The effect of three types of agency problems on the corporate

performance: Evidence from Indonesia

Ni Luh Gde Lydia Kusumadewi

Faculty of Economics and Business, Universitas Indonesia
lydia_kusumadewi@yahoo.com

Ratna Wardhani*
Faculty of Economics and Business, Universitas Indonesia
ratnawardhani@yahoo.com

Presented at: SIBR 2019 (Osaka) Conference on Interdisciplinary

Business and Economics Research, 4th - 5th July 2019, Osaka, Japan.

ABSTRACT

This study aims to examine the impact of three types of agency problems (agency
problem type I, agency problem type II, and agency problem type III) on corporate
performance. The sample of this study included 1760 observations from 352
nonfinancial companies listed on Indonesia Stock Exchange (IDX) in five years from
2013-2017. The measurements of corporate performance were used ROA and Tobin’s
Q. Data were collected and analyzed using least square regression model. It was found
that agency problems type I has a positive effect with statistical significance on market-
based performance using Tobin’s Q, while agency problems type II and III have a
negative effect with statistical significance on market-based performance using Tobin’s
Q. Furthermore, agency problems type I has a positive effect with statistical
significance on accounting-based performance using ROA, whereas agency problems
type II have a negative effect with no statistical significance and agency problems type
III have a negative effect with statistical significance on accounting-based performance
using ROA. The investigation is considered to have theoretical and pragmatic
implications. It contributes to the discussion about agency theory. This study implies
that not all the type of agency problems has negative impact on performance.

