Research Corporate Governance of GATI LTD, India

Rahmanto Yolga

252092

School of International Studies, Universiti Utara Malaysia, Sintok, Kedah,

MALAYSIA

Abstract

The purpose of this study is to analyze the corporate governance of GATI Logistics LTD in India for

five years. This research was conducted using secondary data obtained from the company's annual report

for five years from 2015 to 2019. Corporate Governance Index (CG Index) has become the dependent

variable to study with independent variables such as performances, liquidity risk, credit risk and

operational risk. This study using enter method to obtain correlation and regression results to observe the

corporate governace Index with the independent variables. The findings show that the index of corporate

governance performance can be affected by risk and the economic environment.

Keywords: Performances, Liquidity Risk, Credit Risk, Operational Risk ,GDP, Inflation, Interest Rate,

Exchange Rate.

1.0 Chapter one-Introduction

1.1 Backround of Company

Gati is a global Indian postal service firm with headquarters in Hyderabad , India. It is known for fast-

distribution supply chain solutions and also offers warehousing, freight, trade, cold chain, e-commerce,

and fulfillment services. Gati has offices in all of India's major cities, with offices in Singapore , Hong

Kong, China, Nepal and Thailand.

 Gati was founded by Mahendra Agarwal in 1989, and its operations between Madras and Madurai

began first. Listed on the National Bourse and Bombay Stock Exchange.

Integrated multi-modal network, IT and the support Gati offers customized Supply Chain Solutions for

customers throughout the industry, combined with Pan India warehouse facilities across India.

1.2 Corporate Governance Issues

Allcargo Logistics Ltd. purchases managed shares in Gati, by purchasing a control share in Gati Ltd for

Rs 416 crores, in the field of express logistics, the company said after the board approved the deal,

because Allcargo already owns the most shares of Gati Ltd, so the ownership of the company is now

owned by Allcargo, therefore there is now an issue of accountability regarding the Gati Ltd.

1.3 Research Objective

1. To examine the impact of corporate governance index on Internal Factors

2. To examine the impact of corporate governance index on External Factors

3. To examine the impact of corporate governance index on Internal factors and external factor

1.4 Research Question

1. What is the impact of corporate governance index on internal factors?

2. What is the impact of corporate governance index on external factors?

3. What is the impact of corporate governance index on internal factors and external factors ?

2.0 Chapter Two-Literatur Review

2.1 Performances
 Performance measurement refers to the efficiency and effectiveness measurement process (Neely,

Gregory & Platts, 1995). Quality measurement is the transmission of the complex output reality to

ordered symbols which can be connected and transmitted under the same conditions (Lebas, 1995).

Performance measurement is considered to have a more critical role in current business management

compared to quantification and accounting (Koufopoulos, Zoumbos & Argyropoulou, 2008). That is in

keeping with the description of performance management as a process by Bititci, Carrie and McDevitt

(1997), where the organization managers its performance to match its corporate, functional and goals.

The value of the Company can also be defined as the advantages of the shareholders' shares of the

Company (Rouf, 2011). The performance of the company can be seen from the company's financial

statement. A successful business will therefore strengthen quality disclosure management (Herly &

Sisnuhadi 2011).

Many ways to assess company success, by evaluating the financial results of the organization one of the

methods, are useable for this study to analyze the employees ' performance and achievements. The most

widely used metrics in financial analyzes are the productivity ratios, all of which are return ratios, offers

many ways of analyzing how a business produces its shareholders' returns. Of example, returns on assets

(ROA) and return on equity ( ROE) are examples of income ratios.

ROA monitors operational and financial efficiency of the company as an accounting-based calculation

(Klapper and Love, 2002). The measurement means that the more effective the ROA is, the more the

shareholders benefit from the use of their assets (Hanifa & Huduib, 2006). Higher ROA also refers to the

effective use of its assets by the company to serve its shareholders' economic interests

(Ibrahim&AbdulSamad 2011).

Return on quity (ROE) is one of the longest-serving and perhaps the most used global indicator of

corporate financial success along with return on assets ( ROA) (Rappaport 1986:31). This was confirmed
by Monteiro (2006:3) who stated that ROE is perhaps the most important ratio an investor should

consider. The fact that ROE is the end result of structured financial ratio analysis, also referred to as Du

Pont analysis (Stowe, Robinson, Pinto & McLeavy, 2002:85; Correia, Flynn, Uliana & Wormald, 2003:5-

19; Firer, Ross, Westerfield & Jordan, 2004:67) contributes to its popularity among analysts, financial

managers and shareholders alike.

