Political Patronage, Cross-Holdings and Corporate Governance in Indonesia

Abstract

This chapter describes and evaluates both the macro and micro aspects of corporate governance of private sector and public sector enterprises in Indonesia. The analysis is based on the corporate governance literature resulting from Williamson (1988), Hart (1995), Shleifer and Vishny (1997), La Porta et al. (1998) and Licht, Goldschmidt and Schwartz (2001). This literature suggests that corporate governance practices of firms evolve from the influences of culture, institutions, markets, contractual arrangements and the rationality and opportunism of human actors. Corporate governance is indeed a product of a web of interacting variables that are too numerous to be analyzed in any single research effort and we simply cover a few within the context of Indonesia. Consistent with Shleifer and Vishny (1997), we see corporate governance as a set of monitoring arrangements associated with the financial contracts of firms. These monitoring arrangements exist within firms, in the capital markets or are imposed by regulatory institutions. The analysis, therefore, starts from the examination of broader contextual issues of corporate governance in Indonesia and narrows down to the more firm specific monitoring issues.