Abstract
AbstractObjective – The study aim to investigate the effect of ownership concentration on the financial performance of firms listed in the Indonesian Stock Exchange from 2008 to 2012. Design/methodology – Data for the study were collected from the Indonesia Stock Exchange on or prior to 2 January 2008 and remain listed until 31 December 2012. The population is 140 industrial and manufacturing companies listed on the Indonesia Stock Exchange. But, there are only 43 companies meet the sampling criteria. To investigate the influence of ownership concentration on firm performance in Indonesia, multiple linear regression method was performed. Results – The results of this study is the ownership concentration positively and significantly influences firm performance in Indonesia and it acts as a substitute for shareholder protection. Research limitations/implications – The samples are only collected from manufacturing industry and does not take into account the shareholder identity. It is quite possible that shareholder identity influences the relationship between ownership concentration and firm performance. Therefore, future researchers are advised to take into account the shareholder identity so that it becomes clear whether shareholder identity indeed has an effect on such relationship.
Highlights
The corporate ownership in Indonesia, like in most Asian countries, is highly concentrated
The results of this study is the ownership concentration positively and significantly influences firm performance in Indonesia and it acts as a substitute for shareholder protection
This study addresses the question whether ownership concentration influences firm performance in Indonesia
Summary
The corporate ownership in Indonesia, like in most Asian countries, is highly concentrated. According to Asian Development Bank (2000), five largest shareholders of public listed firms in Indonesia own 68% of shares on average. Claessens et al (2000) found that families controlled 72% of public listed firms in Indonesia who usually have their representatives in the leadership structure (Asian Development Bank, 2000). According to Claessens et al (2000), firm value increases with the cash-flow ownership of the largest shareholder in East Asian countries. These findings support agency theory which suggests that agency cost is lower when ownership is concentrated. Concluded that ownership concentration can positively affect corporate performance in countries lacking legal protection of shareholders.
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