Does manager in better economic value added’s companies feeling more satisfied? An investigation of EVA’s role in mitigating agency problem proxies: empirical research from emerging market sample, namely Indonesia

Abstract

This research is formulating the cause of agency conflict into three factors. The first one is agent unsatisfactory on the existing compensation system. The second is the high ratio of free cash flow in the company. The last is the absence of good monitoring on the company operation. Based on those three factors, this research aims to find a full perspective of these occurrences. One of the tools to investigate it is using EVA® as investigator tools, which is relatively new as a performance measurement in Emerging Market. The proxy variables on agency conflict are new investment ratio and total asset turn over. The control variables are dividend payout ratio and leverage. There are two research questions that being addressed in this research. The first, if there are any differences in agency conflict proxies between companies that have positive EVA® in their performance and companies with negative EVA®. The Second is to analyze if EVA® has significant role to influence the behavior of manager which tend to trigger the agency conflict within the company. The Methodology of this research was paired t-test data comparison between positive EVA companies and negative EVA. In addition, we analyzed the relationship of variable within the model with Data pool from 2002 until 2011To sum up the methodology; we tested the model with robustness test and Causality Test as well. The research finds out that Manager in companies with better EVA® tend to have lower agency conflict level. In conclusion, EVA® is strongly supporting the control variable in explaining its influence on dependent variables or agency conflict proxies.