2.2 Liquidity Risk

Liquidity is the ability of a firm, a company, or even an individual to pay their debts without suffering

catastrophic losses. Conversely, the liquidity risk derives from the lack of marketability of an investment

that can not be purchased or sold fast enough to avoid or mitigate losses. It is normally expressed in

exceptionally wide ranges of bid-ask or large price changes.

The liquidity risk, according to Dermine (1986), is seen as a profit-lowering cost. Loan default increases

liquidity risk due to reduced cash inflow and depreciation of trig-gers. Diamond and Rajan (2005 ) show

that there is a positive relationship between liquidity and credit risk. They point out that if too many

economic projects are financed with loans, the bank can not meet the demand of the depositors.

Therefore, if these assets deter-orate in value, these depositors will reclaim their money. This means that

liquidity and credit risks in-crease simultaneously.

As liquidating assets may depress prices, the additional risk arises as a result of (possibly time-varying)

downward sloping demand curves. Liquidity risk is stable with Grossman and Miller (1988) and Kamara

(1994) who discuss the risk that treasury market transactions will take place at prices different from those

currently quoted.

2.3 Credit Risk

Credit risk is the danger that a financial loss will be sustained if a counterparty in a (derivative)

transaction fails to meet its contractual obligations in a timely manner. Credit risk is the risk of loss due
to default that does not fulfill its obligation under the terms of the contract and therefore causes the loss of

the creditor to the holder. These obligations arise from lending activities, trading and investment

activities, payment and settlement of securities trading on its own and foreign accounts. (Jílek, 2000)

There may be situations in which a counterparty refuses to fulfill its commitment and to repay the

principal and interest, in whole or in part, not repaid on time. Credit risk is part of the majority of balance

sheet assets and off-balance sheet transactions series (financial acceptance or bank guarantee).

(Cašparovská, 2006).

Credit risk entails a customer's or counterparty 's inability or reluctance to fulfill lending, investing,

hedging, settlement and other financial exchange obligations. Credit risk is usually composed of

investment risk or default risk and portfolio risk.

Credit risk management is part of the comprehensive management system and is also part of the control

system. Credit risk can be considered one of the biggest risks as it is related to any successful exchange.

Banks have generally handled risk management strategy incorporating risk management process

principles including risk identification , monitoring, and measurement. The aim of credit risk

management is to maintain the business operation efficiency and the business continuity.

2.4 Operational Risk

Operational risk is the danger that the internal processes, procedures and systems of a company will not

be sufficient to mitigate losses, either due to market conditions or operational difficulties. Such

deficiencies can arise from failure to calculate or report the risk correctly, or from lack of control over

trading personnel. While operational risk is more difficult to identify precisely than market or credit risk,

many find it to have led to some of the widely publicized losses of recent years.

Definitions are important not only in the provision of agreed meanings to practitioners, but also in

defining the jurisdiction of practices within the professional knowledge system (cf. Abbott, 1988), even in
order to constitute economic life in new ways (Tribe, 1978). The project of identifying operational risk is

therefore more than just a matter of marking and a meeting point for various priorities and ambitions.

A joint study carried out by the British Bankers Association and Coopers & Lybrand in March 1997

discussed a variety of concepts. Based on BBA, ISDA and RMA (1999), Basel 2 eventually identified

operational risk as 'the risk of direct or indirect losses resulting from insufficient or failed internal

processes, people and systems or external events.' (Basel Committee on Banking Supervision).

The definition, which represents a lengthy discussion and debate process, has been updated to exclude

reputational and strategic risks, concentrating on causes of loss. The definition also reflects a negative

perception of risk as downside failure, rather than a pure variation of outcome around an estimated mean

(e.g., Gigerenzer, 2002: 26).

Defining options for operational risk are strategically significant: as the concept broadens and includes

more possible sources of failure, operational risk management moves beyond the reach of any current

departmental risk manager and theoretically entails greater organizational change and 'a lot of step-by-

step' (Jameson 2001a).

Douglas (1992)'s work suggests that operational risk is usually a forensic category and that, therefore,

any description of operational risk is partly driven by what it is sensible to blame every single middle-

level manager as particularly in comparison to the Chief Executive Officer ( CEO). Mental jurisdictions

are mutually constitutive.

2.5 GDP

Gross Domestic Product and measures the overall monetary value of all final products and services

produced (and sold on the market) within a country over a period of time ( usually 1 year).
 "Gross" means that goods are counted regardless of their subsequent use. A commodity can be used for

consumption , investment or the replacement of an asset. In both cases , the final "sales receipt" of the

commodity will be added to the total GDP figure.

“Domestic” implies that the inclusion criterion is geographical: the goods and services counted are those

produced within the borders of the country, irrespective of the nationality of the producer. For instance,

the production of a German-owned factory in the United States will be included as part of the GDP of the

United States.

