Concentrated family ownership structures weakening corporate governance: A developing country story

Abstract

This research project examines the effect of ownership structures on corporate governance. Detailed analysis allowed for the identification of the ultimate owner by carefully tracing the chain of ownership. Our findings show that 65.14% of Indonesian firms are controlled by the owners who have a majority ownership and that 66.45% of firms are owned by an individual or group of family members. These ownership structures are more inhibited than most other countries (Claessens et al. 2000). Yet, the percentage of independent commissioners is only 37.09%. A majority of independent commissioner members remains a rare event in Indonesia. Multiple regression analysis reveals that both ownership type and identity are moderately (with p-values of 0.075 and 0.017 respectively) significant predictors for commissioner independence. Ownership structures in Indonesia do influence the level of commissioner independence. This Indonesian pattern is a somewhat extreme but not uncommon scenario in Asian financial markets. Western solutions may not be applicable or effective. New rules and regulations may be needed to provide more protection of the smaller investors