Facm01-Bank Loan and The Agency Costs of Debt in Indonesia

The1stAccountingConference
FacultyofEconomicsUniversitasIndonesia Depok,79November2007 BANK LOAN AND THE AGENCY COSTS OF DEBT IN INDONESIA; FREE CASH FLOWS AND MANAGERIAL PERKS PERSPECTIVE RANDI MILZA NIKI LUKVIARMAN Universitas Andalas Abstract This research provides a survey to examine the recent conditions on the agency costs of debt problems in the Indonesian listed firms. Researcher structure the existing research around two perspectives: (1) What are the impact of bank loan to the firms free cash flows? 2) Are the firms managers consumed perks from the bank loan? The evidence constituted that the amount of free cash flows and perks are increase significantly as the addition of the loans. This study assumed that firms managers in Indonesia, up to now, are still having a tendency to do overinvestment but do not rely on firms size to do it. It is different as what some literature stated. The firms manager also consumed perks, but the consuming of perks itself does not rely on the age, assets structure, and the size of the firms. Those findings indicated the existence of agency costs of debt within firms, which bear all the costs to the creditors (banks). With the lack monitoring function performed mostly by Indonesian banks, make those findings also suggest that debt governance practices adopted in Indonesia is still weak in nature.
Keywords: bank loan, agency costs of debt, free cash flows, and managerial perks 1. Introduction At the year of 1988, the Indonesian government was established some liberalisation and deregulation law in banking industry where the restriction to open new bank was reduced significantly (Hall and Mustika, 2003). The effect of this policy was the increased in the total amount of bank rapidly in the industry. But the other side, this financial sector reforms was not accompanied by strict implementation of rules and regulations (Nasution, 1999). According to Nasution
BridgingtheGapbetweenTheory,Research,andPractice
FacultyofEconomicsUniversitasIndonesia Depok,79November2007 (1999), the regulators and bank managers also did not have sufficient personnel to supervise and examine the fast-growing number and expanding powers of financial institutions. As such, the drawbacks of this policy was also harmful By early 1998 in Indonesia, it was beginning to become clear either that the banking system was in much worse condition than originally thought, or it had deteriorated much more than anticipated. Many banks were closed, and all of the large private banks were taken over by the government (some maintaining a minority shareholding on the part of the original owners). McLeod (2002) convinced that the total cost to the government of reimbursing Bank Indonesia for its liquidity support, covering the guarantee of banks liabilities, and restoring capital adequacy ratios to 8% was estimated at 15% of GDP. These banking problems come from the bad loans and suggest that the governance role of debt doesnt function in Indonesia. In the term of debt financing, bank may actually obtain private information about the firms during the process of negotiating the lending arrangements. Because of banks lend funds with the full expectation of being repaid by the debtors, a significant loan commitment represents an implied audit of the firm about its creditworthiness; hence, a banker serves as an external auditor, passing judgment on the firm's present condition and future prospects for loan repayment. The more exclusive lender-borrower relationship increases the bargaining power of the bank (Diamond, 1984; James, 1987; Lummer and McConnel, 1989; Boot and Thakor, 2000). The cases of bad governance on the bank loan in Indonesia then arising so many question marks for several people. Financial intermediaries are supposed to mitigate some deleterious effects of debt financing by monitoring their borrowers (Lookman, 2005). However, Kurniawan and Indriantoro (2000) constituted that in the Indonesian banking industry, for example, loans were channelled with little consideration for creditworthiness, and later prove to be uncollectible. Some lending was given to politically connected firms and many loans were secured with assets that turned out to be worth much less than their originally assessed amounts and many others were not secured at all. Chiu and Joh (2004) convinced that there are three reasons for financial institutions giving loans to financially troubled firms. Loans could be given because
FacultyofEconomicsUniversitasIndonesia Depok,79November2007 of crony lending (government protections), related lending (firms affiliations with the bank), and because of poor governance of financial institutions itself. Previously, Rajan and Zingales (1998) argue that much of the collapse of the Asian tigers in 1997 and 1998 was due to connected lending where lenders continuing to extend credit to distressed borrowers rather than cutting of bad credits early and forcing restructuring before problems grew out of control. It might be that there are no differences for those conditions in Indonesia. Pattrick (2001) stressed that all growing companies in Indonesia, large and small, listed and unlisted, private sector and state owned enterprises, borrow from banks to the extent possible, arising the problem of bank monitoring function become the important issue. These findings also suggest that the implementation of a sound corporate governance practice is at least as important for state-owned enterprises and private listed firms. Much of the previous literature that investigates the effect of various corporate governance mechanism focuses only on equity financing (McConnell and Serves, 1990; Yermack 1996; Karpoff, Malatesta and Walkling, 1996; Gompers, Ishii and Metrick, 2003). However, the debt financing is also have the same interesting and challenges of problems to make a research. Fulghieri and Suominen (2006) show that corporate governance problem in the equity market interacts in an essential way with the moral hazard problem in the debt market. This research is then developed on the basis of previous research by Tian (2003) which study about the managerial agency cost of debt between banks and firms in the context of dual government ownership in China. The present study expand that research without limits its scope on the dual government ownership context, but the governance of debt as a whole including private listed firms. With the same method, and by using managerial perks and free cash flows as proxies to measured the managerial agency cost of debt, the researcher test those findings in the Indonesian evidence. This research then continued with the questions, Is the condition of the managerial agency costs of debt still exists within companies in Indonesia? Researcher then studies the associations of leverage especially bank loan and its impact on managerial agency costs of debt that proxies by managerial perks and free
FacultyofEconomicsUniversitasIndonesia Depok,79November2007 cash flows. Some previous literature proposed that this problem is highly related to the agency costs theory between firms, which as the party who need financing, and financial institution (bank) as the party who gives financing. The purposes of this research is to find out the recent conditions of the agency costs of debt problems, whether still exists or not, in the firms managerialperks and free cash flows perspective. Researcher then defined this objective in the scope of its debt governance. Thus this study then becomes a positive reference to firms and banks in posing a judgment of a sound corporate governance practices recently, especially on the bank loan cases in Indonesia. The remainder of the paper is structured as follows. Section 2 lays out main theories and hypothesis. Section 3 describes the sample and the variables used. Section 4 describes the research results. Sections 5 report conclusion, implications, also limitation and suggestion of this research. 2. Theories and Hypothesis 2.1 Corporate Governance on Financial Context There has been reasonable consensus among practitioners and academicians about the importance of a sound corporate governance concept in the economy. In Indonesia, many people known that the concept for corporate governance is become popular when economic crises hit the country in 1997/98. Some arguments to be considered that the main reason of this crises was because of the bad governance in many aspects on the nation-side. The reason is, many economic activity and policy has offsetting the rule of conduct in their implementation compared to which it have been settled before. In Indonesia, bank loan has become the major sources of external financing almost for all companies, although the development of stock and bond markets is also a high long term priority (Pattrick, 2001). Accordingly, banks will be in a position to play a significant corporate governance role by monitoring business client performance and management behaviours. Research conducted by Facio, Lang, and Young (2001), for European cases, confirms that capital market institutions are effective, make the external suppliers of capital (i) dominate decisions on leverage amongst tightly-affiliated corporations,
