Does debt moderate the impact of family commissioner boards on company performance in Indonesia?
-
DOIhttp://dx.doi.org/10.21511/ppm.21(4).2023.47
-
Article InfoVolume 21 2023, Issue #4, pp. 629-638
- 210 Views
-
52 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study aims to investigate the influence of family commissioner boards (FCBs) on the operational efficiency of companies in Indonesia that use debt as a control tool, which includes bank and non-bank debt. Using the two-step GMM-First Difference estimation method, the research sample consists of 121 family-owned companies using unbalanced panel data from 2009 to 2018. This investigation produces several significant findings. Firstly, the results of the analysis show that the presence of family representatives on the board of commissioners has a negative impact on overall company performance. These observations suggest that FCBs may prioritize the interests of family shareholders over minority shareholders, which indicates entrenchment behavior. Second, the analytical results reveal that debt plays a moderating role in the influence of FCB on company performance. Debt acts as a deterrent to entrenchment behavior, thereby improving firm performance. Third, the results of the analysis did not find significant differences in FCB entrenchment behavior between companies that have bank debt and companies that have non-bank debt. These findings have significant policy implications for regulatory bodies in Indonesia regarding the governance of family-owned companies. It is vital to establish a mechanism for appointing family members to the board of commissioners that protects the interests of all shareholders and promotes a fairer corporate landscape.
- Keywords
-
JEL Classification (Paper profile tab)M00, L25
-
References42
-
Tables4
-
Figures0
-
- Table 1. Descriptive statistics
- Table 2. Correlation matrix
- Table 3. Estimated findings for Models 1, 2 and 3
- Table 4. Estimated findings for Model 4
-
- Al-Janadi, Y. (2021). Ownership structure and firm performance in the Middle East: A meta-analysis. Journal of Risk and Financial Management, 14(12), 577.
- Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. Review of Economic Studies, 58(2), 277-297.
- Ariyono, B. D., & Setiyono, B. (2020). Does institutional ownership and bank monitoring affect agency conflicts? Evidence from an emerging market. Journal of Indonesian Economy and Business, 35(3), 171-187.
- Audretsch, D. B., Hülsbeck, M., & Lehmann, E. E. (2013). Families as active monitors of firm performance. Journal of Family Business Strategy, 4(2), 118-130.
- Ayyagari, M., Demirgüç-Kunt, A., & Maksimovic, V. (2010). Formal versus informal finance: Evidence from China. The Review of Financial Studies, 23(8), 3048-3097.
- Block, J. H., Jaskiewicz, P., & Miller, D. (2011). Ownership versus management effects on performance in family and founder firms: A Bayesian reconciliation. Journal of Family Business Strategy, 2(4), 232-245.
- Chavarín, R. (2016). Profitability in banks affiliated to a business group: Evidence from Mexico. Journal Emerging Markets Finance and Trade, 52(8), 1892-1909.
- Chernenko, S., Erel, I., & Prilmeier, R. (2021). Why Do Firms Borrow Directly from Nonbanks? SSRN Electronic Journal.
- Claessens, S., & Fan, P.-H. J. (2002). Corporate governance in Asia: A survey. International Review of Finance, 3(2), 71-103.
- Claessens, S., & Yurtoglu, B. B. (2013). Corporate governance in emerging markets: A survey. Emerging Markets Review, 15, 1-33.
- Davydov, D., & Vähämaa, S. (2013). Debt source choices and stock market performance of Russian firms during the financial crisis. Emerging Markets Review, 15(C), 148-159.
- Filatotchev, I., Zhang, X., & Piesse, J. (2011). Multiple agency perspective, family control, and private information abuse in an emerging economy. Asia Pacific Journal of Management, 28, 69-93.
- Ghosh, S. (2007). Bank monitoring, managerial ownership and Tobin’s Q: An empirical analysis for India. Managerial and Decision Economics, 28(2), 129-143.
- Giovannini, R. (2010). Corporate governance, family ownership and performance. Journal of Management & Governance, 14(2), 145-166.
- González, M., Guzmán, A., Pombo, C., & Trujillo, M.-A. (2012). Family firms and financial performance: The cost of growing. Emerging Markets Review, 13(4), 626-649.
- Haniffa, R., & Hudaib, M. (2006). Corporate governance structure and performance of Malaysian listed firms. Journal of Business Finance & Accounting, 33(7-8), 1034-1062.
- Haron, N. H., & Ismail, N. (2016). Alignment hypothesis versus risk of expropriation: Road to sustainable performance. The Social Sciences, 11(20), 4891-4895.
- Hidayat, A. A., & Utama, S. (2015). Board characteristics and firm performance: Evidence from Indonesia. International Research Journal of Business Studies, 8(3), 137-154.
