for both clients and auditors.
The results of these studies indicate that auditors respond to the changing trend of CSR
information to issue a going concern opinion.
The model in this study is shown in Figure 2. This study uses a model of corporate
social responsibility as a moderating variable effect the size of the company and receiving
a going concern opinion prior to the receipt of a going concern opinion for the year as
well as the use of variable liquidity and leverage as control variables.
Figure 2
Model Research
Financial Performance
Profitability
CSR
Prior Year Going Going Concern
Concern Audit Opinion Audit Opinion
Firm Size
Liquidit
y
Leverag
e
Profitability is an important variable in the measurement of financial performance
because it reflects the company’s ability to generate revenue and cost management
efficiency to maintain its survival. According Ramadhany (2004), a company that has a
good financial condition will have a high profitability so the chances of getting a favorable
opinion also greater than the companies that have low profitability. The higher profitability
of the company will further enhance the auditor’s belief about the company’s ability to
generate profits that is the main purpose of the company, thereby reducing the possibility
of going-concern audit opinion. Research conducted by Hani et al. (2003) showed that
the profitability negatively affect the going concern audit opinion. Based on the above
explanation, can be formulated the following hypothesis:
H1: Profitability negatively affects the acceptance of a going concern opinion.

Companies that receive a going concern opinion in the prior year were likely to receive
the same opinion in the following year. According Carcello and Neal (2000), the reason is
because the audit opinion received by the company in previous years is one of the consid-
erations for the auditor to provide an audit opinion on the current year. In addition, the
company also requires a relatively long time to improve their performance. Most stud-
ies (Ramadhany, 2004; Setyarno et al., 2006; Surbakti, 2011; Susarni and Jatmiko, 2011;
well as Rahayu and Pratiwi, 2011) showed that the going concern opinion received in the
previous year has a positive effect on the acceptance of a going concern opinion on cur-
rent year. Based on the above explanation, can be formulated the following hypothesis:
H2: Acceptance of going concern opinion in the prior year positively affects the ac-
ceptance of a going concern opinion.
Firm size is a scale used to determine the size of a company. The size of the company
can be seen from the total assets. Mutchler (1985 in Surbakti, 2011) states that auditor
often provide going concern audit opinion on small companies. This is possible because
large firms have better management in managing the company and better able to pro-
duce quality financial statements when compared with small firms (Ballesta and Garcia,
2005 in Junaidi and Hartono, 2010). Another reason according to Mc Keown et al. (1991
in Januarti, 2008) is that more large companies offer higher audit fees than those offered
by smaller companies, so it will discourage auditors to provide an opinion on the going
concern audit large companies. Based on the above explanation, can be formulated the
following hypothesis:
H3: Firm size negatively affects the acceptance of a going concern opinion.
The main objective of the company is generating profits so high profitability of a
company is not a guarantee that the company will implement and reveal more social ac-
tivity. This is due to the achievement of the earnings is good news for the company so the
company felt no need to do social disclosure. Conversely, when the profit is low, then the
company will tend to do more social disclosure because there is a perception that users
report generally prefer to hear good news about the company’s performance (Donovan,
2002). If good news can not be obtained through increased earnings, the company will
reveal it through social performance such as corporate social responsibility (CSR). Imple-
mentation of CSR activities is expected to increase the survival of the company along with
reduced levels of profitability. Based on the above explanation, can be formulated the
H4: Corporate social responsibility moderating effect profitability on the acceptance
of a going concern opinion.
Auditors tend to give a going concern audit opinion to the company that received
the same opinion in the previous year. However, in addition to its financial condition, the
survival of a company is also influenced by various factors such as support from external
parties, especially the community. Legitimacy theory explains that companies need support
and acceptance from the community. To gain the support and acceptance of the public
company must provide benefits to the community among other CSR programs. Through
the implementation and disclosure of social responsibility, the company can also avoid
the possibility of large cost due to the demands of society in the future. Based on the
above explanation, can be formulated the following hypothesis:
H5: Corporate social responsibility moderating effect the acceptance of a going

concern opinion prior year on the acceptance of a going concern opinion.
Stakeholder theory assumes that the existence of a company is determined by its
stakeholders that the company should try to seek support from them, one of them with
activities and corporate social responsibility disclosure. In relation to CSR, large companies
have a wider stakeholder compared with smaller companies so they need to do more ex-
tensive disclosure to their stakeholders. The more extensive CSR disclosures made by the
company with the larger size are expected to reduce the tendency of auditors to provide
a going concern audit opinion. Based on the above explanation, can be formulated the
H6: Corporate social responsibility moderating effect of firm size on the acceptance
of a going concern opinion.
This study used a high-profile industry category as the study population. Category high
profile in this study include the oil and mining industries, chemical, forestry and agribusi-
ness, paper, automotive, tobacco and cigarettes, pharmaceuticals, infrastructure, public
services and transport as well as food and beverage products. Sampling was conducted
with a purposive sampling method based on specific criteria, i.e. firms that belong to the
group of high-profile industry listed on the Stock Exchange in 2008-2012, did not experi-
ence delisted during the period of observation, published annual financial statements
audited by an independent auditor in full and never experienced a negative net income
of at least two times in a row during the observation period.
Financial performance is a view of the financial condition of the company during a
specific time period. Measurement of financial performance by Horngren (2007) aims to
measure the performance of the company and comparing it with the company’s goals or
objectives. The ratio used in this study is the return on assets (ROA), which is one form
of profitability ratios are intended to measure the company’s ability to generate profits
by exploiting its assets.
Going concern audit opinion prior year audit opinion indicates an uncertainty about
the viability of the company that provided by the independent auditors in the previ-
ous year. This variable is measured using dummy variables. Companies that receive a
going-concern audit opinion (GCO) were coded 1, while companies that do not receive a
going-concern audit opinion (NGCO) were coded as 0. This data was obtained from the
independent auditor’s report in the year prior to the year of observation, i.e. 2007-2011.
Firm size is used to measure the size of the sample companies. According Mach-
foedz (1994 in Abraham, 2008), basically the size of the company is just divided into
three categories, namely large firm, medium firm and small firm. Firm size in this study
was measured using the natural logarithm of total assets. Total assets as a proxy for firm
size selected on the basis that the value of assets relatively more stable than the market
capitalization and sales.
The dependent variable used in this study is the going-concern audit opinion. A going
concern audit opinion indicates uncertainty about the viability of the company that pro-
vided by the independent auditor. Going concern opinions criteria used in this study refers
to Ramadhany research (2004) which states that the going-concern opinion includes an
unqualified opinion with explanatory language, a qualified opinion, adverse opinion and
did not give an opinion (disclaimer of opinion). An unqualified opinion is categorized into
non-going-concern opinion. This variable is measured using dummy variables. Companies

that receive a going concern opinion (GCO) were coded 1, while companies that do not
receive a going concern opinion (NGCO) were coded as 0.
Moderating variables used in this study is the disclosure of CSR. CSR measurements
performed using a checklist that contains items of corporate social responsibility dis-
closure in six categories, namely economic, environmental, labor practices and decent
work, human rights, society and product responsibility. Category on the checklist based
on GRI indicators (Global Reporting Initiatives). These six categories were grouped into
the 79 disclosure items. This checklist using dichotomy approach, i.e. a value of 1 will be
given if any item of corporate social responsibility in accordance with the GRI indicators
and a value of 0 will be given if there are no items of corporate social responsibility in
accordance with the GRI indicators (Novita and Djakman, 2008; Nurkhin 2009 in Handy,
2011). The disclosure index calculation formula is as follows:
n
CSRI=
79
Description:
CSRI = Index of corporate social responsibility disclosure
n = Number of items disclosed by the company
In addition to the main variables mentioned above, this study also uses liquidity and
leverage ratio as a control variable. Control variable is a variable that is controlled or held
constant so that the relationship between independent variables and dependent variable
is not influenced by external factors not examined.
Liquidity can be defined as the availability of resources (ability) companies to meet
short-term obligations at maturity. Liquidity in this study was measured by using a cur-
rent ratio, which compares the ratio of current assets to current liabilities. Mathematical
formula for calculating the current ratio is as follows:
Current Ratio = Current Asset
Current Liability
Leverage ratio is a ratio that indicates the level of the use of debt to finance the com-
pany. High degree of leverage suggests that companies relying too heavily on external
funding to finance its assets and shows lack of safety measures for the creditors because
of the owner’s capital contribution is not proportional to the level of the company’s debt,
so that leverage ratio illustrates the level of financial risk a company. According Widyantari
(2011), the leverage ratio measurements generally use debt to equity ratio, i.e. the ratio
that compares the total liabilities to total assets of the company. Mathematical formula
to calculate the debt-to- assets ratio is as follows:
Total Debt
Debt to Equity Ratio=
Total Equity
The method of analysis used in this study was logistic regression because the depen-
dent variable in this study, namely going concern audit opinion is a dummy variable that
is included in the non-metric variables (Sumodiningrat, 2007: 334) and the independent
variable is a combination of variable and non-metric. Logistic regression does not require
the assumption of normality in the independent variable (Ghozali, 2006) and ignoring het-
eroscedasticity. Logistic regression analysis was performed using the program Statistical
Package for Social Science (SPSS) 20. Logistic regression models were used in this study is:

