The Governance Role of Independent Directors in Indonesian Family and Non-Family Firms

This paper examines the governance role of independent directors in Indonesia using family and non-family firm samples. The literature suggests that independent directors can mitigate conflicts of interest between controlling families and non-controlling or minority shareholders among family firms....

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Bibliographic Details
Published inJurnal Keuangan dan Perbankan Universitas Merdeka Malang Vol. 25; no. 4; pp. 931 - 944
Main Authors Atmaja, Lukas Setia, Hidayat, Athalia Ariati
Format Journal Article
LanguageEnglish
Published Universitas Merdeka Malang 01.11.2021
Subjects
agency theory
family control
firm value
independent directors
two-tier board
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Summary:This paper examines the governance role of independent directors in Indonesia using family and non-family firm samples. The literature suggests that independent directors can mitigate conflicts of interest between controlling families and non-controlling or minority shareholders among family firms. This study utilizes panel data of firms listed from 2005 to 2019, comprising 4.865 firm-year observations. Our result reveals that the performance of family firms is significantly worse than that of non-family firms measured by Tobin’s Q and that among family firms, independent directors or commissioners have an insignificance impact on firm value. Our findings support the expropriation theory and are not in line with the notion that independent directors can mitigate agency problems among family firms. Our analysis, however, provides strong evidence that independent directors or commissioners in non-family firms positively affect firm performance.JEL: D74, G32, H11
ISSN:1410-8089
2443-2687
DOI:10.26905/jkdp.v25i4.6382