- Ibrahim, M., Saputra, J., Adam, M., & Yunus, M. (2022). The moderating role of financial accessibility in relationship between resource competence, entrepreneurial leadership, good governance and performance of micro small medium enterprises in Batam, Indonesia. WSEAS Transactions on Business and Economics, 9, 86-92.
- Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323-329.
- Jiang, F., & Kim, K. A. (2015). Corporate governance in China: A modern perspective. Journal of Corporate Finance, 32, 190-216.
- Makhlouf, M. H., Laili, N. H., Ramli, N. A., Al-Sufy, F., & Basah, M. Y. (2018). Board of directors, firm performance and the moderating role of family control in Jordan. Academy of Accounting and Financial Studies Journal, 22(5), 1-15.
- Marinč, M. (2009). Bank monitoring and role of diversification. Transition Studies Review, 16, 77-91.
- Muchtar, D., Nor, F. M., Albra, W., Arifai, M., Ahmar, A. S., & Elgammal, M. M. (2018). Dynamic performance of Indonesian public firms: An analysis of financial decision behavior. Cogent Economics & Finance, 6(1), 1488343.
- Muttakin, M. B., Khan, A., & Subramaniam, N. (2014). Family firms, family generation and performance: Evidence from an emerging economy. Journal of Accounting in Emerging Economies, 4(2), 197-219.
- Nam, S.-W., & Nam, I. C. (2004). Corporate governance in Asia. Recent evidence from Indonesia, Republic of Korea, Malaysia, and Thailand. Asian Development Bank Institute.
- Nüesch, S. (2015). Dual-class shares, external financing needs, and firm performance. Journal of Management and Governance.
- Osazuwa, N. P., & Che-Ahmad, A. (2016). The moderating effect of profitability and leverage on the relationship between eco-efficiency and firm value in publicly traded Malaysian firms. Social Responsibility Journal, 12(2), 295-306.
- Peng, M. W., & Jiang, Y. (2010). Institutions behind family ownership and control in large firms. Journal of Management Studies, 47(2), 253-273.
- Phan, T.K., Nguyen, T. H. T., Dang, T. H., Tran, V. H., & Le, K. G. (2021). Non-financial factors affecting the operational performance of hospitality companies: Evidence from Vietnam. Problems and Perspectives in Management, 19(4), 48-62.
- Poutziouris, P., Savva, C. S., & Hadjielias, E. (2015). Family involvement and firm performance: Evidence from UK listed firms. Journal of Family Business Strategy, 6(1), 14-32.
- Prabowo, M. A., & Simpson, J. (2011). Independent directors and firm performance in family controlled firms: Evidence from Indonesia. Asian-Pacific Economic Literature, 25(1), 121-132.
- Robin, & Amran, N. A. (2016). The effect of board of commissioners on family firms performance in Indonesia. Advanced Science Letters, 22(12), 4142-4145.
- Roodman, D. (2009). How to do Xtabond2: An Introduction to Difference and System GMM in Stata. The Stata Journal: Promoting Communications on Statistics and Stata, 9(1), 86-136.
- Salas, J. M. (2010). Entrenchment, governance, and the stock price reaction to sudden executive deaths. Journal of Banking & Finance, 34(3), 656-666.
- Sharma, S., Durand, R. M., & Gur-Arie, O. (1981). Identification and analysis of moderator variables. Journal of Marketing Research, 18(3), 291-300.
- Sumarsono, H. (2014). Family governance and firm value: Evidence from Indonesia. International Journal of Economics Research, 5(6), 8-26.
- Ullah, S., Akhtar, P., & Zaefarian, G. (2018). Dealing with endogeneity bias: The generalized method of moments (GMM) for panel data. Industrial Marketing Management, 71, 69-78.
- Yen, J.-F., Lin, C.-Y., Chen, Y.-S., & Huang, Y.-C. (2015). Founding family firms and bank loan contracts. Journal of Financial Services Research, 48, 53-82.
- Yin, W., & Liu, X. (2017). Bank versus non-bank financial institution lending behaviour: Indictors of firm size, risk or ownership? Applied Economics Letters, 24(18), 1285-1288.
- Yu, H. C., Johnson, K. H., & Hsieh, D. T. (2009). Public debt, bank debt, and non-bank private debt in emerging and developed financial markets. Banks and Bank Systems, 3(4), 4-11.
- Zeckhauser, R., & Pound, J. (1990). Are large shareholders effective monitors? An investigation of share ownership and corporate performance. In R. G. Hubbard (Ed.), Asymmetric Information, Corporate Finance and Investment (pp. 149-180). University of Chicago Press.