FacultyofEconomicsUniversitasIndonesia Depok,79November2007 and (ii) anticipate that debt will facilitate expropriation. Otherwise for Asia, they confirms that capital market institutions are ineffective, so that controlling shareholders (i) dominate decisions on leverage, amongst loosely-affiliated corporations, and (ii) exploit this to increase the leverage of corporations more vulnerable to expropriation, presumably to acquire more resources to expropriate. Shleifer and Vishny (1997) define corporate governance as the ways through which suppliers of capital to corporations assure themselves of getting a return on their investment. In a more investment related definition, corporate governance is to a certain extent set of mechanism through which outside investor protect themselves against expropriation by the insiders, which are both managers and shareholders (La Porta et al., 2000). 2.2 Agency Costs of Debt Previously, Jensen & Meckling (1976) define agency relationship and identify the agency costs. Agency relationship is a contract under which one or more persons (principal) engage another person (agent) to perform some service on their behalf, which involves delegating some decision-making authority to the agent. The principle then take the risk after delegating their authority to the agent since some agents interests may not in conform to the principle. This agency costs then include monitoring expenditures by the principal such as auditing, budgeting, control and compensation systems, bonding expenditures by the agent and residual loss due to divergence of interests between the principal and the agent. Past research, including Grossman and Hart (1982), Jensen (1986), Stulz (1990), Hart and Moore (1995), Rajan and Winton (1995), and Stulz (2000), has suggested leverage and debt maturity structure as effective ways to mitigate the agency problem between shareholders and managers. The intuition is that leverage, and particularly short-term debt, can reduce discretionary funds and subject managers to the scrutiny of the financial market and the threat of default, effectively curbing self-serving behaviour by managers (Harford, Li, and Zhao 2006). However, as the firms raise an external financing as a way to discipline their managers, another type of problems arise. Insider of firms, that are managers and shareholders, cannot convinced the outsiders, that is the creditors (debtholders)
FacultyofEconomicsUniversitasIndonesia Depok,79November2007 easily, since there also an information asymmetery exists between those parties. It is because creditors do not know the exact and true conditions about the firm within now and future. This problems then make the creditors doubt about the debt governance of their loans by the firms, thus moral hazard also arise. In the firms internal perspective, managers are not the perfect agent for shareholders because they may adopt a non-value-maximizing behaviour and engage in self-serving activities such as empire building and perquisite consumption at the expense of shareholders. Since they contribute through their human capital, managers have a tendency to avoid less risky project which in turn would give a higher return to the firm. Moreover, Facio, Lang, and Young (2001) also stated that default on corporate debt might not affect the professional managers net worth, but would certainly devastate his reputation and career. This would not be a concern for the controlling shareholder of a corporate group, who employs himself as top manager and can borrow through a group affiliate from a group bank. According to Boubakri and Ghouma (2006), managers also favour to engage in short term projects rather than projects that ensure a continuity of the firm in the long run. Thus from the creditors point of view this type of conflict would probably lead to default of their principle and interest payment, and that is another rationality encourages creditors to charge larger yields (costs) for firms with less disciplined managers. Beyond the managers opportunistic behaviour, creditors also need to worry about being expropriated by the owner (shareholders). Still with Boubakri and Ghouma (2006), stockholders, especially controlling shareholders, could be induced to operate wealth transfers from debt holders in their favour, especially by undertaking riskier projects that are rewarding to shareholders but costly to debt holders. According to the option theory, shareholders possess a call option on the assets of the firm. The riskier are these assets, the more valuable is their option. Obviously, debt claimants will bear all the cost, while shareholders capture most of the gain if the investment does well. Such situation cannot be completely tackled by the contract provision, thus arising the term we known as agency cost of debt. Based on the research conducted by Tian (2003) about the agency cost of debt between banks and firms in China in the context of dual government ownership,
FacultyofEconomicsUniversitasIndonesia Depok,79November2007 this study expand that research without limits its scope on the dual government context, but the governance of debt as a whole including private firms. The 1998s monetary crises showed that there is no differences on reality in Indonesia, which is from State Owned Enterprises (SOE) or private listed firms, that have the best governance on bank loan. The two of them showed the same lack of governance on bank debt. Both of them was hit worsely by the crises, each have received loans not only from government bank but also from private bank, each have failed on their project investment, and each have great amount of liability to paid that loan. 2.3 Hypothesis Development Previously, Kim and Sorensen (1986) suggest that the agency cost of debt is more significant for those firms whose managers own a small portion of equity than for those firms whose managers own a significant portion of equity because the former group is more likely to make suboptimal investment decisions than the latter group. Largely apart from this shareholder-focused corporate governance literature, several finance scholars have pursued another line of research exploring financial intermediation and its externalities that might affect other financial claimants (see Datta, Iskandar-Datta, and Patel 1999, and Klock, Mansi, and Maxwell 2005). Durnev and Kim (2003) also provide another theoretical model, and empirically test the relationship between the financial characteristics of a firm and corporate governance. They show that firms with good investment opportunity, higher sales growth rates and higher dependency on external financing would maintain a better corporate governance not to lose those good investment opportunities. 2.3.1 Free Cash Flows There are three parties that have interest on free cash flows. The first party are managers. According to Tian (2003), the way some managers to spend free cash for their own benefit is through over expanding corporate operations or empirebuilding, fits the interest of managers at the cost of shareholders. Not only managers, the shareholders also have interest in this cash flow in term of dividend paid. Shepherd, Tung, and Yoon (2007) confirms that bank is another party who
FacultyofEconomicsUniversitasIndonesia Depok,79November2007 have the same interest about free cash flow. The importance of free cash flows to bank is in maintaining the sustainability payment of their interest and loan principle. Since the main focus of this research is on firms managers, then this research just look at the impact of free cash flows on managerial agency costs cluster. Previously, some literature including Tian (2003), found that an increase of bank loans increases the size of free cash flows that will lead firms to overinvestment problems because of managers expropriations. Dittmar and Smith (2005) then studied how good governance improves the value of cash reserves. They find that a well governed firm has its excess resources better fenced in, and that firms with poor corporate governance dissipate excess cash reserves more quickly on less profitable investments than those with good governance. Grossman and Hart (1980) also Cheng and Lin (2006) proposed that debt is a disciplinary device that may be used to reduce the agency costs of free cash flow. Sheperd, Tung, and Yoon (2007) found there are some ways for creditors (bank) in monitoring the firms. First, mandatory regular interest and principal payments on the loan reduce the amount of free cash. Second, bank loans often contain an excess cash covenant, which explicitly limits the borrower firms cash on hand by requiring that any excess be used to pay down the bank debt. Third, the lender typically requires the borrower firm to maintain its deposit accounts with the lender. This enables the lender to monitor continuously the firms cash levels and uses of cash. We can conclude that the above condition will only operated significantly if bank monitoring is acceptable, exactly the same as Sheperd, Tung, and Yoon (2007) stated. However, since the bank monitoring is not so well in Indonesia (conclude from Nasution, 1999), then the function of debt to reduces the agency costs of free cash flows would not be the same. H1= there is significant associations between leverage and free cash flows 2.3.2 The Perks In the process of searching the literatures for this research, no many bases to get supporting findings about managerial perks can be found. Many people observe
