Independent Parties in Minimizing Agency Problem in Indonesia: An Alternative Model
Authors: Dito RINALDO, Vina Anggilia PUSPITA
Abstract: Despite various studies on good corporate governance (GCG), many GCG mechanisms do not seem to work effectively in Indonesian companies due to frequent conflicts between majority and minority shareholders. A more independent party needs to be offered to solve this unique agency problem. This study attempts to analyze how independent parties; foreign and domestic institutional ownership, and independent commissioners may provide solution to agency problem. Results of panel data regression show a positive and significant influence of foreign institutional ownership on dividends and stock prices, whereas domestic institutional ownership and independent commissioners do not significantly affect shareholder wealth. The study also proposes a new model to minimize the possibility of agency problems in Indonesian context through the establishment of foreign institutional ownership as an independent party.