GDP is the main overview measure of economic activity (e.g. Bureau of Economic Analysis, 2007) and

the most relevant element in economic development analysis (e.g. Henderson et al., 2012). This is used

by the White House and the Congress to plan the Federal Budget, the Federal Reserve to determine

monetary policy, Wall Street as an measure of economic growth, and the corporate community as a key

insight into production, expenditure and employment decisions. A key finding in research into forecasting

GDP growth is that qualified macro forecasters outperform model time-series (e.g., Zarnowitz and Braun,

1993; Stark, 2010). However, large-scale macroeconomic analysis has emerged independently from

accounting research, which is usually performed at the firm level, and therefore there is a lack of evidence

on the informativeness of accounting earnings for GDP growth.

2.6 Inflation

Inflation is commonly characterized as an increase in the amount of money received (Rothbard 2008:

43-44; 2009: 809, 913; Mises 1971: 239-241, 272 and in passim). Inflation is a quantitative measure of

the rate at which a basket of selected goods and services increases the average price level in an economy

over a certain period of time. It is the rise in the general price level, where a currency unit actually buys

less than it did in previous periods. Hence inflation, often calculated as a percentage, indicates a decline

in the purchasing power of a nation's currency.

 A single currency unit loses value as prices increase, as it buys less goods and services. This loss of

purchasing power has an impact on the overall cost of living for the general public which ultimately leads

to a deceleration in growth. The consensus view among economists is that persistent inflation occurs

when economic growth is outpaced by a nation's money supply.

Though inflation has a storied history among economists, it has been insignificant to focus on its

legitimacy (Balac 2008; Hülsmann 2008; Bagus et al 2011). The Spanish scholastic Juan de Mariana,

published in the late 16th century, illustrated the oppressive existence of inflation (Huerta de Soto

1999:6). In the 18th century, the monetary writings of David Hume assessed unit changes in the monetary

stock as valuational changes affecting the unit value of money holdings of other individuals (Hume

1970).

Inflation propagates by two separate means – one at its beginning, and the other continuing. First, we

have to determine the mechanism by which a fiat money backed by legal tender status replaces current

circulating commodity money. Usually this is done by force or threat from it (Rothbard 2008).

2.7 Interest Rate

The interest rate is the amount a bank charges expressed as a percentage of the principal for the use of

the assets. Usually, the interest rate is reported on an annual basis, called the annual percentage rate

(APR). The borrowed assets could include cash, consumer goods or big assets such as a vehicle or a

building.

Interest is basically a lease or rental charge to the borrower for the use of an asset. The lease rate can

serve as the interest rate for a large asset, such as a vehicle or a building. If the lender considers the

borrower to be low risk, typically a lower interest rate would be paid to the borrower. If the borrower is

deemed high risk, the rate of interest paid to them would be higher.
 Interest rates are the compensation a borrower (debtor) pays to a lender (creditor) for using capital for a

time, and they are expressed in terms of percentage per annum (pa). Smithin law, imply that the real

interest rate should be as low as possible, or as near as possible to zero. Among others, the Kansas city

rule, defended by WRAY (2007,this issue) and Mosler and Forstater (2004), suggests that it is the

nominal interest rate should be to zero.

Black's law dictionary describes an interest rate as "the amount of the money paid for its use for a given

period of time." It adds that this is generally expressed as an annual percentage rate to make it easy to

"comparison the cost of borrowing money between multiple lenders or credit sellers." Interest occurs as a

consequence of a contractual duty to pay the amount claimed to the legal owner of an asset (hence the

word "bond").

2.8 Exchange Rate

A structure that combines the complexities of the exchange rate and the current account provides a new

perspective on both. Contrary to Dornbusch (1976)-based overshooting models, monetary shocks have

lasting effects on demand, production and terms of trade. In the short term, if money affects production, it

generally induces imbalances in current account. The resulting foreign transfer of capital creates real

effects that extend long past the horizon where prices are high. Many of the model 's predictions stem

from the result that demand for money is dependent on consumption, which is typically easier to smooth

in the open than in closed economies over time.

The relative price of two monies is an exchange rate. Of course, what exactly is being exchanged has

varied with the assets that were used at any point in time as money. In prehistoric times and in the early

part of the 20th century, money usually consisted of one kind or another full-bodied metal coinage. It has

come to consist more and more of currency notes and, more specifically, bank deposits in the last two
centuries. The arrangements for exchange rates varied from systems where exchange rates are rigidly

fixed to systems where they could vary freely with market forces.

It is useful to differentiate between nominal and actual exchange rates when discussing exchange rates.

