AGENCY PROBLEM ON CONCENTRATED OWNERSHIP AND ASSETS

Sanjaya, I Putu Sugiartha AGENCY PROBLEM ON CONCENTRATED OWNERSHIP AND ASSETS. AGENCY PROBLEM ON CONCENTRATED OWNERSHIP AND ASSETS.

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Abstract

The purpose of this paper is to investigate the difference in assets between the companies that have agency problem and no agency problem. Agency problem in this paper is peroxided by cash flow right leverage. Leverage indicates the difference between control rights and cash flow of controlling shareholder. If the control rights are greater than cash flow rights, it indicates there are agency problem in the company. It happens because the control of the controlling shareholder in the company is more dominant than the shareholder’s claim to the company. This condition is incentive to motivate the controlling shareholder to extract the company’s assets for his/her private benefit. This is attributable to the controlling shareholder protected by control rights. If the cash flow rights are high and as well as the control rights, it indicates that there is no agency problem in the company. This condition indicates that the claims value of the controlling shareholder against the company’s profit is same as the control of the controlling shareholder. To prove empirical evidence, this paper uses the sample of the manufacturing companies listed in the Indonesian Stock Exchange during the period 2000-2007. The result of analysis of this paper shows that there are differences in assets between the existing agency problem and no agency problem. The assets of the company which exist the agency problem is lower than the assets of the company which is not agency problem. Therefore, the hypothesis of this study is supported.

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