Description:
GCO = Going concern opinion (dummy variable, 1 for the auditee with going-concern
audit opinion (GCO) and 0 for the auditee with non-going concern audit opinion
(NGCO).
α = Constant
i = Regression coefficient
ROA = Financial performance measured by ROA (return on assets)
OTS = Audit opinion received in the previous year (1 if going-concern audit opinion and
0 if not going-concern audit opinion)
TAP = Total assets of the company (measured using the natural logarithm of total assets)
CSR = Corporate social responsibility
LIQ = Liquidity (measured using the current ratio)
DER = Leverage (measured using a debt to equity ratio)
E = Residual error
In addition to using logistic regression, this study also uses bootstrapping method
as additional testing. According Sastradihardja (2006), the bootstrapping method can be
performed in a state that is a lot of data when necessary, while the process to get data is
unlimited. Bootstrapping method is a resampling method of sample data based on the
condition of return on their data in order for the sample to represent the actual popula-
tion data.
Bootstrapping methods used for the selection of the sample obtained from the re-
sults of a relatively small number of samples, so it is feared parameters obtained will be
biased, either underestimate or overestimate. In general resampling is taken thousands
of times in order to represent the data population. According to Hair et al. (1998) and
Faraway (2002), the bootstrap resampling should be done at least as much as 1,000 times.
Therefore, this study will use the data as much as 1,000 times resampling.
RESULTS
The population of this study is that companies in high profile categories listed in
Indonesia Stock Exchange (IDX) in 2008 to 2012 totaling 105 companies. Sample selec-
tion process is done by using purposive sampling and selection results obtained from 19
companies that meet the criteria so that the total sample obtained during the five years
are 95 firm-years. The results of the sample selection are shown in the following table:

Table 1
Sampling Election Results
Criteria Number of
Companies
High profile companies listed in Indonesia Stock Exchange during the years 2008-2012 105
Companies that experience delisted during the period of observation -17
The data of annual financial report not complete available -2
Companies that do not experience a negative net income during the years 2008-2012 -67
Total sample 19
Year of observation 5
Number of observations 95
Details of the data distribution company that was selected as the study sample ac-
cording to the type of industry are presented in Table 2. Based on the table it can be seen
that there are only eight of the nine types of companies in the category of high-profile
companies that meet the criteria for sample selection. These types of companies that do
not meet the criteria are tobacco companies. Here is a table of the distribution of sample
firms by type of industry:
Table 2
Sample Distribution of Firms by Type of Industry
Criteria Number of
Companies
High profile companies listed in Indonesia Stock Exchange during the years 2008-2012 105
Companies that experience delisted during the period of observation -17
The data of annual financial report not complete available -2
Companies that do not experience a negative net income during the years 2008-2012 -67
Total sample 19
Year of observation 5
Number of observations 95
Subsequently the samples were categorized into two groups based on the type of
audit opinion received, the group of companies that receive going-concern audit opinion
(GCO) and get a non-going concern audit opinion (NGC). Distribution companies are pre-
sented in the following table.
Table 3
DistributionDistribution
Company Based on Audit
Company BasedOpinion
on Audit Opinion
Opinion Year Total

2008 2009 2010 2011 2012
GCO 13 13 15 15 16 72
NGC 6 6 4 4 3 23
Total 19 19 19 19 19 95
Based on the above table it can be seen that the number of companies that received
a going concern audit opinion has increased from 2008-2012. The number of companies
that received a going concern audit opinion during the five years of observation was 72

firm-years, while the numbers of companies that do not receive a going-concern audit
opinion during the observation period were 23 firm-years.
This study uses logistic regression. Testing the feasibility of regression models per-
formed using Hosmer and Lemeshow’s Goodness of Fit Test. Results of Hosmer and
Lemeshow’s test Goodness of Fit shows a significance value of 0.826 (0.826> 0.05), so
it can be concluded that the model is able to predict the value of observation or model
is acceptable because it fits with the data observations. Therefore, the assumption of
goodness of fit is met.
Table 4
Hosmer and Lemeshow Test

Step Chi-square df Sig.
1 4.334 8 0.826
Classification table obtained after logistic regression showed that the probability of
the company to receive a going-concern audit opinion amounted to 88.4%. This means
that by using the proposed regression model, there are 61 companies (88.4%) were
predicted to receive a going-concern audit opinion from a total of 69 companies that
received a going concern audit opinion. While the power of the regression model to pre-
dict the likelihood of the company received a non-going concern audit opinion is 80.8%.
This means that the proposed regression model, there are 21 companies (80.8%) were
predicted to receive non-going concern audit opinion from a total of 26 companies that
receive non-going-concern audit opinion. The percentage of overall predictive power of
the regression model is 86.3%. This prediction can be seen in the following table:
Table 5 Table 5
Table Classification
Table Classification
Classification Table a
Observed Predicted
GCO Percentage
Correct
0 1
Step 1 GCO 0 21 5 80.8
1 8 61 88.4
Overall Percentage 86.3
a The cut value is .500
Regression models were formed after testing using logistic regression is as follows:
Ln
GCO = 0.139 + 14.410 ROA + 3.681 OTS – 0.040 TAP - 123.513 ROA.CSR + 1.286 OTS.
1-GCO CSR + 0.008 TAP.CSR + 0.005 LIQ + 0.008 DER + ε

Results of logistic regression testing are shown in Table 6.

Table 6Table 6
Variables in the Equation

B S.E. Wald df Sig. Exp(B)
OTS 3,681 1,578 5,444 1 0,02 39,677
TAP -0,040 0,099 0,161 1 0,688 0,961
ROA 14,410 8,66 2,769 1 0,096 1812789,07
LIQ 0,005 0,005 0,996 1 0,318 1,005
Step 1a DER 0,008 0,013 0,399 1 0,528 1,008
OTS_CSR 1,286 15,639 0,007 1 0,934 3,617
ROA_CSR -123,513 89,764 1,893 1 0,169 0,000
TAP_CSR 0,008 0,335 0,001 1 0,982 1,008
Constant 0,139 2,235 0,004 1 0,95 1,149
a. Variable(s) entered on step 1: OTS, TAP, ROA, LIQ, DER, OTS_CSR, ROA_CSR,
TAP_CSR
The results of hypothesis testing that has been done shows that the financial per-
formance variables (ROA) indicates a probability of 0.096 (0.096 > 0.05), the variables
going concern opinion prior year (OTS) indicates a probability of 0.02 (0.02 < 0.05), the
size of the company (TAP) showed a probability of 0.688 (0.688 > 0.05), the interaction
between the financial performance variables with CSR (ROA_CSR) indicates a probability
of 0.169 (0.169 > 0.05), the interaction between variables in the going-concern opinion
prior to CSR (OTS_CSR) indicates a probability of 0.934 (0.934 > 0.05), and the interaction
between firm size variables with CSR (TAP_CSR) shows the probability of 0.982 (0.982 >
0.05), Based on the test results it can be seen that the only variable going-concern opinion
previous year’s positive influence on the acceptance of a going concern opinion because
it has a probability level of 0.02 (0.02 < 0.05), so that the second hypothesis is accepted
while five other hypotheses proposed in this study were rejected.
In addition to testing using logistic regression, this study also used the bootstrapping
method to perform resampling observation data as much as 1,000 times. This test is done
to complement previous testing efforts and increase the strength of the research results
(robustness). The results of these tests reinforce the results of research conducted us-
ing logistic regression, the only variable in the previous opinion that showed significant
results (0.002 < 0.05). Test results using bootstrapping methods are presented in the
following table:
Table 7
Table 7
Test Results Using Bootstrapping Method
Test Results Using Bootstrapping Method
Bootstrap for Variables in the Equation
B Bootstrapa
Bias Std. Error Sig. (2-tailed) 95% Confidence Interval
Lower Upper
OTS 3,681 8,111b 115,078 b ,002b ,020b 13,623b
TAP -0,04 -,026b 2,070b ,754b -,468b ,316b
ROA 14,41 32,120b 900,475 b ,124b -11,973b 60,468b
LIQ 0,005 ,011b ,215b ,390b -,015b ,085b
Step 1 DER 0,008 -,072b 1,738b ,235b -,322b ,258b
OTS_CSR 1,286 -9,456b 434,991 b ,920b -44,198b 80,042b
ROA_CSR -123,513 -467,745b 12243,536b ,185b -664,443b 114,986b
TAP_CSR 0,008 -,682b 11,836b ,972b -2,951b 1,587b
Constant 0,139 ,682b 44,520b ,968b -8,779b 10,280b
a Unless otherwise noted, bootstrap results are based on 1000 bootstrap samples
b. Based on 997 samples