FacultyofEconomicsUniversitasIndonesia Depok,79November2007 perks, but very few of them observe the associations between leverages and managerial perks. From all of the view findings, this recent study agreed with Tian (2003), that proposed perks will increase respectively in the firms if having more leverage by the addition of the bank loan on the weak governance system. Another supportive finding also suggest by Jensen and Meckling (1976) long time ago, constitute that managers of growing firms that was financed from outside are less careful with peoples money. Indirectly, it indicated the sensitivity of associations between leverage (bank loan) and managerial perks. Different perspective was given by some people. (Grossman and Hart, 1982) constitute that the use of debt increases the probability of bankruptcy and job loss. This additional risk may further motivate managers to decrease their consumption of perks and increase their efficiency. Laura, Lin, and Shift (1993) also proposed that if bank monitoring were effective then managerial perks could be reduce because debt constraints the action of managers, instead the creditors itself do not play an active role in the governance of the corporations. H2= there is significant associations between bank loan and perks 3. Data and Summary Statistic 3.1 Data Collection Method The data used in this research are secondary data, collected from several sources included Indonesian Capital Market Directory (ICMD), Company Audited Financial Report, and www.jsx.com. Since there are some data that can not be collected because of some reasons, then the choice of firms selected was based on the most efficient data available. The method of data collection is done by using pooling data method and research sample is done by purposive sampling method based on some given criteria. The data then merged to construct my final sample, consists of operating income, interest expense on bank loan, current tax, dividends, book value of firms assets, administration costs, sales, long-term bank loan, short-term bank loan, and total assets.
FacultyofEconomicsUniversitasIndonesia Depok,79November2007 3.2 Data Construction The population of this research is all of the firms listed in Jakarta Stock Exchange (JSX) in a period of 2003 to 2005, excluded firms operated in Banking, Credit Agencies Other Than Bank, and Security Insurances. Researcher assumes that these type of firms are regulated and also because their levarage cannot be interpreted in the same manner as for industrial firms. The sample of this research is all the firms listed continually from 2003 until 2005 in JSX, after excluded firms operated in Banking, Credit Agencies Other Than Bank, and Security Insurances. The sample then selected based on some following criteria: (i) Firms must be listed in JSX continually in a period of 2003 to 2005 with a complete summary of financial report and published it in Indonesia Capital Market Directory (ICMD), (ii) The firms must also published its annual report in a period of 2003 and 2005 which is audited by independent auditor, (iii) The firms audited annual report must clearly defined interest expense on bank loan explicitely. In my opinion, it is important to get this account clearly defined to avoid some biases since the some lack of informations given in the annual report if the data are calculated mannually (some of this account is totaled with other kinds of interest expenses in a annual report with no clear information about each rate) 3.3. Research Model The statistical analysis of this research is divided into two parts; classical assumption testing and hyphotesis testing. Researcher then have to changes the regression model into natural logarithm form to get proper sufficiency in classical assumption tests but in reading the results researcher have to change the results into exponential forms. This research is also conduct a test to make sure that there is no correlation between the two dependent variable to prevent some statistical biases. 3.3.1 Dependent variable 3.3.1.1 Managerial Perks There are some definitions of perks. Tian (2003) stated that managerial perks are the hidden income of management team. Bebchuk and Jackson (2005) stated that hidden compensation takes an inefficient form that management would not choose to
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 pursue out of their own pockets if they were compensated directly with cash. Thus the abuse of perks imposes costs on the firm and ultimately its owners. Rajan and Wulf (2007) defined perks as form of non-monetary compensation offered to selected employees and also pointed out that perks is not strictly necessary for the accomplishment of the employees duties. The examples of perks are firstclass air travel, club membership, company car, executive dining room, home security systems, physical examination, telephone and fax, also seminary tickets, and many more. In the company point of view, perks actually could be treated in a positive and negative manner. Perks in the negative manners is proposed by Jansen and Meckling (1976), Grossman and Hart (1980), and Jensen (1986). They stated that there a way for manages to misappropriate the firms surplus that firms generated. Managers can do so because perks are difficult to observe by investor and investor itself are usually not in physical contact with management, so they cannot see the extent of perks consumption for themselves. While perks is generally term in the negative manners, there are also some positive outcome of the given perks. Still with Rajan and Wulf (2007), perks in someway help managers in performing their duties, indirectly they aid productivity of the managers even not as a critical parts of jobs duty being done. For example, firms will benefit in negotiation if their managers in fresh condition after travelling in first-class air travel than arriving tired and jaded with the economic-class air travel. In this research, following Tian (2003), I measured perks as; Equation 1 Perks =
Adm.cost Sales
Most perquisites for managers are not explicitly reported in the annual reports, but they inflate the accounting item of administration costs. Administration costs records the administration expenditures in organizing and managing corporate operation. It includes the expense of the management team and the costs that should be born by the company as a whole, such as corporate cars, travelling expenses, entertainment expenses and other services bills (concluded from Tian, 2003).
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 3.3.1.2 Free Cash Flows Free Cash Flows terms were firstly proposed by Jensen (1986). Free cash flows is the cash flows that are at the disposal of managers after valuable/efficient investment. According to Jensen (1986), managers could maximize objectives which are not common in the stakeholders interest; through increasing the firms size that will boosts his status, pay, and power in the company. Later on, managers then may still take on more investment projects at the expense of shareholders, increasing firm size but at the cost of lower net present value. However, according to Tian (2003), with the legal bidding of repayment of interest and loan principle, debt function will force out free cash flows by imposing rules and restriction on management. Consequently, this will explain why free cash flows and investment is highly related. In some estimation, Shepherd, Tung, and Yoon (2007) also include a measure of free cash flows as a proxy for managerial agency costs. Jensen (1986) asserts that free cash flow is the best measure of the discretionary funds and thus the best proxy for agency conflicts In this research, following Shepherd, Tung, and Yoon (2007), the researcher measured these free cash flows (FCF) as: Equation 2 FCF = oprt. income-(interest exp. on bank loan+(income taxes-changes in deffered taxes)+dividends)
BV. of firms assets
3.3.2 Independent Variable Financial leverage is the liabilities of the firm and indicated the probabiltity of financial distress, which may influences the governance role of debt by the firms. Since the purposes of this research is to find out about the condition of managerial agency costs of debt, esepecially bank loan in Indonesia, then following the criteria the formula of leverage used is the debt from bank loan. Equation 3 Leverage =
Total Bank Loan Total Assets
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 3.3.3 Control Variable This study use three items defined as control variable, that is firms size, firms age, and assets structure. These three items must be controlled to minimize its effect on statistical results between indepedent variable and dependent variable. 1. Firms Size In this concepts, firms will tend to increase their debt level since the rapid growth of the firms press more sources of financing. Bigger firms will easy access the capital market because they have flexibility and ability to get sources of financing (in term of symmetric information). Bernanke et al. (1994) present strong empirical evidence that the severity of the agency cost problem faced by firms depends on firm size. Firm size is measured by taking the logarithm of total assets of each year. This study tends to use total assets in order to reduces the multicolineriality from this ratio with administration costs per sales (perks). 2. Firms Age Firm age relates to changes caused by the firm life cycle changes (Smith, Mitchel, and Summer, 1985). Berger and Udell (1995) argue that firm age is associated with the degree of information asymmetry. The degree of information asymmetry is likely to be more severe in younger firms since they have limited financial records. Firm age is measured by the number of years between the observation year and firms founding year. 3. Assets Structure The assets structure or the assets tangibility influences firms growth and corporate valuation (Vilasuso and Minkler, 2001). The scales of managerial agency costs probably systematically vary with the structure of corporate assets. Rajan and Zingales (1995), argue that fixed assets are easier to collateralize, and so reduce the agency costs of debt. The assets tangibility is measured as total fixed assets divided by total assets. Examining the relations between financial leverage and mangerial agency costs of debt, the basic model to estimates is (Tian 2003): Equation 4 Managerial Agency Costs of Debt = C+*Debt+ *Firms Characters +
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 Figure 1. Model of Variable Definiton Independent Variable
Leverage
Dependent Variable Control Variable

