OWNERSHIP STRUCTURE, FIRM VALUE AND THE MODERATING EFFECTS OF FIRM SIZE: EMPIRICAL EVIDENCE FROM INDONESIAN CONSUMER GOODS INDUSTRY
:
https://doi.org/10.9744/jmk.24.1.91-104Keywords:
Ownership structure, firm value, firm size, moderating effectsAbstract
Employing a panel data from a sample of Indonesia listed consumer goods companies covering the period of 2015-2019, the present study examines the effect of share ownership structure on firm value with firm size acting as a moderating variable. The estimation results show that while the control hypothesis of institutional ownership is supported, the alignment hypothesis of managerial ownership does not hold. However, the present study finds that firm size moderates the effect of share ownership structure on firm value. As firm size increases, managerial conducts are more inclined to conform with shareholders’ interest. But on the other hand, as firm size increases, institutional investors tend to side with managers in extracting more value at the expense of other shareholders. These findings corroborate anecdotal evidence in empirical corporate finance that size does matter, and provides insights for policy makers relating to corporate governance implications of institutional ownership in large firms.
References
Adams, R. B., & Santos, J. A. C. (2006). Identifying the effect of managerial control on firm performance. Journal of Accounting and Economics, 41(1–2), 55–85. https://doi.org/10.1016/j.jacceco.2005.08.001
Adjaoud, F., & Ben-Amar, W. (2010). Corporate governance and dividend policy: Shareholders’ protection or expropriation? Journal of Business Finance and Accounting, 37(5–6), 648–667. https://doi.org/10.1111/j.1468-59 57.2010.02192.x
Ang, J. S., Chua, J. H., & McConnel, J. J. (1982). The administrative costs of corporate bankruptcy: A note. The Journal of Finance, 37 (1), 219–226. https://doi.org/10.1111/j.15406261.1982.tb01104.x
Bakke, T. E., & Whited, T. M. (2010). Which firms follow the market? An analysis of corporate investment decisions. Review of Financial Studies, 23(5), 1941–1980. https://doi.org/10.1093/rfs/hhp115
Bebchuk, L. A., Cohen, A., & Hirst, S. (2017). The agency problems of institutional investors. Journal of Economic Perspectives, 31 (3), 89–102. https://doi.org/10.1257/jep.31. 3.89
Benson, B. W., & Davidson, W. N. (2009). Reexamining the managerial ownership effect on firm value. Journal of Corporate Finance, 15(5), 573–586. https://doi.org/10.1016/j.jcorpfin.2009.08.002
Berle, A. A., & Means, G. C. (2017). The modern corporation and private property. Second Edition. New York, NY: Routledge.
Bhattacharya, P. S., & Graham, M. A. (2009). On institutional ownership and firm performance: A disaggregated view. Journal of Mul¬tinational Financial Management, 19(5), 370–394. https://doi.org/10.1016/j.mulfin.2 009.07.004
Bhushan, R. (1989). Firm characteristics and analyst following. Journal of Accounting and Eco-nomics, 11(2–3), 255–274. https://doi.org/10.1016/0165-4101(89)90008-6
Boyd, B. K., & Solarino, A. M. (2016). Ownership of corporations: A review, synthesis, and research agenda. Journal of Management, 42(5), 1282–1314. https://doi.org/10.1177/0149206316633 746
Brennan, N. (2006). Boards of directors and firm performance: Is there an expectations gap? Corporate Governance: An International Re-view, 14(6), 577–593. https://doi.org/10.1111/j.1467-8683.2006.00534.x
Brennan, N., & McDermott, M. (2004). Alternative perspectives on independence of directors. Corporate Governance: An International Review, 12(3), 325–336. https://doi.org/10.1111/j.1467-8683.2004.00373.x
Canback, S., Samouel, P., & Price, D. (2006). Do diseconomies of scale impact firm size and performance? A theoretical and empirical overview. Icfai Journal of Managerial Economics, 4(1), 27–70.
Chen, M. Y. (2013). Adjustments in managerial ownership and changes in firm value. International Review of Economics and Finance, 25, 1–12. https://doi.org/10.1016/j.iref.2012.04.008
Chen, J., Blenman, L., & Chen, D.-H. (2008). Does institutional ownership create values? The New Zealand case. Quarterly Journal of Finance and Accounting, 47(4), 109–124.
Chen, C. R., Guo, W., & Mande, V. (2003). Managerial ownership and firm valuation: Evidence from Japanese firms. Pacific Basin Finance Journal, 11(3), 267–283. https://doi.org/10.1016/S0927-538X(03)00024-6
Chen, C. J., & Yu, C. M. J. (2012). Managerial owner-ship, diversification, and firm perfor¬m¬ance: Evidence from an emerging market. International Business Review, 21(3), 518–534. https://doi.org/10.1016/j.ibusrev.2011. 06.002
Cheng, S., & Indjejikian, R. J. (2009). The market for corporate control and CEO compensation: Complements or sustitutes? Contemporary Acoounting Research, 26(3), 701–728. https://doi.org/10.1506/car.26.3.3.