TableTable
8 8
Comparison of Results of Logistic Regression Testing Method and Bootstrapping
Comparison of Results of Logistic Regression Testing Method and Bootstrapping
Logistic regression Bootstrapping
Sig. Sig. (2-tailed)
ROA 0,096 0,124
OTS 0,020 0,002
TAP 0,688 0,754
ROA_CSR 0,169 0,185
OTS_CSR 0,934 0,920
TAP_CSR 0,982 0,972
LIQ 0,318 0,390
DER 0,528 0,235
Constant 0,950 0,968
DISCUSSION
The results of this study indicate that only the acceptance of a going concern opinion
in the prior year positive effect on the acceptance of a going concern opinion in the cur-
rent year. This is because the business activities of a company in a given year can not be
separated from the circumstances that occurred in the previous year. If in the previous
year the company has received the opinion is not good (going concern audit opinion), it
is difficult for such companies to improve themselves in a short time without any effort
to restore the financial situation radically so most likely the company will obtain the same
opinion in next.
Financial performance is measured using ROA does not affect the going concern
audit opinion. Rejection of this hypothesis is because the auditor does not merely assess
a company’s ability to survive on the income generated (profitability), but assessing the
company’s financial performance as a whole, both long term and short term.
This study also rejects the hypothesis that firm size affects the acceptance of a going
concern opinion. High asset ownership by the company if it is not balanced with proper
management would cause problems in the long term so that the company can push
companies towards bankruptcy. In addition there is the possibility that the giving going
concern audit opinion, the auditor is not affected by large companies that may provide
greater audit fees compared to smaller companies. It is also proved that the auditor still
be independent.
Corporate social responsibility is not moderate the effect of profitability on the ac-
ceptance of a going concern opinion. Rejection of this hypothesis due to the CSR programs
undertaken by the company does not get the appreciation of its stakeholders. In other
words, CSR disclosure does not affect the level of sales of the company or not able to
increase the stock price to be higher so that such disclosure is not able to provide feed-
back in the form of an increase in corporate profits or it can be said that CSR does not
contribute positively to the company’s financial performance, which in turn resulted in
company still obtain going concern audit opinion.
This study also reject the hypothesis which stated that corporate social responsibility
moderate the influence of acceptance a going concern opinion in the prior year to the
acceptance of a going concern opinion in the current year because when seen from the
financial side, the implementation of CSR requires funds in an amount not less whereas
in the previous period the company experienced of not good financial condition. Alloca-
tion of funds for CSR programs will only further burden the company’s finances so that

the implementation of CSR by the company will not respond as good news by corporate
stakeholders, especially investors. For auditors this will be a threat to company so the
implementation of CSR will further exacerbate the audit opinion received by the company
during the year.
Corporate social responsibility does not moderate the effect of firm size on receipt of
a going concern opinion. Based on the results of descriptive statistics, the majority of the
sample companies used in this study belong to the large companies making it possible for
the company to obtain and express demands in implementing CSR programs of its stake-
holders is also greater. The high demand and should be followed by the implementation of
CSR disclosure has wider coverage (in accordance with the GRI standards) because there
is a possibility that the company’s stakeholders, especially investors are foreign investors.
But in fact most companies have not been able to meet these standards, so that CSR is
not able to affect the size of firm size on going-concern audit opinion.
The test results of the two control variables indicate that liquidity does not affect
the going concern audit opinion. These findings suggest that in issuing going concern
audit opinion, the auditor not only consider the company’s ability to meet its short term
obligations, but rather look at a company’s ability to pay all of its liabilities. This study
also proves that leverage does not affect the going concern audit opinion. Based on the
results of descriptive statistics, most of the research sample is large sized companies. Large
companies tend to have high debt levels because they require more funds to expand the
business, so that an increase in the leverage ratio is no longer considered a threat to the
survival of the company. It also suggests that an auditor does not provide going concern
audit opinion based solely on the level of use of debt in a company. Leverage ratio is not
seen as the sole financial risks faced by the company, but auditors are more likely to see
the company’s overall financial condition.
CONCLUSION
Based on the results obtained through statistical tests and discussions that have been
described previously, it can be concluded that during the period of observation (2008 to
2012), the company that received a going concern audit opinion increased from year to
year and the largest is in 2012 by 16 companies (84%) of the 19 companies were selected
as sample. Hypothesis testing is performed using logistic regression showed that only the
previous year going concern opinions that influence the acceptance of a going concern
opinion for the year. The results of this study support almost all of the research that has
been done before (Ramadhani, 2004; Setyarno et al., 2006; Surbakti, 2011; Susarni and
Jatmiko, 2011; Widyantari, Rahayu and Pratiwi 2011 and 2011), while the size of the
company proved to have no effect the acceptance of a going concern opinion, corporate
social responsibility is not moderate the effect of firm size and receiving going concern
opinions prior to the receipt of a going concern opinion. This is due to the majority of
the sample companies did not disclose CSR in accordance with the standards required
by the GRI (Global Reporting Initiative) and the results of additional testing is performed
using bootstrapping by resampling methods as much as 1,000 times shown support for
the results of logistic regression which states that only receipt of a going concern opinion
prior year that affect the acceptance of a going concern opinion in the current year.

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The Influence of Capability on Performance
Organizational with Feedback Control and Feed-forward
as Variable Antecedents
Munawar Muchlish
(muchlish_ak@yahoo.com)
Faculty of Economic, University of Sultan Ageng Tirtayasa
Banten, Indonesia
ABSTRACT
The purpose of this study was to analyze the effect of feedback and feed-forward control in Building Market
Capability Orientation and Entrepreneurship and Organizational Performance . The data used in this study
were obtained from the perception of General Manager, Marketing Manager, and Finance manager that
functionally involved in organizational performance in manufacturing companies in Banten. 150 question-
naires was distributed, and 45 questionnaires were returned. The analysis of the data used in this study was
the approach of Partial Least Square (PLS). This research was conducted in all Manufacturing Companies in
Banten,and the object of this study were the General Manager, Marketing Manager, and Finance Manager.
This study used the survey research method with primary data collection using questionnaires. The sam-
pling process tested in this study using purposive sampling method ,and 41 respondents were selected as
samples. The research hypotheses was tested using the inner models. This study find that feedback control
and feedforward have positive effect on enterpreuneurship, and feedback control has a positive effect on
market orientation but inversely feedforward doesn’t significantly effect the market orientation, while en-
terpreuneurship and market orientation has a positive effect on organizational performanc.
Keywords: Feedback Control, Feed-forward Control, Market Orientation, Enterpreneurship, Organizational

Performance
INTRODUCTION
Background
In the current business environment characterized by fast changes in customers,
technologies and competition, organizations need to continuously renew themselves to
survive and being prosper (Danneels, 2002). In addition the current global competition,
where there were many turbulent in the business environment requires companies to
develop an understanding of contemporary performance measurements techniques
that help or hinder the exploitation of existing capabilities and identify the new strategy
capabilities (Grafton et al, 2010).
The performance of a company is crucial for it’s development in the process towards
the achievement of corporate goals. The company’s goal can be achieved by having a
good performance. Company’s performance can be seen from the level of sales, profit
rate, return on capital, the level of turnover and market share that will be achieved (Jauch
dan Glueck, 1988). The use of performance measurement system required by some com-
panies on manufacturing company as a management control system which will affect the
Organization Performance (Henri 2006, Widener 2007, Grafton et al., 2010).
The relationship between the role of the company’s performance against organiza-
tional capability would create management control systems, useful for campany’s manage-
ment. Henri (2006) and Widener (2007) suggest that a more detailed understanding of the

role of management control systems as a prelude to the development of the company’s
ability could help itself to resolve some ambiguous findings of the literature that attempts
to link the measurement of innovation performance and organizational performance.
In addition, there are some information needed during the process that has been
passed wich useful as an evaluation of company’s performance. The information used is
the information that is grounded in the company’s currently needs and the information
sourced from external environment. Grafton et al (2010) The company’s decision will have
an impact on the identification and exploitation of the company’s strategic capabilities,
which in turn affect the performance of the organization.
The use of management control system is useful for companies in doing it’s ability
to build capabilities among market orientation and entrepreneurship wich is part of the
four core capabilities to achieve competitive advantage (Hult & Ketchen, 2001; Hurley &
Hult, 1998; Ireland, Hitt, Camp, & Sexton,2000). Formally, capability is company’s process
in using resources such as science, doing integration and generate an update of existing
resources (Grafton et al, 2010).
One of the company’s goal is to survive in an increasingly uncertain competition which
will affect the appraisal of a good company’s performance that possibily continuously
generate profit (benefit) as well as a good performance for investors. In the concept of
the Resource-Based View (Amit & Schoemaker, (1993); Henri (2006) said the company is
seen as a form of unity of diverse and heterogeneous resources distributed throughout
the enterprise and this resource’s differences will persist over in the company.
Entrepreneurship is a company’s ability to continually renew, innovate, and be con-
structive to take risks in the market and organization (Miller, 1983; Naman & Slevin, 1993).
The company’s second capability is market orientation refers to the ability of the
company to meet the needs of consumers and the development of long-term thinking
based on the latent needs of consumers (Slater & Narver, 1998; Slater & Narver 1999).
Market orientation will effectively create the necessary behavior necessary to generate
superior value for consumers for sustainable growth improvement (Kohli & Jaworski,
1990; Naver & Slater, 1990).
In this research, researcher describe the concept of the performance measurement
into dichotomy of feedback control and feed-forward. The use of control feedback /
feed-forward enabling this research focuses on the use of specific performance measures
by managers and the impact of these measures on individual decision making without
reference to the involvement of superiors or at different levels of attention to a certain
size at different times..
Based on the (Resource-Based-View which emphasizes strategic management capa-
bilities for sustainable competitive advantage, Grafton et al., (2010) illustrates that in turn
is the use of performance measurement information to control the feedback and feed-
forward which affect the extent to which an organization is able to exploit and identify
strategic capabilities.
The use of performance measurement as a feedback control increases the company’s
ability to meet the current performance expectations (Emmanuel et al, 1990; Simons,
2000) and assist managers in understanding the impact of past decisions. In addition,
waiting for results to be realized from past information to be used in the feedback control
can cause long time delays and unacceptable to make effective decisions (Emmanuel et