Assets Structre Firms Size Firms Age Perks Free Cash Flows Managerial Agency Costs of Debt
4. Results The most important thing before conducting the statistical test for this research is to convinces that there is no correlation between the two dependent variables to prevent the statistical results bias. Researcher then observed the relationship between free cash flows and perks ( Jensen and Meckling (1976) previously proposed that free cash flows caused perks). From table 1, the Pearson Correlation value for free cash flows and perks each is 0,30 which is > than (0,05). For that reason, this study assumed that there is no correlation between the two dependent variables. My findings was in line with Rajan and Wulf (2007), constituted that there is no causal relationship between free cash flow and perks. In my opinion, supported also by some previous literature, free cash flows is higly related with overinvestment made by the managers, instead of with perks. 4.1 Results for Free Cash Fows Some previous literature proposed that managers, shareholders, and creditors have the same interest on the free cash flows. Shareholders want this free cash flow in terms of dividend payment, managers could miss-use this free cash flow through overinvestment to build their empire-building, and creditors want these free cash flows to sustain the payment of interest and principle on their loans. Grossman and Hart (1980) also Chen and Lin (2006) suggest that indirectly in nature, more debt given by bank, will increase the total amount of free cash flows that could be miss-used by the firms. However, Sheperd, Tung, and Yoon (2007)
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 constituted that if banks can monitor continuously the firms cash level and uses of cash, then the amount of free cash flows can be reduced. Reducing the amount of free cash flows make the agency problems arising by it would not be a matter. Using statistical F-test, this research found a significant positive association between leverage, tangibility, and firms age, if act as a group, to the free cash flows amounts. From table 14, the F value is 7,784, and the Sig value is 0,000, which is < (0,05). It means that the influence of independent variables (leverage, age, tangibility, and LN assets), if act as a groups, is significant towards the dependent variables (LN_Free Cash Flows). Focusing more on leverage through statistical t-test, from table 16, after analysing the result, statistical equation model that can be made is: Equation 5 LN_FCF = -2,062 -1,761 Leverage 0,702 Tangibility + 0,018 Age + Table 16 reports a positive influence between the leverage and free cash flows after changing the results model into exponential forms. <Insert table 1> A 0,1 increases in firms leverage increases the free cash flows amounts up to 0,172. Other things being equal (that are assets tangibility and firms age), a firm which given more bank loan tends to have more free cash flows, thus increasing the tendency to do overinvestment. This findings was in line with Jensen (1986), Grossman and Hart (1980), Tian (2003), and also Chen and Lin (2006), suggesting that more debt given by bank, will increase the total amount of fee cash flows that could be misused by the firms. The increased of free cash flows amount from debt financing also suggesting a bad monitoring function performed by the banks in Indonesia, at least in the same period of my sample. It is because; bank through their monitoring function in nature should reduce the amount of free cash flows raised from their loans (Sheperd, Tung, and Yoon, 2007). Again this condition doesnt happen in Indonesia. Dittmar and Smith (2005) previously suggest that a good governance firms better fenced their free cash flows compare to weak governance firms which have more excess cash reserves. This research found that many Indonesian firms have
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 more free cash flows if added more leverage through bank loan, thus based on Dittmar and Smith (2005), suggesting the researcher to concludes, that many Indonesian firms itself do not have proper governance on their debt. From table 1, this recent study also found that firms with sufficient period in their operation (long age firms), still have amount of free cash flows increased by the bank loan addition. Others thing being equal, an increases of 0,1 firms leverage increases the total amount of free cash flows up to 0,498. This research then assumed long age firms still tend to do overinvestment, indicating weak governance, especially on bank loan. These findings suggest that firms in Indonesia, although have a long period in their operation, can not reduce the managerial agency costs of debt. From table 1 also, researcher founds free cash flows are influenced positively by the structure of the firms assets. Other things being equal, an increases 0,1 of assets tangibility, make the firms free cash flows amount increases up to 1,018. These findings indicated that firms with a large proportion of intangible assets also tend to do overinvestment. But this research can not judge that the governance of debt in this type of firms is weak or not. It is because my sample do not differentiated certain business sector. For instances, the information technology sector, which have more intangible assets, requires intensive investment, thus keeping more on their free cash flows amount. But my findings do not constituted any influence of firms size to the free cash flows. No influence of firms size to free cash flows is an interesting finding. Some previous literature including Jensen (1986), proposed that a manager, due to the imperfect incentive alignment between shareholders and managers, managers would seek private benefits proportional to the sizes of their firms, but share the investment and operating costs with outside shareholders. Thus consequently, these managers tend to over invest. My research indicated a different finding. The association between firms size and free cash flows is insignificant in Indonesia. The researcher can conclude, the amount of free cash flows do not influence by the firms size in nature. It indicated the size of the firms is not a matter to the possibility of debt governance in Indonesia. There is also no differentiation between bigger firm and small firms in the implementation of debt governances make the overinvestment problems do not rely on the size of that firms.
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 4.2 Results of Perks Some literature on perks proposed that perks could be in positive or negative associations within the addition of leverage. The first point of view was proposed by Jensen and Meckling (1976) and Tian (2003). Jensen and Meckling (1976) stated that managers of firms that financed from outside will less careful about peoples money. In his research, Tian (2003) also found that perks is highly associated with leverage (bank loan) in China evidence. More leverage (bank loan) will make managerial perks more increase. In the other side, the negative associations findings were proposed by Grossman and Hart, (1982) and Laura Lin, Shift (1993). Grossman and Hart constitute that, since the use of debt increase the possibility of bankruptcy and job loss, then managers will motivated to decrease their consumption as perks and increase efficiency. Laura, Lin, and Shift (1993) also proposed that if bank monitoring were effective then managerial perks could be reduce because debt constraints the action of managers, instead the creditors itself did not play an active role in the governance of the corporations. Using statistical F Test, this research found a significant positive association between leverage, tangibility, and firms age, if act as a group, to the perks amounts From table 15, the F value is 1,951, and the Sig value is 0,104, which is > (0,05). It means that the influence of independent variables (leverage, age, tangibility, and LN assets), if act as a groups, is insignificant towards the dependent variables (LN_Perks). Focusing more on perks through statistical t-test, from table 17, after analysing the result, statistical equation model that can be made is: Equation 6 LN_Perks = -3,079 0,437 Leverage + Table 16 reports a positive influence between the leverage and free cash flows after changing the results model into exponential forms. <Insert table 2>
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 Based on statistical t-test, my finding in Indonesian evidence is the same as Jensen and Meckling (1976) and Tian (2003), proposed that leverage is have significant positive associations with managerial perks. From table 2, if other things being equal, researcher founds a 0,1 increases in the firms leverage make an increases in managerial perks up to 0,646. The changes of 0,1 to 0,646 actually is an interesting finding since it was a significant changes actually. It can assume that the firms spend a huge portion on administration costs in every unit of sales with increasing borrowings from the banks. That is, bank lending increase the firms resources under the management control and bring about high administration expenditure. With ineffective bank monitoring in Indonesia (Nasution, 1999), it proposed a failed in the function of debt, as suggested by (Harford, Li, and Zhao, 2006). My research also founds that the tendency of managerial perks on bank loan given, didnt belong to the size of the firms, the structure of firms assets, and the period of firms since it was established. It indicated, in consuming perks, managers of these types of firms are in the same manners as the others firms. Perhaps it will answer the questions why big firms, long age firms, and firms with better assets structure in Indonesia were also failed in the implementation of corporate governance practices, especially at the crises hit the country. This research then concluded, in the weak of bank monitoring function in Indonesia (Nasution, 1999), an increase of bank loans increase the amount of free cash flows and managerial perks of the firms. The addition of bank loans, make firms with sufficient assets structure and have long period in the operation, tend to missused free cash flows in term of overinvestment projects. But in Indonesia, different from Jensen (1986) findings, the firms managers do not rely on firms size to do overinvestment. Firms managers in Indonesia also spend huge amount of this bank loans to the administration expense, so, indirectly this firms managers have control all the resources, thus increasing the consuming those debt as perks. However, perks consuming do not rely on the size of the firms, its age, and its assets structure. Based on these findings, my research then concluded that, up to now, the condition of managerial agency costs of debt still exists within companies in Indonesia, and suggesting a failed in the bank monitoring function.
18