The nominal exchange rate in the foreign exchange market is si mply the real rate. In contrast, the real

exchange rate is the rate at which a market basket of goods can be exchanged in one country for a market

basket of goods in another. So it is a theoretical construct rather than something that can be directly

observed.

Koren and Szeidl (2003) look at the covariance in exchange rate movement and key macroeconomic

variables and find that what matters is not exchange rate volatility but rather how it magnifies or reduces

the risks faced by businesses or customers. Using a gravity equation specification, Aristotelous (2001)

and IMF (2004) estimate the impact of exchange rate volatility on trade and their empirical findings

indicate that exchange rate fluctuations has no impact on export volumes.

3.0 Chapter Three –Methodology

3.1 Introduction

In this chapter, the approach employed in this study are going to be elaborated, including the subsequent

elements: data and samples, statistical techniques, data analysis, corporate governance indexes and also

statistical statistics packages IBM for Social Sciences (SPSS).

3.2 Data and Samplings

The data used in this study is data from one of the Indian logistics companies, namely GATI LTD, the

data taken comes from the annual report of GATI LTD which is reported annually, the information used
of internal factors and external factors from 2014 to 2018. Data taken from the annual report like cash

flows, consolidated financial statements and corporate governance reports.

3.3 Statistical Technique

Statistical analysis was performed at GATI LTD using primary and secondary data. Primary data is data

taken from a study using instruments conducted at a particular time and the results cannot be generalized

but can only describe the situation at that time. While secondary data is data that has been recorded in a

book or a report, but it can also be the result of a research that is recognized first.

The research was conducted to examine GATI LTD, the primary data used were scientific research

articles. This article is written directly by researchers who are experts in their fields, this article writes the

fundamental things in this research, such as the deficiencies of corporate governance and all matters

relating to the research theme. As for secondary data, the data obtained comes from the annual report

reported by GATI LTD from 2014 to 2018. Secondary data derived from aannual report is useful for

calculating company performance, liquiduty risk, credit risk and operational risk.

3.4 Data Analysis

This study uses a conceptual framework that is used to describe the relationship between the dependent

variable and the independent variable. The study framework is as follows :

 Internal Factors :

ROA, ROE, Current Ratio, Quick

Ratio, Avverage Collection
Period, Debt to Income,
Operational Ratio, Operating
Margin.

External Factors : Corporate Governance Index

GDP, Inflation, Interest rate,

Exchange rate.

Internal and External Factors

Independent Varable (IV) Dependent Variable (DV)

3.5 IBM Statistical Package for Social Sciences (SPSS) Statistics

This study uses IBM SPSS V26 to calculate data and get results. The IBM SPSS V26 application was

chosen because it is able to measure the consequences of descriptive statistics, linear regression, analysis

of variance (ANOVA), correlations and correlations of independent and dependent variables that focus on

quantitative data from GATI LTD's annual report from 2014 to 2018.
4.0 Chapter Four-Finding Analysis

4.1 Ratio Analysis

a. Performances

ROA
0.03

0.02

0.02 ROA

0.01

0.01

0
2014 2015 2016 2017 2018

ROE
1.8
1.6
1.4
1.2
ROE
1
0.8
0.6
0.4
0.2
0
2014 2015 2016 2017 2018

PERFORMANCE
Net Net
Total Shareholders
Inco ROA Inco ROE
Assets Equity
me me
238 1337 0,01783 238 1,364026
174,96
,65 8,99 7669 ,65 063
198 1454 0,01363 198 1,129666
175,45
,2 0,69 0715 ,2 572
297 1431 0,02079 297 1,687514
176,36
,61 3,08 2869 ,61 176
344 1456 0,02367 344 216,69 1,591028
 ,76 3,87 2279 ,76 658
242 1489 0,01628 242 1,117237
217,08
,53 6,35 117 ,53 885

In the graph above it has been shown a pattern of change or fluctuation pattern for five years, namely

from 2014 to 2018. In 2014 to 2015 ROA from GATI LTD decreased from 0.018% to 0.014%, then

increased from 2015 to year. 2017 with a percentage of 0.014% to 0.023%, and then declined again in

2018 with a percentage of 0.16%. This shows that in 2014 to 2015 the company had low assets, this is

shown from the reduction in the ROA percentage. In 2015 to 2017 there was an increase in ROA which

means the company made a profit from its assets, the probability ratio of the company GATI LTD is

getting better in terms of asset use, and this positive trend did not continue until 2018 because the

company experienced a significant decrease in ROA which means the company GATI LTD experiences a

decline in their assets.