al, 1990; Preble, 1992), then the manager must complete feedback with feed-forward
in which performance measurement information is used to facilitate goal setting and
corporate development planning for the future (Emmanuel et al, 1990; Peble, 1992).
The phenomenon of changes in the business environment has recently hit the global
crisis and negatively affecting almost all countries, including Indonesia. One of the sectors
affected by the global crisis is processing/ manufacturing industry which is highly related
to the international market demand. In indonesia, Banten Province has a major role in
manufacturing sector. As the leading economics sector,manufacturing industry have a
very important role in most of development process for the province itself . Value added
(value added) generated from the manufacturing industry have the largest contribution
comparing to another nine sectors of the economy (BPS Provinsi Banten, 2012).
This study attempts to provide clarity in the midst of previous studies ambiguity, by
more specifically describing the performance measures used and controlled by managerial;
feedback and feed-forward, and specifying the company’s capability; market orientation
and entrepreneurship which is part of the capability.
LITERATURE REVIEW
Theory
Feedback Control
Control strategies conventionally have been tested from the perspective of feedback
control. Feedback control focuses on assessing the actual results (Emmanuael & Outlet,
1985). In using the measures to control feedback, managers examine the gap between
the actual outcome and the expected outcome, and then determine the cause of the gap
(Emmanuel, Otley, & Merchant, 1990; Preble, 1992).
Thus, using performance information as a feedback control mechanism gives managers
information about the outcomes which meet not the expectations, to act as a catalyst for
problem identification. This could stimulates company in solving the problem, the need
for corrective action, and organizational learning, all in the domain on existing activities
(Emmanuel et al, 1990;. Ferreira & Otley, 2009).
Feed-forward
Preble (1992) stated feed-forward control as “steering control” where the performance
is currently tested with external information to predict and assess the possible outcomes
that will arise from the activities undertaken. So the use of performance measurement
as a way of marking the upcoming outcomes, communicate strategies and goals, and as
a catalyst in the planning and setting goals , improve the company’s performance in the
future (Bisbe & Otley, 2004; Emmanul et al, 1990; Kaplan dan Norton, 1996 ), in using the
measurement of feed-forward control, managers should analyze the variance between
the predicted outcomes with desired outcomes, and seeks to minimize the variance (Em-
manuel et al, 1990). As stated by Emmanuel et al (1990), planning is a prime example
of feed-forward control and the “primary purpose of the plan is to prepare a strategy to
communicate the desired” (Simons, 2000).
The availability of information for feedback control tends to be slow, because the
information usually can not be processed until the business process completly done,

especially the realization of outcomes, it takes time and will affect the effective decision-
making (Emmanuel et al, 1990; Preble, 1992). Therefore, the manager can add feedback
control with feed-forward control elements (double loop learning) where performance
measurement information is used to facilitate goal setting and action plan development
(Emmanuel et al, 1990; Norreklit, 2000). It means, the creation of strategic plans and
objectives are also included in the process control and performance assessed by means
directed at the future and anticipation are compared only on the basis of predetermined
strategies and processes to achieve goals (Schreyogg, G., & Steinmann, H. 1987; Preble,
1992).
Market Orientation
Market orientation refers to organization’s pressure to the consumers demand and
the long-term thinking development based on the latent needs of consumers (Slater &
Narver, 1998; Slater & Narver, 1999). Kohli dan Jaworski (1990) stated that the Market
Orientation consists of three components of activity: (1) organization’s market intelligence
related to the conusmer needs both in the present and in the future, (2) dissemination of
knowledge of the market to the department, and (3) the level of organizational responses.
Specifically, market orientation connects the three company’s component ; consumers
orientation, competitor orientation and interfunctional coordination.
Entrepreneurship
Entrepreneurship refers to company’s ability to continuously renew, innovate and
constructively taking risks in the market and its operations (Miller, 1983; Naman & Slevin,
1993). Entrepreneurial action creates a renewable resource or combine existing resources
with a new way to develop and market the new products, lead to a new market and to
the form of a good service to consumers (Hitt et al, 2001). Entrepreneurship is identified
as a critical organizational processes that contribute to the performance and sustainability
of the company (Barringer & Bluedorn, 1999; Hitt et al, 2001; Miller, 1983).
There have been many who acknowledge the potential benefits and importance of
entrepreneurship (Drucker, 1985; Gartner, 2001; Shane, 2003; Luke et al, 2010), Increased
wealth, competitive advantage, product leadership (Porter, 1980) a partial benefit from
the many advantages that can be obtained in the context of entrepreneurship. Entrepre-
neurship is also associated with the odds (Kirzner, 1979), quick action (Bhide,1994), and
rapid economic change (Barth, 1969). Entrepreneurial activity is often positively associated
with financial and economic benefits (Schumpeter,1934), however not all companies are
able to transform entrepreneurial activity into a financial benefit (Lumpkin & Dess, 1996).
Luke et al (2010) argue that the more entrepreneurial strategy being structured, it will
lead to positive outcomes for the organization.
Organizational Performance
Consistent with the contemporary performance measurement literature and resource-
based view prespective, performance seen as a function of the business unit’s ability to
exploit existing capabilities in pursuing the current strategy as well as its potential to adapt
the opportunities and threats (Barney, 1991; Grant, 1991; Simons, 1990). Ventrakaman
and Ramanujam, (1986) describes performance as a reflection of the company’s achieve-
ments that can be recognized as achievements of the various activities undertaken.

Conceptual Framework and Hypotheses Development
The Influence of the Market Orientation Feedback Control
The use of feedback control i.e. performance information on the current position and
facilitate the company’s ability to exploit existing capabilities . Feedback on the actual
performance, report capabilities to apply the existing results in the establishment of a
competitive strategy . Grafton et al (2010) states that the greater use of feedback , the
greater the company’s strategic capacity for exploiting existing capabilities , but the impact
of feedback on the effect of market orientation does not significantly affect the company.
Resource - based view perspective emphasizes the importance of organization’s ca-
pability to mobilize resources in order to achieve competitive advantage (Barney, 1991;
Day, 1994; Grant, 1991; Kogut & Zander, 1992). Market Orientation is part of the com-
pany ‘s capabilities that can bring competitive advantage . Market Orientation arise due
to continuous warning to employees directives to the importance of being sensitive and
responsive to market growth (Kohli & Jaworski , 1993)
The use of feedback on performance measurement facilitate the exploitation of
existing capabilities (Maritan, 2001). Based on the above theories, this study states that
through the use of feedback to evaluate the organization’s performance by measuring
the extent to which the organization is responsive to market developments, measure the
success of innovation and renewal is done, then the results of the evaluation can be re-
communicated to employees on an ongoing basis . Reasearcher therefore hypothesize:
H1a:The use of feedback control has a positive effect on the Market Orientation
The Influence of Feedback Control on Entrepreneurship

The use of performance measurement control as the feedback control (feedback)
enhance the company’s ability to meet the expectations of current performance (Em-
manuel et al., 1990, Simons, 2000) and assist managers in understanding the impact of
the past as well as to raise awareness for the future (Norreklit , 2000). In using measures
to control feedback, managers examine the variance between actual and expected out-
comes, and then worked to determine the cause of the variance (Emmanuel, Outley, &
Merchant, 1990; Preble, 1992).
Consensus on the expected organizational strategy, positioning the organization to
effectively identify strategic opportunities that arise and successfully seek new capabilities
needed to capture these opportunities (Grafton et al, 2010). The hypothesis is presented
as follows
H1b: The use of feedback control positive effect on entrepreneurship
The Influence of Feed- Forward on Market Orientation