FacultyofEconomicsUniversitasIndonesia Depok,79November2007 5.1 Conclusion, Implications, and Limitations and Suggestion 5.1 Conclusion Through a statistical test, this research regressed the bank loan to get its impact on free cash flows and managerial perks of the firms. In the results, the researcher founds that; (1) bank loan have a positive significant influence towards the firms free cash flows, increasing the tendency of overinvestment by the firms managers, (2) bank loans have a positive influence to managerial perks, but the consuming of perks itself do not rely on the age, assets structure, and the size of the firms. From that findings and relying it on previous literature, this study can assumed in Indonesian evidence the managerial agency costs of debt is still exists within the company in Indonesia. It suggests that many improvement that have been made by the regulator on the implementation of debt governance had not earned significant results. It indicates that both the firms, as the party who needs financing, and financial institution (bank), as the party who give financing, have not implement a sound corporate governance practices. 5.2 Implications The weak of debt governance practices in Indonesia suggests that a good monitoring function performed by domestic bank should be increased indefinitely. It is because bank monitoring is an essentials factors in implementing a sound debt governance. Thus this can become a positive reference, especially for regulators, in posing a judgment about points that should be considered in debt governance practices within companies in Indonesia. 5.3 Limitations and Suggestions There are some limitations, if encourage, will increase the acceptability of this study. The research limitations are; Only two proxies used to described the managerial agency costs of debt in Indonesian evidence. In fact, there are many proxies to described the managerial agency costs of debt. We can observed it on many aspects actually. The used of administration costs to compute the managerial perks, may not decribed the perks definitly since not directly to the real value of perks samples.
19
FacultyofEconomicsUniversitasIndonesia Depok,79November2007 Refferences Bebchuk, L. A. and R. J. Jackson. 2005. Executive Pensions. Journal of Corporation Law. Berger, Allen N. and Gregory F. Udell. 1995. Relationship Lending and Lines of Credit in Small Firm Finance. Journal of Business 68, 351-381. Bernanke, B., Gertler, M. and Gilchrist, S. 1994. The Financial Accelerator and the Flight to Quality. National Bureau of Economic Research Working Paper. No. 4789. Boot, Arnoud, and Anjan Thakor, 2000. Can Relationship Banking Survive Competition? Journal of Finance, 55 (2), 679-714 Boukhari, M., Ghouma, H. 2006. The Impact of External and Internal Governance on the Agency Cost of Debt; International Evidence. HEC Montreal Finance Department. cipee/Journess Cheng, Chao-Jung and Lin, Wei-Heng. 2006. Agency Costs and Firms Performancethe Moderating Effects of Budget Function. Available: http://www.google.com/search/Cheng%Chao-Jung Chiu, M. Ming, and Joh, W. Sung. 2004. Loans to Distress Firms. Available: http://google.com/search/loans%to%distress%firms Diamond, Douglas. 1984. Financial Intermediation and Delegated Monitoring. Review of Economic Studies, LI, 393-414. Dittmar, Amy and Smith, Marht Jan. 2005. Corporate Governance and the Value of Cash Holdings. Avaliable: http://www.ccfr.org.cn/st2007 Faccio, Mara, Lang, Lary H.P, and Young, Leslie. 2001. Debt and Corporate Governance. Available : http://www.google.com/search/debt%and%corporate%governance Fulghieri, P., Suominen, M. 2006. Corporate governance, Finance, and the Real Sector. http://www.nhh.no/sam/stab/ssem/2007/fulghieri%20Suominen Gompers, P., J. Ishii and A. Metrick. 2003. Corporate Governance and Equity Prices. Quarterly Journal of Economics 118: 107-155 Available: Available: http://www.google.com/search?as/CIRPEE/conf-
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 Ghozali, Imam. 2005. Aplikasi Analisis Multivariate dengan Program SPSS. Semarang: Badan Penerbit Undip Grossman, Sanford J. and Oliver D. Hart. 1982. Corporate financial structure and managerial incentive, in J. McCall, ed.: The Economics of Information and Uncertainty, University of Chicago Press, Chicago Hall, Maximilian JB and Mustika, Gankar. (2003). How To Improve Bank Regulation in Indonesia: An Empirical Study of Optimal Bank Corrective Action Emplyoing the Dynamic Contingent Claims Model. Available: http://www.google.com/advancedsearch Harford, J., Li, K., Zhao, X. 2006. Corporate Boards, the Leverages, and Debt Maturity Choices. Available: http://www.google.com/advancedsearch Hart, Oliver D., and John Moore. 1995. Debt seniority: An analysis of the role of hard claims on constraining management. American Economic Review 85, 567-585 James, Christopher. 1987. Some Evidence on The Uniqueness of Bank Loans. Journal of Financial Jensen, Michael C., and William Meckling. 1976. Theory of the firm: Managerial behavior, agency costs, and capital structure. Journal of Financial Economics 3305-360 Karpoff, J., P. Malesta, and R. Walking. 1996. Corporate Governance and Shareholder Initiatives: Empirical Evidence. Journal of Finance Economics 42: 365-395 Kim, W. and E. Sorensen. 1986. Evidence on the impact of the Agency Cost of Debt on Corporate Debt Policy. Journal of Financial and Quantitative Analysis. p. 131 Kurniawan, Dudi.M., Indriantoro, Nur. 2000. Corporate Governance in Indonesia. Indonesia Institute of Accountant Laura, Lin, and Shift. 1993. Fiduciary Duties Upon Corporate Insolvency: Proper Scope of Directors Duty to Creditors, 46 Vand. L. Rev. 1485 Lookman, Aziz.A. 2005. Bank Borrowings and Corporate Risk Management. Carnegie Mellon University
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 Lummer, Scott L., and John J. McConnell. 1989. Further Evidence on the Bank Lending Process and the Capital Market Response to Bank Loan Agreements. Journal of Financial Economics, 25 (1), 99-102 Mark S. Klock, Sattar A. Mansi, & William F. Maxwell. 2005. Does Corporate Governance Matter to Bondholders? 40 Journal of Financial and Quantitative Analysis 693. McConnel, J. and H. Serves. 1990. Additional Evidence on Equity Ownership and Corporate Value. Journal of Financial Economics 27: 595-612 McLeod, Ross H. 2002. Dealing With Bank System Failure: Indonesia, 1997-2002. Indonesia Project, Economic Division, The Australian National University Nasution, Anwar.1999. Recent Issue in the Management of Macroeconomics Policies in Indonesia. Available: http://www.google.com/advancedsearch Pattrick, Hugh. 2001. Corporate Governance and The Indonesia Financial Syatem: Comparative Perspective. Available: http://google.com/advancedsearch Rajan, Raghuram, and Andrew Winton. 1995. Covenants and collateral as incentives to monitor. Journal of Finance 50, 1113-1146 Rajan, Raghuram and Luigi Zingales. 1998. Which Capitalism? Lessons from East Asian Crisis. Journal of Applied Corporate Finance, 11(3), Fall, 40-48 Rajan, Raghuram G. and Wulf, Julie. 2007. Are Perks Purely Mangerial Excess? Journal of Financial Economics 79, 1-33 Richardson, S. 2005. Over-investment of Free Cash Flow. Manuscript, The Wharton School, University of Pennsylvania Sengupta, P. 1998. Corporate Disclosure Quality and the Cost of Debt. Accounting Review 73: 459-474. Sheperd, J.M., Tung, F., Yoon, A.H. 2007. Cross Monitoring and Corporate Governance. Emory University School of Law. Available: http://google.com/advancedsearch Shleifer, A. and R. Vishny. 1997. Survey of Corporate Governance. Journal of Finance 52: 737-783. Stulz, Ren. 1990. Managerial discretion and optimal financing policies. Journal of Financial Economics 26, 3-28 Stulz, Ren. 2000. Does financial structure matter for economic growth? A corporate finance perspective. Ohio State University Working Paper
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 Appendixes Table 1 Code AIMS AISA AKRA ALFA ALKA ALMI ANTA AQUA BATA BLTA BMSR BRNA BTON BUDI CENT CKRA DAVO EKAD ELTY EPMT FMII FPNI HEXA HMSP IKBI INAF INAI Industry wholesale manufacture wholesale wholesale holding logam hotel manufacture apparel transportasi real estate plastic logam kimia komputer real estate manufacture kimia real estate wholesale real estate plastic wholesale manufacture kabel manufacture logam Name PT. Akbar Indo Makmur Stimec Tbk. PT. Tiga Pilar Sejahtera Food Tbk. PT. Aneka Kimia Raya PT. Alfa Retailindo Tbk. PT. Alakasa Industrindo PT. Alumindo Light Metal Industry Tbk. PT. Anta Express Tour & Travel Service Tbk. PT. Aqua Golden Mississippi Tbk. PT. Sepatu Bata Tbk. PT. Berlian Laju Tanker Tbk. PT. Bintang Mitra Semestaraya Tbk PT. Berlina Tbk. PT. Betonjaya Manunggal PT. Budi Acid Jaya Tbk. PT. Centrin Online Tbk. PT. Ciptojaya Kontrindoreksa Tbk. PT. Davomas Abadi Tbk. PT. Ekadharma Tape Industry Tbk. PT. Bakrieland Development Tbk. PT. Enseval Putera Megatrading Tbk. PT. Fortune Mate Indonesia Tbk. PT. Fatrapolindo Nusa Industri Tbk. PT. Hexindo Adiperkasa Tbk. PT. Hanjaya Mandala Sampoerna Tbk. PT. Sumi Indo Kabel Tbk. PT. Indofarma (Persero) Tbk. PT. Indal Alumunium Industry
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 Code INCO INDX INTA INTD JPFA KAEF KICI KLBF KONI KPIG LION LMSH LPLI LSIP MDLN MERK MLBI MLIA MLND MTDL MYOR MYTX NIPS PLAS PTRO RALS RIGS RIMO SAFE Industry mining tekstil wholesale wholesale Name PT. International Nickel Ind. PT. Indoexchange Dotcom PT. Intraco Penta Tbk. PT. INTER DELTA TBK.
pakan ternak PT. Japfa Comfeed Indonesia Tbk. manufacture manufacture manufacture wholesale keramik logam logam others agro real estate manufacture manufacture keramik real estate komputer manufacture tekstil otomotif holding others wholesale transportasi wholesale transportasi PT. Kimia Farma (Persero) Tbk. PT. Kedaung Indah Can Tbk. PT. Kalbe Farma PT. Perdana Bangun Pusaka PT. Kridaperdana Indahgraha PT. Lion Metal Works Tbk. PT. Lionmesh Prima Tbk PT. Lippo E-Net PT. PP London Sumatra Indonesia Tbk. PT. Modernland Realty Tbk. PT. Merck Tbk. PT. Multi Bintang Indonesia Tbk. PT. Mulia Industrindo PT. Mulialand PT. Metrodata Electronics Tbk. PT. Mayora Indah Tbk. PT. Apac Citra Centertex Tbk. PT. Nipress Tbk. PT. Palm Asia Corpora, Tbk PT. Petrosea Tbk. PT. Ramayana Lestari Sentosa Tbk. PT. Rig Tenders Indonesia Tbk. PT. Rimo Catur Lestari Tbk. PT. Steady Safe Tbk.
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 Code SDPC SHDA SIMA SMAR SMPL SMRA SMSM SONA SSIA STTP SUBA TBLA TBMS TCID TEJA TGKA TMPO ULTJ UNTR UNVR WICO Table 2 The effect of increasing + 0,1 independent variables to dependent variables
Variable Leverage Tangibility Age If + 0,1 + 0,1 + 0,1 LN_FCF - 1,761 - 0,702 + 0,018 FCF + 0,172 + 0,496 + 1,018
Industry wholesale manufacture plastic manufacture plastic real estate otomotif wholesale konstruksi manufacture manufacture manufacture manufacture manufacture tekstil wholesale media manufacture wholesale manufacture wholesale
Name PT. Millenium Pharmacon International Tbk. PT. Sari Husada PT Siwani Makmur PT. SMART Corporation Tbk. PT. Summitplast Tbk. PT. Summarecon Agung Tbk. PT. Selamat Sempurna Tbk. PT. Sona Topas Tourism Industry Tbk. PT. SURYA SEMESTA INTERNUSA Tbk. PT. Siantar Top Tbk. PT. Suba Indah PT. Tunas Baru Lampung Tbk. PT. Tembaga Mulia Semanan PT. Mandom Indonesia Tbk. PT. Texmaco Jaya PT. Tigaraksa Satria Tbk. PT. Tempo Inti Media PT. Ultrajaya Milk Industry & Trading Company Tbk. PT. United Tractors PT. Unilever Indonesia PT. Wicaksana Overseas International Tbk.
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 Table 3 The effect of increasing + 0,1 independent variables to dependent variables Variable Leverage If + 0,1 LN_Perks - 0,437 Perks + 0,646
Pearson Correlation for Dependent Variable Table 4 Correlations

