Ownership concentration, foreign ownership and tunneling in Indonesia

Abstract

Purpose This study aims to examine the effect of ownership concentration and foreign ownership on tunneling activities in Indonesia. Design/methodology/approach The population in this study were manufacturing companies listed on the Indonesian Stock Exchange from 2014 to 2018. The total observations used in this study were 557 observations. This study used three measurements to assess tunneling activities in a company, namely, related party receivables (TUL1), related party payables (TUL2) and related party receivables-payables (TUL3). Findings The results of this study indicated that ownership concentration and foreign ownership had a negative effect on tunneling activity of TUL1. Meanwhile, the effect of ownership concentration and foreign ownership on TUL2 and TUL3 showed a positive effect. This indicated that manufacturing companies in Indonesia preferred to carry out tunneling activities through related party payables compared with related party receivables. Foreign ownership was also effective in controlling the company’s tunneling activities when the company conducted tunneling transactions of related party receivables. Small companies and companies with positive return on assets were more susceptible to tunneling activities carried out by the companies. Practical implications The results of this study can be used as a consideration for investors in making decisions by looking at tunneling activities carried out by companies in Indonesia. Originality/value To the best of the authors’ knowledge, no previous study in the tunneling literature has compared the results of the effect of the concentration of foreign ownership and ownership on tunneling using three measurements at once. This is useful to see the company’s behavior of tunneling activities from a different perspective.

The role of Outside Directors in Tunnelling-related Tax Avoidance: Evidence from Indonesia

“…This negligence allows tunnelling activities to be more prevalent in Indonesia. (Wulandari & Setiawan, 2021).…”

“…Jian and Wong (2010) and Cheung et al (2006) argue that rms can use normal business operation transactions, such as sales or purchases, to extract wealth from minority shareholders. Most of the prior tunnelling research is conducted using related party receivables or payables as the proxy (Bauer et al, 2020;Chan et al, 2016;Chen et al, 2014;Gao and Kling, 2008;Gong et al, 2021;Nurazi et al, 2015 andWulandari &Setiawan, 2021). However, there are other ways to measure tunnelling such as by using related party sales and purchases ( Gordon et al, 2004;Qu et al, 2020), abnormal management perks (Bauer et al, 2020), and asset acquisition, asset sales, and equity sales to related parties (Cheung et al, 2009a).…”

Pengaruh Konsentrasi Kepemilikan terhadap Kinerja Perusahaan: Studi pada Perusahaan Manufaktur yang Terdaftar di Bursa Efek Indonesia Periode 2016-2020

“…Struktur kepemilikan tergolong menjadi struktur kepemilikan terkonsentrasi serta struktur kepemilikan tersebar (Altaf & Shah, 2018;Jensen & Meckling, 1976) Mekanisme tata kelola perusahaan di Indonesia tergolong lemah (Setiawan et al, 2016). Hal ini dikarenakan penegakkan hukum dan perlindungan investor yang belum optimal yang terlihat dari ketidakpatuhan beberapa perusahaan terhadap pelaksanaan peraturan terkait perlindungan investor yang sudah ada di Indonesia (Wulandari & Setiawan, 2023). Struktur kepemilikan sebagian besar perusahaan publik di negara Asia (termasuk Indonesia) dapat dikategorikan terkonsentrasi (Claessens et al, 2000).…”

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“…Companies with foreign ownership value all stakeholders because they are considered part of the company's strategy. Companies with foreign ownership will demand companies be transparent to minimize information asymmetry and prevent opportunistic acts (Wulandari and Setiawan, 2021).…”