Agency Costs, Corporate Governance and Ownership Concentration: The Case of Agro-industrial Companies in Indonesia

Abstract

This study aims to investigate determinants of agency costs on agro-industrial firms that are listed in the Indonesian Stock Exchange (IDX). Modeling of agency costs is analyzed by performing regression analysis of panel data. This study employs secondary data of 54 companies from year 2010 to 2013. The results show that agency costs are affected by the effectiveness of good governance mechanism, especially the function of board of directors (BOD) and board of commissioners (BOC) in conducting their duties, dividend payout and leverage. Whereas, independent commissioners and auditor committee are not significant factors in mitigating agency costs. Ownership concentration affects agency costs in vary. The results can help management, investors and other decision makers to implement better governance practices in agro-industrial firms in Indonesia.

The mediating effect of leverage and dividend policy on the influence of corporate governance towards firm value

“…The more payment for loan means lower return for shareholders. It is parallel with the findings of Hastori et al [2], which said that there was a significantly negative relation between dividend payout policy and agency costs while leverage had significantly positive influence towards agency cost. Agency problem may occur when dividend paid is smaller because of higher payment for loan or higher amount of retained earnings.…”

Analyzing the Link Between Agency Problems, Governance and Control Attributes for Pakistan

“…Agency cost can be measured with different tools, most important are asset utilization ratio (Rashid, 2013), expense ratio (Wellalage & Locke, 2012), free cash flow interaction (Henry, 2010), dividend payout ratio (Wellalage & Locke, 2011) and Tobin's Q (El-Faitouri, 2014). Agency problems can be controlled with the help of many corporate governance attributes like managerial ownership (Rashid, 2015), executive compensation (Core, Holthausen & Larcker, 1999), debt (Paterson, 2016), or Board of directors (Hastori, Siregar, Sembel & Maulana, 2015) and dividends (Park, 2009).…”

“…This will be measured by taking the natural logarithm of the total number of directors in the board. Gul, Sajid, Razzaq and Afzal (2012) and Hastori et al (2015) concluded that the size of the board helped in controlling agency cost.…”

Optimal Capital Structure and Corporate Performance:The Case of Information Technology Industrial Companies in China

“…And the benefits assigned to the major shareholders are far greater than their supervision costs, so they have more impetuses to manage managers, giving full play to their functions, reducing managers` personal profit behaviors, and more easily through the shareholders to reach a consensus, thereby improving corporate performance. And Hastori H (2015) investigated determinants of agency costs , found that ownership concentration affected agency costs in vary [5]. H3:The proportion of the top ten shareholders is positively related to the corporate performance.…”