Capabilities of the ability to innovate, organizational learning, entrepreneurship and
market orientation will lead to complexity and changes in product design (Henri, 2006).
This context requires experts in the implementation process of new product design (Burns
& Stalker, 1961 ; Mintzberg, 1979 ). Collaboration between experts and managers from
various different departement areas is needed to maintain innovation and new product
development (Miller , 1988). But in terms of developing curiosity and experimentation

must be maintained by the control system (Dent, 1990).
Globally, there is a natural balance between the requirements of the four capabilities
and use of control systems in organizations (Chenhall & Morris, 1995; Van de Ven, 1986,
Henri 2006)
Information used for feed-forward control focuses on the company’s position in the
future and serve as a catalyst to seek new opportunities (Grafton et al, 2010). Unlike the
interactive control, feed-forward control allows interaction and dialogue organization for
managers of business units without having to involve top managers .
Henri (2006) found evidence that the use of interactive controls have a positive influ-
ence on the capabilities of our existing innovation, organizational learning, market orienta-
tion, and entrepreneurship. Widener (2007) also corroborate the findings of Henri (2006),
he examines the effect of PMS, more specifically, i.e. the interactive controls to examine
the effect of organizational learning. Based on literatures written above, researcher argue
that the use of feed-forward contro have an effect for both market orientation and en-
trepreneurship. As discussed previously, market orientation and entrepreneurship make
the organization being able to adjust the conditions of a rapid changing on business en-
vironment and customer needs. Although there is a difference with interactive controls,
but the authors also argue that the feed-forward control contributed to the dissemina-
tion of information processing capacity of the organization and maintain the interaction
between organizational actors. As a result of using feed-forward, the organization can
exploit the it’s capabilities, particularly on market orientation and entrepreneurship. The
next hypothesis formally stated as follows :
H2a : The use of feed-forward control has a positive effect on the Market Orientation
The Influence of Feed-Forward on Entrepreneurship

use of measure for feed-forward, managers examine the variance between the
predicted and desired outcomes, and seeks to minimize the variance (Emmanuel et al.,
1990). Like Emmanuel et al, (1990) noted, the planning is a prime example of feed-forward
control and the main objective is to prepare a plan to communicate the intended strategy
(Simons, 2000). This plan helps guide the successful implementation of organizational
strategy. In order to capture the process by which the effective use of control-feed-forward
in relation to the outcome of the organization, we take advantage of resource-based
theory. Perspective based on a strategic resource emphasizes the organization’s ability
to provide a way untul mobilize resources to achieve competitive advantage. To provide
a source of competitive advantage capabilities should be embedded in organizational
routines (Grant, 1991)
H2b : The use of feed-forward control have positive effect on Entrepreneurship
The Influence of Market Orientation on Organizational Performance

Organizational performance used as a benchmark when the company design it’s busi-
ness strategy and then monitoring the performance of their employees, management will
measure the extent to which their business strategy will be achieved and actual conditions
in the field saw it relates to market conditions faced. Jaworski and Kohli (1993) found a
positive relationship between market orientation and business performance, they stated
that the higher the market orientation the higher the performance of the business will be.

Market orientation as one part of the company’s capabilities, often considered to be the
trigger for increased business performance. Studies by Lush and Laczniak (1987) provide
some support opinion for this relationship. Subsequent studies by (Narver and Slater,
1990) also provide empirical evidence for the relationship between market orientation
and business performance. This is what led the author to make the following hypothesis:
H3 : There is a positive effect between market orientation with the performance of
business units in the organization
The Influence of Entreprenuership on Organizational Performance
Entrepreneurship and management strategy concerned with organizational growth
and wealth earning (Amit & Zott, 2001; Hitt & Ireland, 2000; Hitt, Ireland, Camp & Sexton,
2001, 2002; Ireland, Hitt, Camp & Sexton, 2001; Morris, 1998; Priem & Butler, 2001b).
Entreprenuership is increasingly seen as a stimulus to create and develop the economic
as a result of the actions of the organization. (Peng, 2001; Zahra, Ireland, Gutierrez &
Hitt, 2000). These outcomes provide additional resources and contribute to achieving
competitive advantage (Ireland et al, 2003). Based on a literature-literature, this study
presents the following hypotheses:
H4 : There is a positive effect between Entrepreneurship with business unit perfor-
mance in organization.
Conceptual Framework
======== Figure 1 Here ========
Research Method
Research Design
This research uses a survey method, where data was obtained by distributed the
questionnaires directly to the respondents.
Population and Sample
The population of this study was the whole manager in manufacturing company lo-
cated in Banten province. The survey sample frame was targeted to the middle manager
at manufacturing company in the province of Banten.
The sampling technique used in this study is purposive sampling method. Which
selection of the sample was based on the following criteria: 1) Middle manager at manu-
facturing company that has been working more than one year as a manager, 2) Have
the authority in making decisions as company needs, and 3) have a role in engagement
planning corporate events.
Research Data
Types and Sources of Data
Researcher data collection used in this study is primary data. In this study, the data
collection is sourced from management database i.e. middle managers of manufacturing
companies in Banten Province. The data is in questionnaire form.

Data Collection Techniques
This study attempted to obtain data and information reasonably sufficient according
to the problem to be researched. The data collection method used was a survey method.
Research Varaiables
Independent variables, consisting of 1) Feedback, 2) Feed Forward, 3) Market Orien-
tation, 4) Entrepreneurship
Variabel Dependen, (Organizational Performance)
Variables OperationaliZation
======== Table 1 Here ========
Data Analysis Method

Researcher test the hypotheses using partial least square (PLS). PLS is a structural
equation model (SEM) based components or (variance). According to Ghozali (2006) PLS
is an alternative approach that shifts from covariance-based SEM approach into variant-
based. Covariance-based SEM generally test the quality / theory while PLS more predictive
models. PLS is a powerful analytical method (Wold in Ghozali, 2006) because it does not
based on many assumptions. For example, the data must be normally distributed, the
sample does not have to be huge. Not only being able to be used to confirm the theory,
PLS can be used to explain the relationship between latent variables as well. PLS allows the
simulationeous test of the measurement model and stuctural model. The first step in a PLS
analysis is the assesment of the measurement model by formally examining costruct valid-
ity. Construct validity, the assesment of the degree to wich a measure actually measures
the intended latent construct, is evaluated for both the formative reflective constructs.
Data Quality Testing

Validity
To asses the validity of the formative construct, researcher use the PLS software
with outer model i.e Convergent validity that seen from the value of the square root of
average variance extracted (AVE) of each construct which is it must be greater than 0.5.
Another way is to compare the value of the square root of average variance extracted
(AVE) of each construct (latent variable) with the correlation between the constructs with
other constructs in the model. If the value of the square root of AVE of each construct is
greater than the value of the correlation between the construct with other constructs in
the model, then it shows good grades discriminant validity.
Reliability
Similarly, this study uses PLS Software with Composite Reliability the reliability test.
Data can be judged reliable, if the composite reliability is over 0.7.
======== Table 2 Here ========

Result
Outer Model (Measurement Model)
In assessing the outer model in PLS, there are three criteria, one of which is seen
Convergent Validity whereas for the other two criteria, i.e. Discriminant Validity in the
form of square root of average variance extracted (AVE) and Composite Reliability has
been discussed earlier. For Convergent validity of the measurement model with reflexive
indicators assessed by the correlation between the item score / component scores were
estimated by PLS software. The size of individual reflexive said to be high if it is corre-
lated more than 0.7 with the constructs (latent variables) that were measured. However,
according to the Ghozali Chin (2006: 24), for an early stages of research development,
measurement scales loading value of 0.5 to 0.6 is considered quite adequate.
======== Figure 2 Here ========
Hyphothesis Test with Inner Model

======== Table 3 Here ========
There is a significant positive effect between the feedback control on the market ori-
entation.
Based on the data presented in the table, Feedback does not have a positive effect
on process management as indicated by Original sample estimate in the amount of 0.123
and significant as indicated by the value of t-statistics 0.727 which is above adequate level
of t-table (1.96). Then, the researcher conclude that H1a is not acceptable, i.e. feedback
does not have positive effect on Market orientation.
There is a significant positive effect between the Feedback control on the Enterpreu-
neurship
Based on the data presented in the table, feedback has a positive effect on data re-
porting quality as indicated by Original sample estimate value (0.551) and significant as
indicated by the value of t-statistics (15.567) which greater than t-table (1.96). Thus, H1b
is accepted , feedback will influence positively the level Enterpreuneurship.
There is a significant positive effect between feed-forward control on the Market ori-
entation
Based on the data presented in the table, Feedforward have a positive influence on
Market orientation as indicated by the value of Original sample estimate (0.530) and
significant as indicated by the value of t-statistics (3,386) that greater than t-table (1.96).
Then researcher conclude that H2 is acceptable, Feedforward has a positive effect on
Market orientation.
There is a significant positive effect between market orientation on organizational
performance
Based on the data presented in table, Market orientation has a positive influence on
Organizational Performance shown by the Original sample estimate (0744) and significant
as indicated by the value of t-statistics (9.110) that greater than 9.110 t-table (1.96). H3 is
accepted, Market orientation has a positive effect on organizational performance.
There is a significant positive effect between entrepreneurship on organizational per-
formance