Chung, K. H., & Pruitt, S. W. (1994). A simple approximation of Tobin’s q. Financial Management, 23(3), 70–74. https://doi.org/10.2307/3665623
Dalton, D. R., Daily, C. M., Certo, S. T., & Roengpitya, R. (2003). Meta-analyses of financial performance and equity: Fusion or confusion? The Academy of Management Journal, 46(1), 13–26. https://doi.org/10.2307/30040673.
Dalton, D. R., Hitt, M. A., Certo, S. T., & Dalton, C. M. (2007). The fundamental agency problem and its mitigation. The Academy of Management Annals, 1(1), 1–64. https://doi.org/10.1080/078559806
Dang, C., (Frank) Li, Z., & Yang, C. (2018). Measuring firm size in empirical corporate finance. Journal of Banking and Finance 86, 159–176. https://doi.org/10.1016/j.jbankfin. 2017.09.006.
Fabisik, K., Fahlenbrach, R., Stulz, R. M., & Taillard, J. P. (2021). Why are firms with more managerial ownership worth less? Journal of Financial Economics, 140(3), 699–725. https://doi.org/10.1016/j.jfineco.2021.02.008.
Fahlenbrach, R., & Stulz, R. M. (2009). Managerial ownership dynamics and firm value. Journal of Financial Economics, 92(3), 342–361. https://doi.org/10.1016/j.jfineco.2008. 06.005.
Fama, E. F., & Miller, M. H. (1972). The theory of finance. New York, NY: Holt, Rinehart and Winston.
Ferreira, M. A., & Matos, P. (2008). The colors of investors’ money: The role of institutional investors around the world. Journal of Financial Economics, 88(3),499–533. https://doi.org/10.1016/j.jfineco.2007.07.003
Ferri, M. G., & Jones, W. H. (1979). Determinants of financial structure: A new methodological approach. The Journal of Finance, 34(3), 631–644. https://doi.org/10.1111/j.1540-6261.1979. tb02130.x
Frank, M. Z., & Goyal, V. K. (2003). Testing the pecking order theory of capital structure. Jo¬urnal of Financial Economics, 67(2), 217–248. https://doi.org/10.1016/S0304405X(02)002520
Freeman, R. E. (1994). The politics of stakeholder theory: Some future directions. Business Ethics Quarterly, 4(4), 409–421. https://doi.org/10. 2307 /3857340
Freeman, R. E. (2010). Strategic management: A stakeholder approach. Cambridge, UK: Cambridge University Press. https://doi.org/10.1017/CBO9781139192675
Freeman, R. E., Phillips, R., & Sisodia, R. (2020). Tensions in stakeholder theory. Business and Society, 59(2), 213–231. https://doi.org/10.11 77/0007650318773750
Freeman, R. E., Wicks, A. C., & Parmar, B. (2004). Stakeholder theory and “the corporate objective revisited.” Organization Sci¬ence, 15(3), 364–369. https://doi.org/10.1287/orsc.1040.0066
Freudenreich, B., Lüdeke-Freund, F., & Schaltegger, S. (2020). A stakeholder theory perspective on business models: Value creation for sustainability. Journal of Business Ethics, 166(1), 3–18. https://doi.org/10.1007/s1055 1-019-04112-z
García-Meca, E., & Sánchez-Ballesta, J. P. (2011). Firm value and ownership structure in the Spanish capital market. Corporate Governance, 11(1), 41–53. https://doi.org/10.1108/14720701111108835
George, R., Kabir, R., & Qian, J. (2011). Investmentcash flow sensitivity and financing constraints: New evidence from Indian business group firms. Journal of Multinational Financial Management, 21(2), 69–88. https://doi.org/10.1016/j.mulfin.2010.12.003
Giroud, X., & Mueller, H. M. (2010). Does corporate governance matter in competitive in¬dustries? Journal of Financial Economics, 95(3), 312–331. https://doi.org/10.1016/j.jfineco.2009.10. 008
González, V. M., & González, F. (2012). Firm size and capital structure: Evidence using dy¬namic panel data. Applied Economics, 44 (36), 4745–4754. https://doi.org/10.1080/00036846.2011.595690.
Greene, W. H. (2018). Econometric analysis (8th ed.). Pearson Education, Inc.
Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics (5th ed.). McGraw Hill.
