Agency Costs, Corporate Governance and Ownership Concentration: The Case of Agro-industrial Companies in Indonesia

Hastori Hastori,Tb. N Ahmad Maulana,Roy Sembel,Hermanto Siregar

doi:10.5539/ass.v11n18p311

Abstract

This study aims to investigate determinants of agency costs on agro-industrial firms that are listed in the Indonesian Stock Exchange (IDX). Modeling of agency costs is analyzed by performing regression analysis of panel data. This study employs secondary data of 54 companies from year 2010 to 2013. The results show that agency costs are affected by the effectiveness of good governance mechanism, especially the function of board of directors (BOD) and board of commissioners (BOC) in conducting their duties, dividend payout and leverage. Whereas, independent commissioners and auditor committee are not significant factors in mitigating agency costs. Ownership concentration affects agency costs in vary. The results can help management, investors and other decision makers to implement better governance practices in agro-industrial firms in Indonesia.

Highlights

Agency cost is a type of cost that arises from an agent as hired by a principal
This study aims to investigate determinants of agency costs on agro-industrial firms that are listed in the Indonesian Stock Exchange (IDX)
The results show that agency costs are affected by the effectiveness of good governance mechanism, especially the function of board of directors (BOD) and board of commissioners (BOC) in conducting their duties, dividend payout and leverage

Summary

Introduction

Agency cost is a type of cost that arises from an agent as hired by a principal. In the context of business relationship, an agent (management) acts on behalf of a principal (shareholders) to run a business. Agency costs refer to expenses and other costs associated with agency problems. Since an agent and a principal have different own personal interests, the business relationship may generate agency problems. If managers’ objectives are not aligned with the owners’ goals, agency problems will arise. Managers prefer to provide excessive perks and make self-interest decisions rather than exert to enhance shareholder wealth (Ang et al, 2000). With the implementation of good corporate governance, agency costs can be controlled

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Results

Conclusion