Keywords: agency problems, market-based performance, accounting-based

performance, Indonesia
 REFERENCES

Ang, J. S., Cole, R. A. and Lin, J. W. (2000) ‘Agency Costs and Ownership
Structure’, The Journal of Finance, LV(1), pp. 81–106.
Attig, N., El Ghoul, S. and Guedhami, O. (2009) ‘Do multiple large shareholders play
a corporate governance role? evidence from east asia’, Journal of Financial Research,
32(4), pp. 395–422. doi: 10.1111/j.1475-6803.2009.01255.x.
Aulia, A. (2013) Pengaruh Income Smoothing Terhadap Cost Of Debt Dan Cost Of
Equity Dengan Peran Moderasi Corporate Governance Dan Konflik Keagenan
Antara Debtholder Dan Stockholder. Program Pascasarjana Fakultas Ekonomi
Universitas Indonesia.
Gani, L. and Jermia, J. (2006) ‘Investigating the effect of board independence on
performance across different strategies’, The International Journal of Accounting, 41,
pp. 295–314.
Gilson, R. J. and Gordon, J. N. (2003) ‘Controlling Controlling Shareholders’,
Controlling Controlling Shareholders, 152(2), pp. 785–843.
Harahap, L. and Wardhani, R. (2011) ‘Analisis komprehensif pengaruh family
ownership, masalah keagenan, kebijakan dividen, kebijakan hutang, corporate
governance dan opportunity growth terhadap nilai perusahaan’, Simposium Nasional
Akuntansi XV, pp. 1–36.
Haryono, S. A. et al. (2017) ‘PENGARUH STRUKTUR MODAL DAN STRUKTUR
KEPEMILIKAN’, 14(2), pp. 119–140.
Hutchinson, M. and Gul, F. A. (2004) ‘Investment opportunity set , corporate
governance practices and firm performance’, Journal of Corporate Finance, 10, pp.
595–614. doi: 10.1016/S0929-1199(03)00022-1.
Huyghebaert, N. and Wang, L. (2012) ‘Expropriation of Minority Investors in Chinese
Listed Firms : The Role of Internal and External Corporate Governance Mechanisms’,
20(3), pp. 308–332. doi: 10.1111/j.1467-8683.2012.00909.x.
Ittner, C. D., Larcker, D. F. and Randall, T. (2003) ‘Performance implications of
strategic performance measurement in financial services firms’, 28, pp. 715–741. doi:
10.1016/S0361-3682(03)00033-3.
Jensen, M. C. and Meckling, W. H. (1976) ‘Theory of the firm: Managerial behavior,
agency costs and ownership structure’, Journal of Financial Economics, 3(4), pp.
305–360. doi: 10.1016/0304-405X(76)90026-X.
Khamis, R., Hamdan, A. M. and Elali, W. (2015) ‘The Relationship between
Ownership Structure Dimensions and Corporate Performance: Evidence from
Bahrain’, Australasian Accounting, Business and Finance Journal, 9(4), pp. 38–56.
doi: 10.14453/aabfj.v9i4.4.
Kim, J., Li, Y. and Zhang, L. (2011) ‘CFOs versus CEOs : Equity incentives and
crashes’, Journal of Financial Economics. Elsevier, 101(3), pp. 713–730. doi:
10.1016/j.jfineco.2011.03.013.
Kumar, P. and Zattoni, A. (2014) ‘Large shareholders and corporate governance
outside the United States and United Kingdom’, Corporate Governance, 22(4), pp.
294–295.
Lin, Y. R. and Fu, X. M. (2017) ‘Does institutional ownership influence firm
performance? Evidence from China’, International Review of Economics & Finance,
49, pp. 17–57. doi: 10.1016/j.iref.2017.01.021.
Panda, B. and Leepsa, N. M. (2017) ‘Agency theory : Review of Theory and Evidence
on Problems and Perspectives’, Indian Journal of Corporate Governance, 10(1), pp.
74–95. doi: 10.1177/0974686217701467.
Purkayastha, S. and Veliyath, R. (2016) ‘Primary and Secondary Agency conflicts in
Family Firms: An empirical investigation’, Kennesaw State University Working Paper
Series, 3329(470), pp. 0–33.
Ratnadi, N. M. D. et al. (2013) ‘The Effect of Shareholders ’ Conflict over Dividend
Policy on Accounting Conservatism : Evidence from Public Firms in Indonesia’, 4(6),
pp. 146–155.
Sami, H., Wang, J. and Zhou, H. (2011) ‘Corporate governance and operating
performance of Chinese listed firms’, Journal of International Accounting, Auditing
and Taxation. Elsevier Inc., 20(2), pp. 106–114. doi:
10.1016/j.intaccaudtax.2011.06.005.
Shleifer, A. and Vishny, R. W. (1997) ‘A Survey of Corporate Governance’, American
Finance Association Stable, 52(2), pp. 737–783. doi: 10.1080/09512740903068396.
Sutton, C. et al. (2017) ‘Secondary agency con fl icts : A synthesis and proposed
measurement model’, Long Range Planning. Elsevier Ltd. doi:
10.1016/j.lrp.2017.12.004.
Wardhana, L. I. and Tandelilin, E. (2011) ‘Institutional ownership and agency conflict
controlling mechanism’, Journal of Indonesian Economy and Business, 26(3), pp. 389
– 406.
Zogning, F. (2017) ‘Agency Theory : A Critical Review’, European Journal of
Business and Management, 9(2), pp. 1–8.
(Jensen and Meckling, 1976)
(Kim, Li and Zhang, 2011)
(Ratnadi et al., 2013)
(Zogning, 2017)
(Sami, Wang and Zhou, 2011)
(Ittner, Larcker and Randall, 2003)
(Ang, Cole and Lin, 2000)
(Attig, El Ghoul and Guedhami, 2009)
(Aulia, 2013)
(Purkayastha and Veliyath, 2016)
(Panda and Leepsa, 2017)
(Harahap and Wardhani, 2011)
(Wardhana and Tandelilin, 2011)
(Khamis, Hamdan and Elali, 2015)
(Lin and Fu, 2017)
(Gani and Jermia, 2006)
(Hutchinson and Gul, 2004)
(Kumar and Zattoni, 2014)
(Sutton et al., 2017)
(Gilson and Gordon, 2003)
(Shleifer and Vishny, 1997)
(Huyghebaert and Wang, 2012)
(Haryono et al., 2017)