CASHFLOW CASHFLOW Pearson Correlation Sig. (2-tailed) N PERKS Pearson Correlation Sig. (2-tailed) N 1 . 231 -.030 .656 230 PERKS -.030 .656 230 1 . 230
Classical Assumptions Testing 1. Normality Tests a. Normality Test for Original Data Table 5 Tests of Normality Kolmogorov-Smirnov Statistic CASHFLOW .321 PERKS .466 df 230 230 Sig. .000 .000
b. Normality Tests for Free Cash Flows Table 6 Tests of Normality Kolmogorov-Smirnov Statistic LN_CF .067 df 155 Sig. .084
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 Figure
Normal P-P Plot of Regression Standa Dependent Variable: LN_CF
1.00
.75
Ep c dC m r b x e te u Po
.50
.25
0.00 0.00 .25 .50 .75 1.00
Observed Cum Prob
c. Normality Tests for Perks Model Table 7 Tests of Normality

Kolmogorov-Smirnov Statistic LN_PERKS .057 df 190 Sig. .200
This is a lower bound of the true significance Figure 3

Normal P-P Plot of Regression Standa Dependent Variable: LN_PERKS
1.00
.75
E p c dC mP b x e te u ro
.50
.25
0.00 0.00 .25 .50 .75 1.00
Observed Cum Prob
2. Multicollineriality Tests a. Multicolineriality Tests for Free Cash Flows Table 8 Coefficients
Collinearity Statistics Tolerance VIF (Constant) LEVERAGE LN_ASSET TANGBLTY AGE .950 .909 .956 .972 1.053 1.101 1.046 1.028
a Dependent Variable: LN_CF
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 b. Multicolineriality for Perks Table 9 Coefficients Collinearity Statistics Tolerance (Constant) LEVERAGE LN_ASSET TANGBLTY AGE 3. Heteroskedasticity a. Heteroskedasticity Tests for Free Cash Flows Figure 4
Scatterplot Dependent Variable: LN_CF
3
VIF 1.020 1.102 1.047 1.055
.980 .908 .955 .948
a Dependent Variable: LN_PERKS
Regression Standardized Residual
-1
-2 -3 -5 -4 -3 -2 -1 0 1 2 3
Regression Standardized Predicted Value
b. Heteroskedasticity Tests for Perks Figure 5