Whereas the ROE percentage decreased from 2014 to 2015, valued at 1.36% to 1.13%, then experienced

an increase from 2015 to 2016 with a percentage of 1.13% to 1.69%, and again decreased from 2016 to

2018 with a percentage of 1.69% to 1.12%. This trend shows that the reduction in percentage means that

GATI LTD does not efficiently produce net income using its equity, on the contrary the trend that shows

an increase in percentage of it means that GATI LTD can positively generate profit efficiently using its

equity.
 b. Liquidity Risk

2.5

1.5 Quick Ratio

CURRENT RATIO

0.5

0
2014 2015 2016 2017 2018

LIQUIDITY RISK
Curr CURRE
Current Invent Prepaid Quick
ent NT
Liability ory Expense Ratio
Asset RATIO
5007 4060,5 1,233102 1,210558
34,84 56,7
,05 3 575 72
5956 4630,2 1,286354 1,261748
51,45 62,48
,09 1 183 387
5438 3959,5 1,373619 1,345108
66,06 46,83
,86 1 463 359
3704 3850,5 0,962002 0,922228
90,2 62,95
,21 2 535 686
3772 4594,3 0,821114 119,8 0,783524
52,84
,51 8 057 6 654

The Liquidity Ratio shows two assessment indicators namely Current Ratio and Quick Ratio. In 2014 to

2016 Current Ratio and Quick Ratio increased, and then decreased dramatically from 2016 to 2018.

Liquidity ratios measure the ability of borrowers to pay short-term obligations without increasing external

funds. The increase in the ratio means that GATI LTD has the ability to pay short-term liabilities., And
the decline in the percentage that occurs means GATI LTD reduces the ability of GATI LTD to pay their

short-term obligations.

c. Credit Risk

AVERAGE-COLLECTION PERIOD
70

60

50

40 AVERAGE-COLLECTION PERIOD

30

20

10

0
2014 2015 2016 2017 2018

Debt to Income
0.6
0.5
0.4
Debt to Income
0.3
0.2
0.1
0
2014 2015 2016 2017 2018

CREDIT RISK
Acco Tot Tota
Revenu AVERAGE-
unt al l Debt to
e/365 COLLECTIO
Receiva Liabil Incom Income
Days N PERIOD
ble ity e
2668, 714 1662 0,42989
45,55 58,59165752
85 7,82 6,85 6222
 2912, 807 1681 0,48030
46,08 63,20269097
38 7,72 8,06 0344
2686, 769 1701 0,45200
46,69 57,53673163
39 0,39 3,77 9754
2431, 613 1813 0,33848
49,69 48,93680821
67 8,86 6,02 9922
2389, 643 1879 0,34226
51,49 46,4033793
31 1,63 1,5 2725

Credit risk is also reflected by two indicators, the Average Collection Period and Debt to Income.

Trends that occur for the Average Collection Period have increased in the first year, and experienced a

drastic decline in the next four years. Avererage Collection Period represents credit risk to measure the

number of days customers take to make payments to the company. This indicates that the company GATI

LTD requires a higher number of days to receive payments made by customers. This ratio implies that it

is not good for the company because late payments by customers will affect cash flow to meet the

company's financial obligations.

Whereas the Debt to Income Indicator shows the percentage that experienced an increase in the first

year and also experienced a decline in the following four years. Debt to Income means a ratio that can see

whether the debt payment is in accordance with the amount of debt income earned by the company.

Judging from the company's trend towards Debt to Income, this means that the company's ability to repay

bad debts is due to the decreasing trend.

d. Operational Risk
 Operational Ratio
0.61
0.6
0.59
0.58 Operational Ratio

0.57
0.56
0.55
0.54
2014 2015 2016 2017 2018

OPERATING MARGIN
0.45

0.44

0.43

0.42 OPERATING MARGIN

0.41

0.4

0.39

0.38
2014 2015 2016 2017 2018

OPERATIONAL RISK
Operati OPERATI
Operating Net EBI Reve
onal NG
Expenses Sale T nue
Ratio MARGIN
1648 0,59453 682 1662 0,41063765
9798,65
1,1 8593 7,2 5,85 2
1667 0,59745 685 1681 0,40779792
9959,69
0,26 2589 8,37 8,06 7
1690 0,58155 720 1704 0,42291945
9834,07
9,93 5926 7 1,07 3
1735 0,57987 807 1813
10065,21 0,4450155
7,52 6042 0,81 6,02
1863 0,56075 834 1879 0,44401032
10447,88
1,94 1054 3,62 1,5 4
 Operational Risk has indicators for assessing Operational Ratio and Operating margin. Operating Ratio

is a ratio to measure operating costs to sales, in this graph Operational Ratio shows a slightly upward

trend from 2014 to 2015 and has decreased from 2015 to 2018, this indication shows that the smaller the

ratio shows the better performance of the company. While Operating Margin is a measure to determine

how much the company's ability to generate operating profit from the company's net sales. The company's

operating profit is the net profit before tax and interest. Operating Margin is aiming for a downward trend

in the first year and experiencing an upward trend in subsequent years means that the increase in

operating margins of GATI LTD is a positive thing for the company.

