Free cash flow, ownership structure, and capital structure: Impact on agency cost

Yoga Khomaini Aditya (), Husnah Nur Laela Ermaya () and Ratna Hindria Dyah Pita Sari ()

Journal of Contemporary Accounting, 2020, vol. 2, issue 2, 63-71

Abstract: The difference in interests between investors and company managers creates a conflict of interest, so in this case, a solution is needed to reduce this problem, namely by issuing an agency cost. This study was conducted to determine the effect of free cash flow, managerial ownership, outsider block ownership, and capital structure on agency costs in Indonesia. The population in this study were all non-financial sector companies that have been listed on the Indonesia Stock Exchange for the 2014-2018 period using multiple regression analysis techniques. The results of this study explain that free cash flow, managerial ownership, and capital structure have a significant positive effect on agency cost. Meanwhile, ownership of an outsider block does not affect agency cost. This study contributes to the science of corporate governance, especially the mechanism for reducing agency costs, and contributes to the non-financial companies themselves to reduce agency costs with manager or manager ownership programs and the right decisions in the use of corporate debt.

Keywords: Agency cost; free cash flow; ownership structure; capital structure (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:uii:jcauii:v:2:y:2020:i:2:p:63-71:id:17145

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