Scatterplot Dependent Variable: LN_PERKS
3
R egression S tandardized R esidual
-1
-2 -3 -8 -6 -4 -2 0 2
Regression Standardized Predicted Value
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 4. Autocorrelations a. Autocorrelations for Free Cash Flows Table 10 Model Summary R .415 R Square Durbin-Watson .172 2.150
a Predictors: (Constant), AGE, TANGBLTY, LEVERAGE, LN_ASSET b Dependent Variable: LN_CF b. Autocorrelations for Perks Table 11 Model Summary R .201 R Square Adjusted R Square Std. Error of the Estimate .040 .020 .7026956 DurbinWatson 1,995
a Predictors: (Constant), AGE, TANGBLTY, LEVERAGE, LN_ASSET b Dependent Variable: LN_PERKS R Square Tests a. R Square Test for Free Cash Flows Table 12 Model Summary R R Square Adjusted R Square .150 Std. Error of the 1.167884 8 R Square Estimate Change .172 Change Statistics F Change 7.784 df1 4 df2 150 Sig. F Change .000
.415
.172
a Predictors: (Constant), AGE, TANGBLTY, LEVERAGE, LN_ASSET b Dependent Variable: LN_CF
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 b. R Square Tests for Perks Table 13 Model Summary R .201 R Square .040 Adjusted R Square .020 Std. Error of the .7026956 R Square .040 Estimate Change Change Statistics F Change 1.951 df1 4 df2 185 Sig. F Change .104
a Predictors: (Constant), AGE, TANGBLTY, LEVERAGE, LN_ASSET b Dependent Variable: LN_PERKS Statistical F-Tests a. Statistical F-Tests for Free Cash Flows Table 14 ANOVA Sum of Squares Regression Residual Total 42.471 204.593 247.064 df 4 150 154 Mean Square 10.618 1.364 F 7.784 Sig. .000
a Predictors: (Constant), AGE, TANGBLTY, LEVERAGE, LN_ASSET b Dependent Variable: LN_CF a. Statistical F-Tests for Perks Table 15 ANOVA Sum of Squares Regression Residual Total 3.852 91.350 95.202 df 4 185 189 Mean Square .963 .494 F 1.951 Sig. .104
a Predictors: (Constant), AGE, TANGBLTY, LEVERAGE, LN_ASSET b Dependent Variable: LN_PERKS
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FacultyofEconomicsUniversitasIndonesia Depok,79November2007 Statistical T-Test a. Statistical T-Test for Free Cash Flows Model Table 16 Coefficients
Unstandardized Coefficients B (Constant) LEVERAGE TANGBLTY AGE -2.062 -1.761 -.702 1.788E-02 Std. Error .785 .614 .059 .181 .007 -.219 .032 -.295 .188 Standardized Coefficients Beta -2.626 -2.870 .414 -3.877 2.501 .010 .005 .680 .000 .013 t Sig. 95% Confidence Interval for B Lower Bound -3.614 -2.974 -.093 -1.060 .004 Upper Bound -.511 -.548 .142 -.344 .032
LN_ASSET 2.450E-02
a Dependent Variable: LN_CF b. Statistical T-Test for Perks Model Table 17 Coefficients
Unstandardized Coefficients B (Constant) LEVERAG E TANGBLT Y AGE -3.079 -.437 Std. Error .436 .173 -.183 .062 -.022 .044 Standardized Coefficients Beta -7.060 -2.521 .815 -.303 .589 .000 .013 .416 .762 .557 t Sig. 95% Confidence Interval for B Lower Bound -3.939 -.779 -.038 -.244 -.005 Upper Bound -2.218 -.095 .092 .179 .010
LN_ASSET 2.696E-02 .033 -3.255E-02 .107 2.220E-03 .004
a Dependent Variable: LN_PERKS
31