e. Macroeconomics

100

90

80

70

60
Exchange Rate
50 Interest Rate
Inflation
40 GDP

30

20

10

0
2014 2015 2016 2017 2018

Interest Exchange
GDP Inflation
Rate Rate
7,4 5,8 6,7 62,29
8,2 4,9 7,56 66,25
7,1 4,5 6,35 64,86
6,7 3,6 5,46 65,11
6,8 3,43 6,25 69,19
 Based on the above graph, GATI LTD GDP for five years experienced an up and down trend, the

highest GDP occurred in 2015 with a percentage of 8.2% and the lowest trend occurred in 2017 with a

percentage of 6.7%. Inflation has been on a downward trend for five years, the percentage has decreased

from 5.8% to 3.43%. This inflation occurred due to market prospects. Whereas the interest rate has been

fluctuating for five years and for the exchange rate trend shows a trend from 2014 to 2018 also fluctuated,

which means the higher interest rates, the need for the currency will be even greater, and vice versa.

4.2 Descriptive Statistics

Model 1

CG Index . . 5
5636363636 0406557814
ROE 1.37789467 . 5
1 2603083853
Average Collection 224279001 311220894 5
Period 6 8
Debt to Income . . 5
4085917934 0647976309

Model 2

CG Index . . 5
5636363636 0406557814
GDP 7.240 .6025 5
Inflation 4.4460 .97344 5
Exchange 65.5400 2.50182 5
Rate

Model 3
 CG Index . . 5
5636363636 0406557814
Average 224279001 311220894 5
Collection 6 8
Period
Interest Rate 6.4640 .76219 5
Exchange 65.5400 2.50182 5
Rate

Based on the table above it is explained that ROE shows an average of 1.377894671 with an uncertain

standard deviation of 0.2603083853. The average collection period shows the highest standard deviation

of 3112208948 which means that the company's average collection period is more unpredictable

compared to the others. The average shows that these companies need more days to receive payments

from customers and show higher risk volatility. Debt to income has an average of 0.4085917934 and

standard deviations indicate risk volatility of 0.0647976309 for five years. Whereas GDP has a mean

value of 7,240 and has a standard deviation of 0.6025. Inflation shows a mean of 4.4460 with a standard

deviation of 0.97344. Data that shows the exchange rate shows an average value of 65.5400 with 2.50182

standard deviations. And finally Interest rate shows a mean of 6.4640 and has 0.76219 standard

deviations.

4.3 Correlations

Model 1

Average
Collection
CG Index ROE Period
Debt to
Pearson CorrelationCG Index1.000 Income -.560 -.403
Pearson CG Index -.572
ROE-.560 1.000 -.162
Correlation
ROE -.034
Average Collection Period-.403 -.162 1.000
Average Collection .137
Period -.034 .137
Debt to Income-.572 Sig. (1-tailed)CG Index.
ROE.163 Debt to Income 1.000 .163 .251
Sig.Average
(1-tailed) CG Index
Collection Period.251 .157 . .397
Debt to Income.157 ROE .478 .397 .
NCG Index5 .478 .413
ROE5 5 5
Average Collection Period5 5 5
Debt to Income5 5 5
5 5
 Average Collection .413
Period
Debt to Income .
N CG Index 5
ROE 5
Average Collection 5
Period
Debt to Income 5

Model 2

CG Index GDP Inflati Exchange

on Rate
Pearson CG Index 1.000 -.408 -.583 .816
Correlation
GDP -.408 1.000 .660 -.185
Inflation -.583 .660 1.000 -.766
Exchange .816 -.185 -.766 1.000
Rate
Sig. (1-tailed) CG Index . .248 .151 .046
GDP .248 . .113 .383
Inflation .151 .113 . .066
Exchange .046 .383 .066 .
Rate
N CG Index 5 5 5 5
GDP 5 5 5 5
Inflation 5 5 5 5
Exchange 5 5 5 5
Rate

