Corporate Governance in SMEs: Substitution or Symbolism? Evidence from Indonesia’s Acceleration Board

Abstrak

SMEs play a critical role in economic growth, yet those entering public markets often face governance constraints due to limited resources, concentrated ownership, and compliance-driven structures. In Indonesia’s Acceleration Board, the implementation of corporate governance mechanisms faces a critical dilemma: do they serve as functional substitutes for resource constraints (substitution effect) or merely as compliance-driven formalities (symbolic governance)? This study investigates whether these corporate governance mechanisms effectively improve the financial performance of SMEs listed on Indonesia’s Acceleration Board. Drawing on agency theory, this paper conceptualizes the interplay between substitution and symbolic governance perspectives to explain governance dynamics and their direct impact on firm performance in resource-constrained environments. Using panel data from ten companies over 2021–2024, this study examines the effects of board size, independent commissioners, and institutional ownership on ROA and ROE, with firm size and leverage as control variables. The findings show that institutional ownership has a positive and significant effect on both performance measures, while board size and independent commissioners are insignificant. Leverage positively affects performance, whereas firm size has a negative effect. These results empirically demonstrate that external governance acts as a functional substitute for weak internal structures, while internal boards remain largely symbolic.