Abstract
The research to examine the effects of ownership structures on financing policies and firm valuation. The populations are all listed companies in Indonesia Stock Exchange for period of 2013 and 2015. The sample selection technique used purposive sampling and resulting in a final sample of 72 listed firms. Empirical tests are conducted using multiple regressions and two stages least squares regression to test the simultaneous relationship between ownership structure, financing policies and firm value. The estimated results provide support for the hypotheses proposed that the separation of cash flow rights and control rights have led the use of excess leverage among pyramidal companies to preserve ultimate owner’s control. However, we failed to find a significant relationship between firm’s leverage and firm’s value. The conclusion is the simultaneounity relation between ownership structure, leverage and firm value appear that only the ownership structure significantly related with leverage and firm value. Also firm value and leverage ownership impact the ownership structure. Meanwhile, leverage does not appear to have a significant relation with the firm value, or the other way around.
Highlights
The literature of corporate governance and agency problem had been discussed around the conflict of interest between owners and managers (Boshkoska, 2014). Faccio, Lang, & Young (2001) find evidence that the ownership of corporations in the United States has been not so widely dispersed and more concentrated which dominated by family companies, other studies later had confirmed this evidence such as the study from Tan (2012) found evidence that corporations on such countries have been more concentrated with just a few family companies dominated the whole economy.The controlling shareholders often use the pyramidal structure, cross-holding structures and dual-class shares to enhance control of the firm
CECHIGH, Dummy variable that takes a value of 1 In order to test simultaneous Relation Between if control rights of the largest owner are higher than Ownership Structure, Financing Decision and Firm cash flow rights and if this separation is higher than Value, we need to use two stages least square (2 sls) the median separation in corporations where control equation
The high cash flow ownership by the largest shareholder will increase his incentive to be more risk aversed. This positive effect of cash flow right to leverage is similar with findings from Bunkanwanicha, Gupta, & Rokhim (2008); and Jiraporn, Kim, Kim, & Kitsabunnarat, 2012). These findings suggest that firms with weaker corporate governance, explained by the incentive alignment effects, tend to have higher debt level as compared to stronger corporate governance firms
Summary
The literature of corporate governance and agency problem had been discussed around the conflict of interest between owners and managers (Boshkoska, 2014). Faccio, Lang, & Young (2001) find evidence that the ownership of corporations in the United States has been not so widely dispersed and more concentrated which dominated by family companies, other studies later had confirmed this evidence such as the study from Tan (2012) found evidence that corporations on such countries have been more concentrated with just a few family companies dominated the whole economy. The role of debt as potentially disciplining mechanism has been limited in firms where ownership structure is concentrated and where it’s management come from controlling owner( Peng & Sauerwald, 2012 In such company which is commonly found in Asia and European countries, debt can be use as a tool to expropriate minority shareholders and creditors. The study of the relation between debt structure and corporate governance is advantageous, to better understand whether or not firms that are vulnerable to expropriation issue more debt to have more resources to use for private interests, and to shed lights on the other possible agency problems These agency problems may arise between the firms’ controlling shareholder of a firm and the firm’s debt providers belong to the same business groups controlled by the same family. H3b: There is a simultaneous relation between pyramidal structure, financing decision, and firm value with different effect when cronyman existed in the firm
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