CEO Characteristics and Performance of Indonesian State-Owned
Enterprise in Indonesia Period Year 2013-2015
Yuni Kusuma Mentari and Chorry Sulistyowati
Department Management, Faculty of Economy and Business, Airlangga University, Surabaya, East Java, Indonesia
Keywords: Chief Executive Officer, Return on Assets, State-Owned Enterprise, Gender.
Abstract: This paper examines the effect of CEO characteristics on State Owned Enterprise’s performance measured
by ROA (Return on Asset). Previous paper mostly focused on private firm rather than state owned
enterprise (SOEs). We apply panel data regression on 168 SOEs in Indonesia within the period of 2013-
2015. We only find, that age of the CEO has a positive significant effect on the performance of SOEs. This
result suggests that having an older CEO can mitigate risk in the company.
1 INTRODUCTION
Chief Executive Officer (CEO) has a lot of influence
on the way the company. A CEO is regarded as the
mastermind of the business. This is because any
action taken by the CEO or imposed on the CEO
will have an impact on the company's future
strategy, policy and performance (Ishak et al., 2012).
In practice, CEO positions are often used to
designate the highest managerial positions in a
company, such as the president or director.
Companies in Indonesia adopt two board systems of
boards of directors and commissioners, both system
have authority and responsibility in accordance with
legislation. Both have a responsibility to maintain
the company's long-term sustainability (NCCG,
2006). Based on excerpts from the online media
about SOEs, especially 2013, was the year of SOE
exemption from political interference. This is due to
the courage of Dahlan Iskan (Minister of SOEs in
2009 - 2014) in exposing the bad practices of
political interference that occurred in SOEs. From
then on SOEs become the important spotlight of the
community asking about the performance of SOEs
so far. Parimana et al. (2015) states that SOEs are
viewed as inefficient business entities because of
wasteful in resource use, loaded with corruption, and
have low profitability.
Currently, gender equality has been so well
recognized that the leader or owner of the company
does not have to be always male. Everyone is more
open-minded because any goal or ideal of a person
should not be limited by gender. One of the results
of previous research conducted in America on the
influence of gender, that is, Women lack experiences
in the industry and they concentrate on the less
favorable sectors and thus create a barrier for
business (Khan et al, 2013) From the results of the
study, the authors want to know the results if the
research is addressed to state-owned companies in
Indonesia.
This study discusses the influence of CEO
characteristics on company performance, where
company performance is measured using ROA
(Return on Assets). Return on Assets shows the
company's ability to use all of its assets to generate
profit after tax. This ratio is important for the
management of the company to evaluate the
effectiveness and efficiency of the company's
management in managing all the assets of the
company. The greater the ROA means the more
efficient use of company assets or in other words
with the same amount of assets can generate greater
profits, and vice versa (Sudana, 2011: 22).
2 DATA AND METHOD
In this study, company performance is measured
using ROA (Return on Assets). The use of ROA as a
performance meter is better than other accounting
measurements (ROE, EPS) because the operating
profit used to calculate ROA is not affected by the
special costs and is not easily susceptible to
Mentari, Y. and Sulistyowati, C.
CEO Characteristics and Performance of Indonesian State-Owned Enterprise in Indonesia Period Year 2013-2015.
In Proceedings of the 1st Inter national Conference on Islamic Economics, Business, and Philanthropy (ICIEBP 2017) - Transforming Islamic Economy and Societies, pages 435-439
ISBN: 978-989-758-315-5
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
435

manipulation by managers (Bushman and Smith,
2001). ROA demonstrates a company's ability to use
all of its assets to generate profit after tax. ROA is
important for management to evaluate the
effectiveness and efficiency of a company's
management in managing all its assets (Sudana,
2011: 22).
2.1 Model Analysis
ROAit = b0 + b1EDUCit + b2AGEit +
b3GENDERit + b4LEVit + b5F_AGEit +
b6F_SIZEit + eit
2.2 Research Approach
Based on predetermined variables to conduct
research and research models that have been
prepared, this research can be called as research
using quantitative model.
2.3 Independent Variables
 The education level of the CEO (EDUC) is the
level of education measured on an ordinal
scale, 0 for CEOs with high school graduates
and equivalent, 1 for Graduate Strata 1, 2 for
Graduate 2 and 3 Graduate CEOs for Graduate
Strata 3 CEOs.
 Age CEO (AGE) is the age of CEO expressed
in nominal according to CEO age figure.
 Gender CEO (GENDER) is the CEO's gender
measured using dummy variables, 0 for female
gender and 1 for the male gender.