Facm01-Bank Loan and The Agency Costs of Debt in Indonesia

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Facm01-Bank Loan and The Agency Costs of Debt in Indonesia

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The1stAccountingConference

Dependent Variable Control Variable

Pearson Correlation for Dependent Variable Table 4 Correlations

0.00 0.00 .25 .50 .75 1.00

Observed Cum Prob

c. Normality Tests for Perks Model Table 7 Tests of Normality

This is a lower bound of the true significance Figure 3

0.00 0.00 .25 .50 .75 1.00

Observed Cum Prob

a Dependent Variable: LN_CF

VIF 1.020 1.102 1.047 1.055

.980 .908 .955 .948

a Dependent Variable: LN_PERKS

Regression Standardized Residual

Regression Standardized Predicted Value

b. Heteroskedasticity Tests for Perks Figure 5

R egression S tandardized R esidual

Regression Standardized Predicted Value

a Predictors: (Constant), AGE, TANGBLTY, LEVERAGE, LN_ASSET b Dependent Variable: LN_CF

a Predictors: (Constant), AGE, TANGBLTY, LEVERAGE, LN_ASSET b Dependent Variable: LN_PERKS

LN_ASSET 2.696E-02 .033 -3.255E-02 .107 2.220E-03 .004

a Dependent Variable: LN_PERKS

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