Independent Parties in Minimizing Agency Problem in Indonesia: An Alternative Model

Rinaldo Dito () and Puspita Vina Anggilia ()
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Rinaldo Dito: STIE EKUITAS, JL. P.H.H. Mustopa No. 31, Bandung, Indonesia
Puspita Vina Anggilia: Politeknik Piksi Ganesha, Bandung, Indonesia

HOLISTICA – Journal of Business and Public Administration, 2020, vol. 11, issue 1, 13-28

Abstract: Despite various studies on good corporate governance (GCG), many GCG mechanisms do not seem to work effectively in Indonesian companies due to frequent conflicts between majority and minority shareholders. A more independent party needs to be offered to solve this unique agency problem. This study attempts to analyze how independent parties; foreign and domestic institutional ownership, and independent commissioners may provide solution to agency problem. Results of panel data regression show a positive and significant influence of foreign institutional ownership on dividends and stock prices, whereas domestic institutional ownership and independent commissioners do not significantly affect shareholder wealth. The study also proposes a new model to minimize the possibility of agency problems in Indonesian context through the establishment of foreign institutional ownership as an independent party.

Keywords: Good Corporate Governance; Domestic Institutional Ownership; Foreign Institutional Ownership; Independent Commissioner; Shareholder Value (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:hjobpa:v:11:y:2020:i:1:p:13-28:n:2

DOI: 10.2478/hjbpa-2020-0002

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