2.4 Dependent Variables
Company performance (ROA) is company
performance measured through ROA (Return on
Asset) company with the formula of earnings after
tax divided by total assets.
2.5 Control Variables
 Corporate debt (LEV) is a company-owned
debt that can be calculated by long-term debt
divided by the total assets of the company.
 Age of company (F_AGE) is the length of time
since the company was established according
to the Ministry of SOEs decisions.
 Company size (F_SIZE) is a natural log of the
total assets of the company.
2.6 Types and Data Sources
Data needed for this research is secondary data
obtained from indirect sources. The data include all
information’s concerning government-related
companies or SOEs in Indonesia, including the level
of education of the CEO, CEO age, CEO's gender,
corporate ROA, total assets, long-term debt, and
company life can be obtained from the company's
annual report.
2.7 Sample Determination Procedure
Sampling of this research is done by purposive
sampling technique. The sample of SOE companies
is taken from companies that have been in
accordance with the criteria, namely SOEs that have
been registered in the ministry of SOEs in 2013-
2015 and have detailed information about the level
of education of CEO, CEO age, Gender CEO, ROA,
total assets and debt company long term contained in
the company's annual report.
2.8 Analysis Technique
Collect data required in this research. Covers data
relating to the variables required in the study include
information on the characteristics of the CEOs of
each of the Indonesian State-Owned Enterprise
companies listed in the Ministry of State-Owned
Enterprises based on the specified criteria i.e.
information that includes the level of education of
the CEO, CEO age, Gender CEO, ROA, long-term
debt and company life.
Calculate the variables - research variables
contained in the analysis model that includes the
dependent variable, independent variables, and
control variables.
2.8.1 Test Classical Assumptions
Before testing the hypothesis, a classical assumption
test is performed first. The research model is said to
be good enough and can be used to predict if it
passes from a series of classical assumption test. The
classical assumption test consists of: normality test,
multicollinearity test, autocorrelation test, and
heteroscedasticity test.
3 RESULTS AND DISCUSSION
From the results of regression testing for the age
variable CEO has a significance level of less than
ICIEBP 2017 - 1st International Conference on Islamic Economics, Business and Philanthropy
436

0.05 about 0.030 which means CEO age affects
ROA. Judging the unstandardized value of
regression coefficients, the CEO's age variable is
positive, meaning that CEO age has a positive effect
on ROA. In the education and gender variables the
CEO has a significance level greater than 0.05 which
means the two variables have no influence on ROA.
For control variables that include company debt,
company age, and company size have significance
level less than 0.05 which means control variables
covering company debt, company age, and firm size
have influence to ROA, and seen from beta
regression coefficient value for all control variables
are negative, which means control variables have a
negative influence on ROA.
In this study, the test results show that the
education level of CEO has no impact on the
performance of SOEs. This result is supported by
research conducted by Amran et al. (2014) stating
that the education level of the CEO has no impact on
the performance of SOEs. Ayaba (2012) stated that
the educational background does not affect the
company's performance due to the length of time
between the CEO completing his education by the
time of his appointment as CEO. Before becoming
CEO, they learn a lot through their work and
improve their skills. In the CEO election, the ability
to handle environmental and business challenges is a
highly considered factor. Gottesman et al. (2010)
adds that low-educated CEOs face some limitations
but they perform very well to achieve CEO position
Table 1: Results.
In executing its role as a strategic decision
maker, the CEO can also apply informal methods of
making decisions by using tacit knowledge. Tacit
knowledge is defined as practice in the work of
knowing how work is learned informally during
work. Ishak et al. (2012) found that the CEO's
education which indicated the CEO's degree
qualification had no impact on the CEO turnover.
The results of testing the influence of CEO age
on the company's ROA as measured by ROA shows
the result of positive influence. The level of
significance is less than 0.05 and the value of the
positive regression coefficient, so it can be
concluded that the older age CEO will generate
higher ROA for the company supported by research
Amran et al. (2014) where the results of his research
indicate that older chairmen have more experience
and more risk aversion in every decision taken will
result in better company performance. Older CEOs
will tend to avoid risks and are less aggressive than
younger CEOs (Gottesman and Morrey, 2010). The
CEO's age reflects the amount of experience gained,
both in terms of age, industry experience, and
experience throughout the organization. According
to Dagsson and Larsson (2011) the senior generation
has a lot of direct field work experience in his
career.
