The Influence of Foreign Director and Audit Committee on Sustainability Reports with Family Ownership as Moderators in Primary Consumer Goods Companies SUB Food and Beverage Sector Listed on the Indonesia Stock Exchange

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The research results show that the audit committee is proven to strengthen the transparency of sustainability reports, while the presence of foreign directors does not have a significant effect. These findings are important because they emphasize that internal governance remains the main key in encouraging sustainable business practices in Indonesia.

This research provides a clear picture of how family ownership structure, internal supervision, and management composition influence corporate transparency in reporting environmental, social, and governance (ESG) performance.

Sustainability Reports Gain Strategic Importance

In recent years, sustainability reports have become a key reference for investors, regulators, and stakeholders in assessing corporate credibility. These reports reflect not only financial performance, but also companies’ commitments to environmental protection, social responsibility, and good governance.

In Indonesia, sustainability reporting has been strengthened by Financial Services Authority Regulation No. 51/POJK.03/2017, which requires public companies to integrate ESG aspects into their business strategies and disclosures.

However, until the end of 2024, significant differences remained in the quality and consistency of sustainability reports among listed companies. Many firms still published incomplete or irregular reports.

This situation encouraged researchers to examine internal governance factors that influence reporting quality, particularly the roles of foreign directors, audit committees, and family ownership.

Research Method: Analyzing 123 Company Observations Over Three Years

The study used a quantitative approach with a causal research design. Data were collected from annual reports and sustainability reports of primary consumer goods companies in the food and beverage sub-sector listed on the Indonesia Stock Exchange between 2022 and 2024.

Using purposive sampling, the researchers selected companies that:

Were consistently listed during the study period
Published annual and/or sustainability reports
Provided complete data for all research variables

In total, 123 firm-year observations were analyzed.

The main variables examined included:

Proportion of foreign directors on the board
Size of the audit committee
Family ownership structure
Level of sustainability report disclosure

The data were analyzed using panel regression with Fixed Effect and Random Effect models to obtain robust results.

Key Findings: Audit Committees Are the Main Driver

The analysis shows that not all governance mechanisms affect sustainability reporting in the same way.

1. Foreign Directors Have No Significant Impact

The study finds that the presence of foreign directors does not significantly influence the quality of sustainability reports.

On average, foreign directors accounted for only about 8 percent of board members in the sampled companies. Their limited representation reduced their influence on strategic decision-making.

Cultural differences, limited understanding of local regulations, and low operational involvement also weakened their contribution to ESG reporting.

2. Audit Committees Strengthen Reporting Quality

In contrast, audit committees have a positive and significant effect on sustainability disclosure.

Companies with active, independent, and competent audit committees tend to publish more comprehensive and reliable sustainability reports.

Audit committees play a key role in:

Verifying ESG data
Preventing greenwashing practices
Ensuring reporting consistency
Strengthening management accountability

Most companies maintained an average of three audit committee members, in line with regulatory requirements.

3. Family Ownership Moderates Governance Effects

The study also highlights the role of family ownership as a moderating variable.

The results show that:

Family ownership weakens the influence of foreign directors
Family ownership strengthens the impact of audit committees

In family-controlled firms, strategic decisions are largely shaped by controlling families rather than external executives.

However, family firms that prioritize long-term reputation tend to support audit committees in maintaining transparency.

Average family ownership in the sample reached 41.4 percent, indicating strong controlling influence.

Implications for Business and Investors

The findings offer important lessons for companies, investors, and regulators.

For Companies

Firms are encouraged to strengthen the role of audit committees in sustainability reporting. This requires more than formal compliance and includes:

Ensuring member independence
Enhancing ESG expertise
Increasing meeting frequency
Providing full access to information

Effective audit committees enhance corporate credibility and public trust.

For Investors

Investors are advised to pay close attention to governance quality, especially the strength of audit committees.

High-quality sustainability reports signal strong risk management and long-term stability.

For Regulators

The results can support the Financial Services Authority in strengthening supervision of audit committees and ESG disclosure practices, particularly in family-controlled firms.

Researchers’ Perspective

Fitria Qadriani and her colleagues emphasize that internal governance mechanisms are more decisive than external factors in determining reporting quality.

According to the authors, “audit committees serve as the primary safeguard for sustainability report integrity amid growing transparency demands.”

They also note that foreign directors’ contributions remain limited due to contextual and institutional constraints.

The researchers recommend future studies to examine foreign directors’ characteristics, such as professional background, tenure, and level of involvement.

Author Profiles

Fitria Qadriani, S.E., M.Si. - Universitas Syiah Kuala.
Rita Meutia, S.E., M.Si., Ak., Ph.D. - Universitas Syiah Kuala.
Fifi Yusmita, S.E., M.Si. - Universitas Syiah Kuala.

Research Source

Fitria,Rita, Fifi. The Influence of Foreign Director and Audit Committee on Sustainability Reports with Family Ownership as Moderators in Primary Consumer Goods Companies
International Journal of Business and Applied Economics (IJBAE)Volume 5, Nomor 1, 2026, Halaman 451–468
DOI:https://doi.org/10.55927/ijbae.v5i1.544

URL: https://nblformosapublisher.org/index.php/ijbae