Based on the data based on the data presented in the table, Enterpreuneurship has
a positive influence on Organizational performance as indicated by the Original sample
value estimate (0.187) and significant as indicated by the value of t-statistics (2,183 ) that
greater than t-table (1.96). H4 is accepted, then enterpreuneurship has positive effect on
Organizational performance.
Discussion
There is a significant positive effect between feedback control on market orientation
and entrepreneurship
Hypotheses H1a and H1b stated that there is a significant positive effect between
feedback control on a market orientation and entrepreneurship, but the result reveal
that H1a has no effect, this is not consistent with Grafton et al (2010) research which
states that the greater use of feedback, the greater the the company’s strategic capacity
for exploiting existing capabilities. In contrast, this reseacrh show that the impact of the
feedback control on market orientation does not significantly affect the company,however
H1b shows consistent result with Grafton et al (2010) research.
There is a significant positive effect between feed-forward on market orientation and
entrepreneurship
Hypotheses H2a and H2b stated that there is a significant positive effect between
feed - forward control on a market orientation and entrepreneurship , the results of this
study are consistent with Grafton et al (2010) and Henri (2006) researches. Grafton et al
(2010) stated that the use of information for feed-forward control focuses on the com-
pany’s position in the future and serve as a catalyst to seek new opportunities. Unlike
the interactive control, feed-forward control allows interaction and dialogue in organiza-
tion for managers of business units without having to involve the top managers. Henri
(2006) found evidence that the use of interactive controls have a positive influence on the
capabilities of our existing innovation, organizational learning, market orientation, and
entrepreneurship. Widener (2007) also corroborate the findings of Henri (2006), where
he examined the effect of PMS more specifically, i.e. examine the effect of interactive
controls on organizational learning. Based on these literatures, the authors argue that
the use of feed-forward control have a positive effect for both market orientation and
entrepreneurship.
There is positive effect between market orientation and entrepreneurship on Organi-
zational Performance
Hypotheses H3 and H4 states that there is a significant positive effect between mar-
ket orientation and entrepreneurship to organizational performance . These results are
consistent with the findings of Jaworski and Kohli (1993). They found a positive relation-
ship between market orientation and business performance, in which they stated that
the higher the market orientation the higher the performance of the business. Market
orientation as one part of the company‘s capabilities, often considered to be the trigger
for increased business performance. Studies by Lush and Laczniak (1987) provide some
support findings for this relationship. Subsequent studies by (Narver and Slater, 1990 in
Henri, 2006) also provide empirical support for the relationship between market orienta-
tion and business performance. Furthermore Peng, (2001 ); Zahra et al, (2000), stating
that Entreprenuership increasingly seen as an stimulus to grow up organization’s wealth
by generating and developing economic conditions as a result of the organization actions.

Conclusion
Based on the results of the data analysis above, it can be deduced that manufacturing
company’s situation will improve enterpreuneurship by increasing the corporate feed-
back.Feed forward, similarly has the positive effect on company’s enterpreuneurship.
Furthermore, feedback on the company will not affect the market orientation because it
has no positive effect on the market condition (market oriented). Inverse, feedforward has
a positive impact on market oriented. As well as market orientation, Enterpreuneurship
have a positive impact on organizational performance.
Limitation of Research
There is a limitation found by the researcher of this study that may lead to interesting
extensions. Gennerally, the respondents of this survey is limited to the general manager,
operations manager and production manager in manufacturing company in Banten prov-
ince. As a result, the conclusion of the implications of feedback and feed forward practice
from this study may not be appropriate when applied to another industry excluding manu-
facturing due to the difference in organization culture characteristics of each company.
Suggestion
Based on the conclusions reached above, future research could enlarge the popu-
lation of survey respondents, by examine not only manufacturing companies, but also
examine another type of company that have different culture characteristics and use dif-
ferent methodologies including interviews, field studies, or longitudinal and case studies.
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APPENDIXS
Figure 1
Research Model
H1a
Feedback Market H3
Orientation
Organizational
H1b peformance
H2a
Feed- Entreprene H4
forward H2 -urship
Table 1
Variable Operasionalization
Variable/Sub Variabel Variable Definition Variable Measurement Indicator Scale
Feedback control Feedback control is a control that 1. Promoting learning organization, Ordinal
focuses on assessing the actual re- 2. Analyzing the impact of previous decisions,
sults (Emmanuel & Outley, 1985). 3. Encourage retesting strategies and targets,
The use of performance information 4. Identifying the need for corrective action.
as a feed-back control mechanism Grafton et al (2010)
provide information about the
outcomes to managers, acting as a
catalyst in identifying issues
feed-forward control Feed-forward control is focused on 1. Setting performance goals, Ordinal

the formulation and use of predic- 2. Guiding the strategy, implementation,
tion (Emmanuel & Outley, 1985). 3. Develop action plans,
Practically, feed-forward control is 4. Communicating the strategy’s aspects.
used to facilitate goal setting and Grafton et al (2010)
action plans (Emanuel et al, 1990;,
Norreklit, 2000).

market orientation Market orientation is an organiza- 1. Communicating information about the Ordinal
tion pressure on consumer needs customer experience,
and a long-term development thing- 2. Measurement of customer satisfaction,
king based on the latent needs of 3. Commitment and orientation to serving
consumers (Slater & Narver, 1998; customers,
Slater & Narver, 1999). related or- 4. Functions integration to supply the market
ganizations and the needs of today’s needs
consumers in the future, (2) the 5. After-sales service,
dissemination of knowledge about 6. Sharing information about competitors’
the market Kohli and Jaworski strategies,
(1990) mentions Market Orientation 7. Manager understand how one can create a
activity consists of three compo- value,
nents: (1) market intelligence to the 8. Target on customers when we have superior
Department, and (3) the level of goods,
organizational response will it 9. Discussion about the strategy and strength,
10. Creation of greater value for customers,
11. Understanding customer needs,
12. Customer Satisfaction,
13. Come to current customers and prospec-
tive customers.Widener, 2007.
Entrepreneurship Entrepreneurship is a process by 1. Broad actions needed to achieve the Ordinal
which individuals-either by himself goal
or in organizations-pursue opportu- 2. action initiation to respond other’s
nities (Stevenson and Jarillo, 1990: organizations,
23). Recently studies claimed that if 3. Strong tendency for high-risk projects,
many managers and entrepreneurs 4. Dramatic changes in the product,
are willing to adopt entrepreneurial 5. New lines of products,
behaviors when developing their 6. The first business that introduce new
strategy, the company will face a products, new techniques, etc.,
brighter future than the current per- 7. Be careful, the attitude of “wait and
ception (Lee and Peterson, 2000). see”,
8. Adopt very competitive “undo-the-
competitors” attitude,
9. Continuously explore the environment,
cautious behavior.
Widener, 2007.
Organizational Performance Performance as a reflection of com- 1. Financial performance is overall relative Ordinal
pan’s achievements that can serve to competitors,
as the achievements of the various 2. Business unit performance is overall
activities undertaken (Ventrakaman relative to expectations.
& Ramanujam, 1986). Performance Grafton et al (2010)
seen as profit from the excess of
capital costs, depending on the
interest of the industry in which
the company operates (industry
effects on performance), and the
company’s competitive advantage
(Bridoux, 2005).
Table 2
Average Variance Extracted (AVE) dan Composite Reliabilit
Average variance ex- Composite
√AVE
tracted (AVE) Reliability
Control feedback 0.639 0.799 0.875
Control feed-forward 0.599 0.773 0.857
Entrepreuneur 0.524 0.723 0.898
Market Orientation 0.451 0.671 0.877
Organizational Perf 0.809 0.899 0.894
Source : Output PLS (2013)
Table 3
Result for inner weightss

original
mean of sub Standard
sample esti- T-Statistic Decision
samples deviation
mate
CFB -> MO 0.123 0.105 0.169 0.727 H1a : Rejected
CFB -> ENTP 0.551 0.550 0.035 15.567 H1b : Accepted
CFF -> MO 0.530 0.569 0.157 3.386 H2a : Accepted
CFF ->ENTP 0.518 0.512 0.036 14.520 H2b : Accepted
MO -> KO 0.744 0.753 0.082 9.110 H3 : Accepted
ENTP -> KO 0.187 0.174 0.086 2.183 H4 : Accepted
Figure 2
Fullmodel Structural Partial Leastsquare

Probe Effect Level of Education, Knowledge
Management, Motivation and Capabilities on
Managerial Performance at the Logistic Industry
in Banten Province, Indonesia
Bambang Dwi Suseno

(senadwi_bam@yahoo.co.id)
Student of Management Science, Doctoral Program of
Diponegoro University Semarang, Indonesia
Abstract
This study aims to find a picture on the effect of Education Level, Knowledge Management (KM), Motivation
and ability to Managerial Performance. This study uses test reliability and validity of test data through ap-
proaches Structural Equation Model (SEM) with Partial Least Square (PLS). The research data was collected
from 39 respondents taken based on the questionnaire that was distributed to the logistics companies in
Banten by using purposive sampling.The results of the data analysis of this study showed that there is a
positive relationship between level of education and Managerial Performance, there is a positive relationship
between Knowledge Management and Managerial Performance, there is a positive relationship between
Motivation and Managerial Performance, and there is a positive relationship between ability and Mana-
gerial Performance. Based on the results of these studies indicate that of any exogenous variables have a
significant relationship to the endogenous variables.
Keywords: Level of Education, Knowledge Management, Motivation, Ability, and Managerial Performance
Introduction
Human resources play an important role in determining the success of an organization.
It has been widely recognized that knowledge is an important organizational resource for
any company, regardless of location, organization size (small, medium or large), to survive
and succeed in the world economy. As for facing the difficult aspects of management in
all organizations today is how to make their employees work efficiently. Thus the need for
good decision on the part of management.Fligstein (1990) revealed that the educational
background of managers is very important for a company considering that it can affect
the processes they use in decision making.
Several studies have investigated the impact of human resources practices in per-
formance oganisasi. For years, researchers have suggested many human resources
practices have the potential to improve and sustain organizational performance (Ahmad
& Schroeder, 2003). Vionita (2008) said that all the human resource potential influence
on the organization’s efforts to achieve its objectives. So that aspect of the organization
has led to most of the industry uses a strategy that is used to motivate their work force.
In improving the performance of employees and to motivate employees in working is
through education. According Hasbullah (2009) states that education is often defined as
a human endeavor to foster appropriate personality cultural values of society. So it can
be said that education is the deliberate effort made either directly or indirectly, a person
run to achieve a higher level of life (Vionita, 2008).