The result of regression test of CEO's gender
influence on the company's ROA shows that CEO's
gender has no effect on ROA. This result is
reinforced by Amran et al. (2014) which also stated
that Gender CEO has no significant influence on the
company's ROA. The results are insignificant due to
the unbalanced sample gender data of the Indonesian
State-Owned Enterprise CEO. Of the 168-sample
data of SOE CEOs from 2013 - 2015 there are only
6 Indonesian State-Owned Enterprise CEOs who are
female gender and the remaining 162 are CEOs of
state-owned enterprises with the male gender. In
other words, in this research, female CEOs do not
show results because the numbers are not equal to
the number of male CEOs. This imbalance of sample
data resulted in the insignificant results of the
influence between the SOEs CEO's genders on the
performance of the Indonesian State-Owned
Enterprises. In Gottesman and Morrey (2010) study
of the comparative performance of firms run by
women and men, it states that gender has no
significant effect on ROA and corporate risk. These
results indicate that businesses owned by women do
not have a poor performance compared to businesses
owned by men.
3.1 Other Factors Affecting Company
Performance
The regression result of the influence of debt, age,
and firm size shows that the three control variables
have significant influence because the level of
significance is less than 0.05 and all three have
Dependent
Variable
Independent
Variable
Regression
Coef. Beta
Error
Std.
T-
statistic
Sig. T
ROA
EDUC
0,405
0,644
0,628
0,531
AGE
0,179
0,082
2,184
0,030*
GENDER
-0,198
2,200
-0,090
0,928
LEV
-0,053
0,024
-2,225
0,027*
F_AGE
-0,045
0,021
-2,093
0,038*
F_SIZE
-0,757
0,185
-4,086
0,000*
R
2
0,167
F-statistic
6,575
Prob(F-stat)
0,000
CEO Characteristics and Performance of Indonesian State-Owned Enterprise in Indonesia Period Year 2013-2015
437

negative effects because unstandardized coefficient
of regression is negative.
Corporate debt has a negative effect which
means that the greater the long-term debt used to
fund the total assets of the company will result in a
smaller ROA. These results are reinforced by the
results of Gottesman and Morrey (2010) which
states that the company's debt has a negative effect
on ROA. In bad economic conditions, the use of
debt will lower profits because in times of bad
economy, loan rates are generally higher, while sales
and corporate profits will decline. During 2013 -
2015 stated that the Indonesian economy is slowing
down, the growth rate of Indonesian economy has
decreased from 5.8% in 2013, 5% in 2014, and 4.8%
in 2015.
The age of the company has a negative effect
which means that the older the company's age, the
smaller the company's ROA. The results of this
negative influence are supported by research by
Perryman et al. (2015) and Amran et al (2014). The
structural inertia theory believes that as
organizations become larger, both in size and age of
the organization, the volume of bureaucracy
increases and this can lead to resistance to change
that will ultimately lower the rate of return (Orens
and Reheul, 2013.).
The size of the company negatively affects ROA,
which means the larger the size of the company, the
smaller the company's ROA. This result is supported
by research by Amran et al. (2014), Perryman et al.
(2015) .The structural inertia theory believes that as
organizations become larger, both in size and
organizational age, the volume of bureaucracy
increases and this can lead to resistance to change
that will ultimately lower the rate of return (Hilman
and Cannella, 2007).
4 CONCLUSIONS
The level of education of the CEO has no significant
effect on company performance (ROA). In CEO
election, the ability to handle environmental and
business challenges is a highly considered factor.
Low-educated CEOs face some limitations, but they
perform very well to achieve CEO position. The
experience and tacit knowledge of the CEO is the
informal knowledge that can be used in managing
the company, including when making strategic
decisions for the sustainability of the company
Indonesian State-Owned Enterprise in the future.
CEO age has a significant positive effect on the
company's performance (ROA), which means the
older the CEO, the greater the ROA generated by the
company. Older CEOs will tend to avoid risks and
be less hasty. The CEO age also reflects the amount
of experience gained, both in terms of age, industry
experience, and experience throughout the
organization. The senior generation has a lot of
hands-on fieldwork experience in a career that will
have an impact on the company's performance.
Gender CEO no significant effect on company
performance (ROA), both men and women at the
highest peak of company management does not
affect company performance (ROA). The results are
not significant because the gender sample data of the
Indonesian State-Owned Enterprise is unbalanced.
Of the 168-sample data of CEO Indonesian State-
Owned Enterprise from 2013 - 2015 there are only 6
CEO Indonesian State-Owned Enterprise which is
female gender and the remaining 162 are CEO
Indonesian State-Owned Enterprise with the male
gender. In other words, in this research, female
CEOs do not show results because the numbers are
not equal to the number of male CEOs.
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