Model 3

Average Collection
PeriodInterest Rate
CG Index
-.403-.157
Pearson CorrelationCG Index1.000
1.000.212
Average Collection Period-.403
.2121.000
Interest Rate-.157
.077-.034
Exchange Rate.816 Sig. (1-tailed)CG Index. .251.400
Average Collection Period.251
..366
Interest Rate.400
.366.
Exchange Rate.046
.451.478
NCG Index5
55
Average Collection Period5
55
Interest Rate5
55
 Exchange
Rate
Pearson CG Index .816
Correlation
Average Collection .077
Period
Interest Rate -.034
Exchange Rate 1.000
Sig. (1-tailed) CG Index .046
Average Collection .451
Period
Interest Rate .478
Exchange Rate .
N CG Index 5
Average Collection 5
Period
Interest Rate 5
Exchange Rate 5

The correlation of Corporate Governance Index to internal factors of GATI LTD shows that ROE,

Average collection period and Debt to income are negatively siginificant by P<0.1. Then for the

corellaton of Corporate Governance Index to external factors of GATI LTD shows that GDP and Inlation

are negatively significant by P<0.1, and for Exchange Rate is positive significant by P<0.1. And lastly for

model three the correlation of CG Index on internal and external factors shows Average collection period

and Interest rate are negatively significant by P<0.1 and positively significant by P<0.1 of Exchange rate.

4.4 Model Summary

Model 1

Adjusted R Std. Error

Model R R Square of the Durbin-
Square Estimate Watson
a
1 .919 .844 .378 . 1.595
0320671026
a. Predictors: (Constant), Debt to Income, ROE, Average Collection Period
b.Dependent Variable: CG Index
 Model 2

Adjusted R Std. Error

Model R R Square of the Durbin-
Square Estimate Watson
a
1 .985 .971 .882 . 2.407
0139656211
a. Predictors: (Constant), Exchange Rate, GDP, Inflation
b.Dependent Variable: CG Index

Model 3

Adjusted R Std. Error

Model R R Square of the Durbin-
Square Estimate Watson
a
1 .940 .884 .535 . 1.707
0277235728
a. Predictors: (Constant), Exchange Rate, Interest Rate, Average Collection Period
b.Dependent Variable: CG Index

The table above shows the summary model that resulted in model 1, model 2 and model 3 when the

variables were tested in spss. The results obtained by model 1 when the internal factor variable is

examined individually 37.8% of the adjusted R square which implies the predictor variable is able to

explain observations in debt to income, while the other 62.2% cannot be explained. Furthermore, the

results obtained by model 2 when the external factor variables are examined indicate that the model can

be explained by 88.2% based on adjusted R square. And the latest for model 3 which shows external

variables and internal variables tested, resulting in a value that can be explained by 74.3% based on

adjusted R square.

4.5 Anova
Model 1

a
ANOVA
Sum of
Model df Mean F Sig.
Square
Squares
b
1 Regressi .006 3 .002 1.810 .489

Residual .001 1 .001

Total .007 4
a. Dependent Variable: CG Index
b.Predictors: (Constant), Debt to Income, ROE, Average Collection Period
Model 2

a
ANOVA
Sum of
Model df Mean F Sig.
Square
Squares
b
1 Regressi .006 3 .002 10.96 .218
6
Residual .000 1 .000
Total .007 4
a. Dependent Variable: CG Index
b.Predictors: (Constant), Exchange Rate, GDP, Inflation

Model 3

a
ANOVA
Sum of
Model df Mean F Sig.
Square
Squares
b
1 Regressi .006 3 .002 2.534 .426

Residual .001 1 .001

Total .007 4
a. Dependent Variable: CG Index
b.Predictors: (Constant), Exchange Rate, Interest Rate, Average Collection Period
 The tables above show 3 Anova table models, model 1 shows the internal factor value that is -p> 0.05,

while for model 2 which shows external factors also shows the value of -p> 0.05, as well as model 3

which shows the p value of the internal variable and external indicates a value of -p> 0.05, this shows that

the group of independent variables does not show a statistically significant relationship with the

dependent variable, or that the group of independent variables cannot reliably predict the dependent

variable.

5.0 Conclusion

5.1 Discussion

This research carried out the regression analysis between internal factors and external factors to the

dependent variable which is the Corporate governance index of GATI LTD throughout 5 years

observation from 2014 to 1018. The internal factors consist of the elements of Performances (ROA &

ROE), Liquidity Risk (Current ratio & Quick ratio), Credit risk (Average-collection period & Debt to

income) and Operational risk (Operationa ratio & Operating margin). The external factors consist of

element of Macroeconomics (GDP, Inflation, Interest rate and Exchange rate), both of the internal and

external factors will be tested to Corporate governance index. The importance of this study is to examine

the determinants of Corporate governance Index that had influenced by internal and external factors in the

observation.

