Independent Parties in Minimizing Agency Problem in Indonesia: An Alternative Model

• Main Authors: Rinaldo Dito, Puspita Vina Anggilia
• Format: Article
• Language: English
• Published: Sciendo 2020-04-01
• Series: Holistica
• Subjects: good corporate governance; domestic institutional ownership; foreign institutional ownership; independent commissioner; shareholder value
• Online Access: http://www.degruyter.com/view/j/hjbpa.2020.11.issue-1/hjbpa-2020-0002/hjbpa-2020-0002.xml?format=INT

Despite various studies on good corporate governance (GCG), many GCG mechanisms do not seem to work effectively in Indonesian companies due to frequent conflicts between majority and minority shareholders. A more independent party needs to be offered to solve this unique agency problem. This study attempts to analyze how independent parties; foreign and domestic institutional ownership, and independent commissioners may provide solution to agency problem. Results of panel data regression show a positive and significant influence of foreign institutional ownership on dividends and stock prices, whereas domestic institutional ownership and independent commissioners do not significantly affect shareholder wealth. The study also proposes a new model to minimize the possibility of agency problems in Indonesian context through the establishment of foreign institutional ownership as an independent party.