Jalbert (2002) also test manager compensation related to educational background,
found a significant difference between the placement and performance of their roles.
Then they find a company’s performance can be affected by some level of educational
background. The information about the performance of the organization can be used to
evaluate whether the process of organization of work done so far has been in line with the
expected goals or not. To that end, knowledge management (knowledge management)
that effectively has been recognized as an important strategic tool for achieving certain
objectives of an organization and even a country, as well as to sustain economic growth
and to gain a competitive advantage (Chong et al., 2011). Then the knowledge manage-
ment support organization is also actively identifying and acquiring quality knowledge
- knowledge that exists in the external environment of the organization (Tiwana, 2000).
It is essential in the formation of knowledge management is the learning environment
(learning environment) that is conducive to the employees are motivated to continue to
learn, take advantage of the opportunity or the knowledge that the information provided
by the organization and develop their individual knowledge (Tjakraatmadja, 2006). There-
fore, developing knowledge of the performance will be better.
Mitchell (1983) in Wijaya and Suhaji, (2013) holds an organization can succeed where
members must be willing and able to do their work at their own pace. In this case also
the Soekidjo Stoner (2009: 125) expresses the performance of a labor or employee is af-
fected by motivation, ability and perceptual factors. In fact, not all employees have the
ability and skill and morale of the organization in line with expectations. A person who
has the ability to conform to the expectations of the organization, sometimes it does
not have high morale so that its performance is not as expected. (Sumarsono, 2004). So
Gana (2011) stated performance jointly determined by the ability and motivation. This is
important because to some extent, the lack of ability cannotbe compensated with high
motivation and conversely the lack of motivation cannot be compensated with higher
capabilities. Both are important components of effective performance in organizations.
According to IvancevichM.John (2007:85) the performance of the individual is the foun-
dation of organizational performance. A critical factor in the success of an organization is
the employees who are capable and skilled and have high morale, so it can be expected
that a satisfactory work.
Theoretical Framework
Level of Education
Hasbullah (2009:1) states that education is the work done by a person or group of
people to be mature or reach the level of a better life in a mental sense. In improving
managerial performance and to motivate employees to work is through education. Edu-
cation level taken and owned by a person is basically the work done in order to obtain
good performance. Andrews (1995) level of education is a long-term process that uses
systematic and organized procedure, which studied the managerial workforce conceptual
and theoretical knowledge for general purposes. Hariandja (2002) states that an em-
ployee’s level of education can improve the competitiveness of enterprises and improve
company performance.

Knowledge Management
Knowledge Management is a collection of processes that govern the creation, dis-
semination, and utilization of knowledge (Newman, 1996). Currently, several organiza-
tions have been fully able to develop and improve the knowledge essential to improve
the performance of their organizations. As more companies begin to incorporate knowl-
edge management in their overall business strategy, many show remarkable interest in
implementing knowledge management processes and technology, Chandrasekar (2012).
Motivation
Hasibuan (2003) describes the motivation comes from the Latin word “movere” which
means a push or move. Motivation (motivation) is only aimed at the management of hu-
man resources in general and especially subordinates. Even Mathis and Jackson (2006)
revealed that motivation is a desire in a person that causes that person to act.
Gibson (1987) reveals a motivation to work reasons, impulses that exist within man
that caused him to do something or do something. Therefore, in order to improve the orga-
nization’s performance against motivational intervention is very important and necessary.
Ability
According to Ivancevichet. al., (2007) is the ability of a person’s aptitude to perform
mental or physical tasks. Robbins (2001) defines that ability is an individual’s capacity to
perform various tasks in a job.
Individual’s ability essentially composed of two factors: intellectual ability and physical
ability. Intellectual ability is the ability required to perform the mental activities. Physical
ability required is the ability to perform tasks demanding stamina, dexterity, strength and
perfect skills (Robbins, 1998).
Managerial Performance
Managerial performance is the performances of the individuals in managerial functions
include: planning, investigation, coordination, evaluation, supervision (supervision), staff-
ing arrangements, negotiations, representations or representative (Mahoney et al., 1963).
According Veithzal (2009) the performance of a real behavior of each individual shown
as performance generated by its role in the company. Meanwhile, according Simamora
(2004), the performance is the level of achievement of the tasks that make up a person’s
work and reflect on how well employees meet the requirements of a job.
As according to Mulyadi and Johnny (1999) managerial performance is the perfor-
mance of individual members of the managerial activities. Managerial performance is the
result of a process of effective managerial activities ranging from planning, implementa-
tion, administration, accountability reports, guidance, and supervision. Meanwhile, ac-
cording to Stoner (1992) is how effective and efficient managers have worked to achieve
organizational goals. According to Robbins (2001) defined performance as a function
of the interaction between ability (capability) and motivation (motivation). So it can be
said that performance is the result obtained by every individual in helping enterprises to
achieve the goal.

Development of hypotheses
The Effect of Education on Managerial Performance
Education is traversed by a manager or individual is very influential in determining his
personality. With the provision of education held by the manager will be able to deal with
the problems faced related to his profession. Tertiary education so that high of a person
will affect its ability to achieve optimal performance. Soekidjo (2003) argues that educa-
tion in the organization is a process towards the development of capabilities desired by
the organization concerned. So if a manager has a higher education, it would be helpful
for the company, because with higher education then science would be better applied in
the process of execution of work.
The Hariandja (2002) stated that the level of education a manager can improve the
competitiveness of enterprises and improve company performance. So it can be con-
cluded that the level of education is required either by the manager or an employee,
because it will be able to bring a good influence on themselves and theorganization in
which he works. The levels of education also will influence robust against performance
manager to execute and finish the job properly (Vionita, 2008). Based on the literature,
the hypotheses are as follows:
H1: There is a positive relationship between level of education and Managerial Per-
formance.
The Effect of Knowledge Management on Managerial Performance

To produce a good performance, then the company needs a good system anyway.
This system not only regulations or existing standards, but also involve parties that are
directly related to human resources. One of the management systems that offer an in-
tellectual discipline that treats as assets under management is knowledge management
(Honeycutt, 2002). With the KM manager will be easier in the planning and execution of
work in order to achieve the goals effectively and efficiently.
With the measurement of knowledge management will be done by comparing the
evaluation or supervision of specified performance with real, whether it is in accordance
with the planning made. From the comparison results, the management can determine
how much deviation is and how much progress has been achieved and not achieved, so
that action can be taken to address them. Performance of the company is essentially an
achievement by a business organization which can be seen from the results. In research
Jaworski&Kohli (1993) measured firm performance of the overall business performance
compared to last year and overall performance compared to its main competitors. So to
do that knowledge management is needed to achieve the expected managerial perfor-
mance. Based on the literature, the hypotheses are as follows:
H2: There is a positive relationship between knowledge management and Managerial
Performance.
Effect of Motivation on Managerial Performance

Motivation is the willingness to expend high levels of effort for organizational goals,
conditioned by the effort’s ability to satisfy some needs (Robbins, 2001). To create the
necessary managerial performance expected optimal motivation and ability to work a

good job, this is expressed by Stoner, (1986) where the performance of a workforce is
affected by motivation, ability, and perceptual factors.
The things that affect motivation according to Robbins and Judge (2009) are the
intensity of work, an understanding of the purpose of the organization, diligence work.
The motivation of the definition above is an organization of individuals who are highly
motivated to produce peak performance. It is quite have the impression that with good
motivation, it will make a performance to be more effective and efficient in achieving
its objectives. Similarly, says Stoner (1992) that is where the managerial performance in
achieving organizational goals and effectiveness must be efficient. Therefore, the higher
the intensity level it works the more somebody managers understand the objectives of
the organization and work more diligently then the higher work motivation. Based on the
literature, the hypotheses are as follows:
H3: There is a positive relationship between Motivation and Managerial Performance.
Effect of Ability on Managerial Performance

Capacity is the ability of an individual to perform various tasks in a job (Robbins,
2001). So if a manager has a better ability, then he will have to work effectiveness in the
performance of the company and can make better and efficient even Veithzal (2009) states
that performance is a function of motivation and ability.According to Brigham and Daves
(2004) has a performance influencing factors, namely: ability and motivation.
H4: There is a positive relationship between Managerial Capabilities and Performance
Research Model
Level of
Education
Knowledge
Management (TP) H1
(KM)
Managerial
H2
Performance
Motivation (KMJ)
H3
(MO)
H4
Ability
(KP)
Figure 1
Full model
Research Methods
Research Design
This study uses survey.Data used in the study was obtained by the distribution of a
questionnaire given to the respondents directly by first doing interviews (Wiyantoro, et
al, 2011).