5.2 Limitation

The limitation and narrow scope of this study are given fewer significant variables which only

considered for 5 years period and only certain internal and external factors were chosen to determine the

Corporate governance Index. Besides, it was only focused on one industry which is only considered the

logistics company. Hence, these limitations were giving less significance result to dependent variable
which only one variable out of the rest variables of internal and external factors to be considered in this

study.

5.3 Recommendation

The recommendation of this study that should be addressed is it would be better to have a benchmark

with other industry in order to compare the ratio analysis. Therefore, it should be suggested to the future

researcher to increase the number of observations and the internal and external factors that represent the

elements of risk towards to the company as well as adding other industry to be able to compare. Thus, the

significance result will be proven the strong evidence of the factors influencing and explainable to the

dependent variable.

6.0 Refferences :

Al-Matari, E. M., Al-Swidi, A. K., & Fadzil, F. H. B. (2014). The Measurements of Firm Performance’s

Dimensions. Asian Journal of Finance & Accounting, 6(1), 24. doi: 10.5296/ajfa.v6i1.4761

Bagus, P., Howden, D., & Gabriel, A. (2014). Causes and Consequences of Inflation. Business and

Society Review, 119(4), 497–517. doi: 10.1111/basr.12043

Banton, C. (2020, April 16). Interest Rate: What the Lender Gets Paid for the Use of Assets. Retrieved

April 26, 2020, from https://www.investopedia.com/terms/i/interestrate.asp

Bureau, O. (2019, December 5). Allcargo buys controlling stake in Gati. Retrieved March 25, 2020,

from https://www.thehindubusinessline.com/economy/logistics/allcargo-buys-controlling-stake-in-

gati/article30186848.ece
 Chen, J. (2020, March 26). Inflation. Retrieved April 26, 2020, from

https://www.investopedia.com/terms/i/inflation.asp

Gati Profile. (n.d.). Retrieved March 25, 2020, from https://www.gati.com/about-us/gati-profile/

Ghenimi, A., Chaibi, H., & Omri, M. A. B. (2017). The effects of liquidity risk and credit risk on bank

stability: Evidence from the MENA region. Borsa Istanbul Review, 17(4), 238–248. doi:

10.1016/j.bir.2017.05.002

Kang, J. W., & Dagli, S. (2018). International trade and exchange rates. Journal of Applied

Economics, 21(1), 84–105. doi: 10.1080/15140326.2018.1526878

Kenton, W. (2020, February 19). Why Profitability Ratios Matter. Retrieved April 25, 2020, from

https://www.investopedia.com/terms/p/profitabilityratios.asp

Konchitchki, Y., & Patatoukas, P. N. (2014). Accounting earnings and gross domestic product. Journal

of Accounting and Economics, 57(1), 76–88. doi: 10.1016/j.jacceco.2013.10.001

Obstfeld, M., & Rogoff, K. (1994). Exchange Rate Dynamics Redux. doi: 10.3386/w4693

Patterson, B., & Lygnerud, K. (n.d.). The Determination of Interest Rates. Directorate-General for

Research.

Power, M. (2005). The invention of operational risk. Review of International Political Economy, 12(4),

577–599. doi: 10.1080/09692290500240271

Rochon, L. P., & Setterfield, M. P. (n.d.). Interest rates, income distribution, and monetary policy

dominance: Post Keynesians and the "fair rate" of interest. Journal of Post Keynesian Economics . doi:

10.2753/PKE0160-3477300101
 Spuchľáková, E., Valašková, K., & Adamko, P. (2015). The Credit Risk and its Measurement, Hedging

and Monitoring. Procedia Economics and Finance, 24, 675–681. doi: 10.1016/s2212-5671(15)00671-1

Wet, J. H. D., & Toit, E. D. (2007). Return on equity: A popular, but flawed measure of corporate

financial performance. South African Journal of Business Management, 38(1), 59–69. doi:

10.4102/sajbm.v38i1.578

What is GDP? (n.d.). Retrieved April 25, 2020, from https://www.worldometers.info/gdp/what-is-gdp/

Appendices

Apendix A

Regression Analysis from SPSS

Histogram Dependent Variable: CG Index

0.4
1.0

0.2
0.8
Frequency

0.6
 Std. Dev. = 0.5
Mean
= 2.78E-
N=5
17

0.0
- - - - 0.0 0. 0.6
0.8 0.6 0.4 0.2 4
Histogram Dependent Variable: CG Index

Mean = 3.19E-15
2.0
Std. Dev. = 0.5

N=5

1.5
Frequency

1.0

0.5

0.0
-1.0 -0.5 0.0 0.5
Histogram Dependent Variable: CG Index

Mean = 2.70E-14
2.0
Std. Dev. = 0.5

N=5

1.5
Frequency

1.0

0.5

0.0
-1.0 -0.5 0.0 0.5