Sample and Data Collection Procedure
Retrieval of data through mail surveys and ushered to respondents, while the in-
strument used was a questionnaire or a questionnaire. The sample in this study was
39 respondents who are already at random. The criteria of respondents were Logistics
Company in Banten province, Indonesia.
Methods of Data Analysis

In this study data analysis approaches Partial Least Square (PLS) using PLS Smart
Software. PLS is a structural equation model (SEM) based on components or variance
(variance). According Ghozali (2006) PLS is an alternative approach that shifts from covari-
ance -based SEM approach is based variant. General covariance-based on SEM causality
test or theory while PLS is more predictive models. PLS is a powerful analytical method
(Wold, 1985 in Ghozali, 2006) because it is not based on many assumptions. For example,
the data should not normally distribute, the sample does not have to be huge. It can be
used to explain the relationship between the latent variables. PLS can simultaneously
analyze constructs formed with reflexive and formative indicators. It cannot be done by
a covariance -based SEM as a model would be unidentified.
Results
Descriptive Statistics
Questionnaires were distributed a total of 100 questionnaires. Of the total question-
naires distributed, questionnaires were completed and returned the questionnaire is
number 39. The questionnaires were not returned due to the respondent in the middle
of the bustle so did not have time to answer the questionnaire. Therefore, the amount
of data that can be processed for analysis is a number of 39 questionnaires.
Test Data Quality

Test Validity
Testing the validity of the data in this study is to use the software PLS Model Outer
Convergent Validity is seen that the value of the square root of average variance extracted
(AVE) of each construct in which the value must be greater than 0.5.
Table 1 describes the value of AVE and root AVE of constructs Education Level, Knowl-
edge Management (KM), Motivation and Ability, Managerial Performance. It can be seen
that each construct (variable) that has a value above 0.5 AVE. This suggests that each of
these constructs has good validity value of each indicator or the questionnaire used to
determine the relationship Education Level, Knowledge Management (KM), Motivation
and Ability, Managerial performance can be said to be valid.

Table 1
Average Variants Extracted
Average Variants Extracted (AVE) √ AVE
Education Level (TP) 0.640 0.800
Knowledge Management (KM) 0.606 0.778
Motivation (MO) 0.503 0.709
Ability (KP) 0.748 0.865
Managerial Performance (KMJ) 0.654 0.809
Test Reliability
A composite of data said to be reliable if the reliability of more than 0.7. From Table
2 it can be seen every construct or latent variable that has a composite reliability values
above 0.7 which indicates that the internal consistency of between variables have good
reliability.
Table 2
Composite Reliability
Composite Reliability
TP 0.838
KM 0.821
MO 0.746
KP 0.852
KMJ 0.849
Full Structural Model
In Figure 2 it can be seen that each construct of each variable is explained by each
indicator. Where the model in Figure 2 is not performed due to the elimination of these
constructs there is no correlation of less than 0.5 so that each variable met the criteria
convergentvalidity.
Figure 2
Models before indicatorelimination

Figure 3
Model after elimination
Hypothesis Testing
To test the hypothesis, it can be seen the value of t - statistics. Limit to reject and ac-
cept the proposed hypothesis is ± 1.96, where if the value of t in the range -1.96 to 1.96
then the value of the hypothesis will be rejected or otherwise accept the null hypothesis
(H0). T - Statistics estimation results can be seen in the result for the inner weight table 4.
Hypothesis 1 states that the level of education has a positive and significant impact on
managerial performance is indicated by the value of the original sample estimate of 0.189
and 1.989 for the T - statistic greater than the t-test is 1.96 thus Hypothesis 1 is accepted.
Hypothesis 2 states that Knowledge Management has a positive and significant impact
on managerial performance is indicated by the value of the original sample estimate of
0.299 and 3.556 for the T - statistic greater than the t-test is 1.96 thus Hypothesis 2 is
accepted.
Hypothesis 3 stated motivation has a positive and significant impact on managerial
performance is indicated by the value of the original sample estimate of 0.228 and 2.857
for the T - statistic greater than the t-test is 1.96 thus Hypothesis 3 is accepted.
Hypothesis 4 states ability to have a positive and significant impact on managerial
performance as indicated by the value of Original sample estimate of 0.428 and the value
of T - statistic greater than 4.694 t-test is 1.96 thus Hypothesis 4 is accepted.

Table 3
Hypothesis Testing
Result for inner weight
original sample mean of Standard
T-Statistic
estimate subsamples deviation
TP -> KP 0.189 0.207 0.095 1.989
KM ->KP 0.299 0.320 0.084 3.556
MO -> KP 0.228 0.223 0.080 2.857
FE -> ISDC 0.428 0.394 0.091 4.694
Conclusion
The results of hypothesis testing hypotheses 1 through 4 indicate that all the in-
dependent variables and significant effect on the dependent variable. A number of
conclusions can be drawn from these results: first, all independent variables (Level of
Education, Knowledge Management, Motivation, and Ability) and a significant influence
on managerial performance positively. Then the variable level of education can positively
influence managerial performance. This is because the level of education can indeed be
a performance appraisal for managers in corporate, higher education is usually the more
his knowledge. That will facilitate the work performed and the effectiveness of the work.
Likewise KnowledgeManagement where high knowledge achieved by the high persis-
tence in the job and a big responsibility on managerial performance.The motivation into
a managerial performance in the company because, every manager or individual in need
of motivation in carrying out the work in order to create the spirit of the work and ef-
fectiveness as well as efficiency for the company. So is the ability, with capability then an
individual has more value in carrying out a task that has been planned by the company
or management, which means that there is an influence on managerial performance
itself. This happens, because the Managerial Performance is an important indicator of a
company’s performance in relation that the implementation of Managerial performance
can be measure the extent to which the company’s ability to carry out the planning,
investigation,coordination, evaluation, supervision (supervision), staffing arrangements,
negotiations. Managerial performance was a reflection of the company’s performance.
Limitation
Limitations of this studyis the relatively small sample size of only 39 respondents.
Further requirements necessary to conduct the research is the selection of variables
that are not related to the theory of knowledge management research that has not been
theoretically linked to managerial performance. This condition creates a problem. If I
make an empirical model based on conditional assumptions, I have to use a variable that
is related to the theory and practical use and context. As a result, the effect of testing the
model and simultaneously managing not as applicable in the context of theoretical. It is
very difficult to separate the effect and interpretation.
Future studies should be able to examine all types of companies to determine whether
there is a similar relationship. In addition, different measures of results and knowledge
management capabilities should be explored to determine the factors that affect the
performance of managerial best to inform decisions.

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Proceeding International Conference On Governance 2014

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PROCEEDING

Tittle of book : Proceeding 2014 International Conference

ii 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

Foreword by the Rector........................................................................................................... v

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT

CORPORATE GOVERNANCE AND FIRM PERFORMANCE

SOCIAL AND ENVIRONMENT ACCOUNTING AND REPORTING-2

2014 INTERNATIONAL CONFERENCE ON GOVERNANCE iii

ISSUES IN PUBLIC SECTOR GOVERNANCE

CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND SUSTAINABILITY REPORTING-2

SMALL-MEDIUM ENTERPRISES AND PUBLIC SECTOR REPORTING AND GOVERNANCE

iv 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

CORPORATE GOVERNANCE AND FINANCIAL REPORTING-2

ISSUES IN PUBLIC SECTOR AND UNIVERSITY GOVERNANCE

2014 INTERNATIONAL CONFERENCE ON GOVERNANCE v

Prof. Dr. Thoby Mutis

2014 INTERNATIONAL CONFERENCE ON GOVERNANCE vii

Faculty of Economics Trisakti University is pleased and feels honoured to be the

2014 INTERNATIONAL CONFERENCE ON GOVERNANCE ix

Thank you and Wassalam

Dr. Bambang Soedaryono, MBA

x 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

Dear Conference Delegates,

As Chairman and on behalf of the organizing and scientific committees, I am delighted

2014 INTERNATIONAL CONFERENCE ON GOVERNANCE xi

Deni Darmawati, CA, M.Si

xii 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

Zico Dian Paja Putra

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT 3

Corporate Reputation Theory

4 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

Fombrun (1996) defines corporate reputation:

Diagram 1. Interaction of Corporate Reputation

Employee Engagement Theory

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT 5

CSR and Corporate Reputation

6 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

CSR and Employee Engagement

Employee Engagement and Corporate Reputation

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT 7

Determination and Data Collection Methods

Methods of Data Analysis

8 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

Result and Discussion

Parsimonious Normed Chi-square Lower level : 3

Source : LISREL result

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT 9

Demographic Factor Variable P-value standard P-value result Conclusion

10 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

Job title / Position (H1b)

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT 11

CSR with Corporate Reputation (H2)

CSR with Employee Engagement

12 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

Employee Engagement with Corporate Reputation (H4)

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT 13

14 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT 15

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT 17

18 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT 19

Value Added Intellectual Capital

20 2014 INTERNATIONAL CONFERENCE ON GOVERNANCE

Weighted average cost of capital WACC WACC = (rewe)+(rdwd)

Biaya modal re re = rf + β(rmrf)