Hashmi, S. D., Gulzar, S., Ghafoor, Z., & Naz, I. (2020). Sensitivity of firm size measures to practices of corporate finance: Evidence from BRICS. Future Business Journal, 6(9), 1–19. https://doi.org/10.1186/s43093-020-0 0015-y
He, W., Mukherjee, T. K., & Baker, H. K. (2017). The effect of the split share structure reform on working capital management of Chinese companies. Global Finance Journal, 33, 27–37. https://doi.org/10.1016/j.gfj.2017.02.00 3
Hicks, J. R. (1975). Value and capital: An inquiry into some fundamental principles of economic theory. Second Edition. Oxford, UK: University Press. https://doi.org/10.2307/2980018
Himmelberg, C. P., Hubbard, R. G., & Palia, D. (1999). Understanding the determinants of managerial ownership and the link between ownership and performance. Journal of Financial Economics, 53(3), 353–384. https://doi.org/10.1016/S0304-405X(99)00025-2
Hoi, C. K., Wu, Q., & Zhang, H. (2019). Does social capital mitigate agency problems? Evidence from chief executive officer (CEO) compensation. Journal of Financial Economics, 133(2), 498–519. https://doi.org/10.1016/j.jfineco.2019.02.009.
Jalal, A., & Khaksari, S. (2020). Cash cycle: A crosscountry analysis. Financial Management, 49(3), 635–671. https://doi.org/10.1111/fima.12273
Jennings, W. W. (2005). Further evidence on institutional ownership and corporate value. Corporate Governance (Advances in Financial Economics), 11, 167–207. https://doi.org/10.1016/S1569-3732(04)11008-6
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323–329. https://doi.org/10.2139/ssrn.99580
Jensen, M. C. (1988). Takeovers: Their causes and consequences. Journal of Economic Perspectives, 2(1), 21–48. https://doi.org/10.1257/jep.2.1.21
Jensen, M. C. (2002). Value maximisation, stakeholder theory, and the corporate objective function. Business Ethics Quarterly, 12(2), 235–256. https://doi.org/10.2307/3857812.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Kadapakkam, P. R., Kumar, P. C., & Riddick, L. A. (1998). The impact of cash flows and firm size on investment: The international evidence. Journal of Banking and Finance, 22(3), 293–320. https://doi.org/10.1016/S0378-4266(97)00059-9
Karpavičius, S., & Yu, F. (2017). How institutional monitoring creates value: Evidence for the free cash flow hypothesis. International Review of Economics and Finance, 52, 127–146. https://doi.org/10.1016/j.iref.2017.10.016
Kini, O., Kracaw, W., & Mian, S. (2004). The nature of discipline by corporate takeovers. Journal of Finance, 59(4), 1511–1552. https://doi.org/10.1111/j.1540-6261.2004.00671.x
Kraus, A., & Litzenberger, R. H. (1973). A State-preference model of optimal financial leverage. The Journal of Finance, 28(4), 911–922. https://doi.org/10.2307/2978343
Kucukyalcin, E. (2018). Converging the shareholder and stakeholder theories. In G. Gal, O. Akişik, & W. Wooldridge (Eds.), Sustainability and Social responsibility: Regulation and reporting (pp. 203–223). Springer. https://doi.org/10.1007/978-981-10-4502-8_9
Kurshev, A., & Strebulaev, I. A. (2015). Firm size and capital structure. Quarterly Journal of Finance, 5(3), 1–46. https://doi.org/10.1142/S2010139215500081
Li, K., & Zhao, X. (2008). Asymmetric information and dividend policy. Financial Management, 37(4), 673–694. https://doi.org/10.1111/j.1755-053X.2008.00030.x
Lin, Y. R., & Fu, X. M. (2017). Does institutional ownership influence firm performance? Evidence from China. International Review of Economics and Finance, 49, 17–57. https://doi.org/10.1016/j.iref.2017.01.021
Lozano, M. B., Martínez, B., & Pindado, J. (2016). Corporate governance, ownership and firm value: Drivers of ownership as a good corporate governance mechanism. International Business Review, 25(6), 1333–1343. https://doi.org/10.1016/j.ibusrev.2016 .04.005
Marceline, L., & Harsono, A. (2017). Pengaruh good corporate governance, karakteristik perusahaan, likuiditas, leverage, kebijakan deviden dengan nilai perusahaan. Jurnal Bisnis dan Akuntansi, 19(1a-3), 226–236.
Marris, R. (1964). The economic theory of ‘managerial’ capitalism. London, UK: Palgrave Macmillan. https://doi.org/10.1007/978-1-349-81732-0
McConnell, J. J., & Servaes, H. (1990). Additional evidence on equity ownership and corporate value. Journal of Financial Economics, 27(2), 595–612. https://doi.org/10.1016/0304405X(90)90069-C.
McConnell, J. J., Servaes, H., & Lins, K. V. (2008). Changes in insider ownership and changes in the market value of the firm. Journal of Corporate Finance, 14(2), 92–106. https://doi.org/10.1016/j.jcorpfin.2008.02.001
Mollah, S., Farooque, O. Al, & Karim, W. (2012). Ownership structure, corporate governance and firm performance: Evidence from an African emerging market. Studies in Economics and Finance, 29(4). https://doi.org/10. 1108/10867371211266937
Moortgat, L., Annaert, J., & Deloof, M. (2017). Investor protection, taxation and dividend policy: Long-run evidence, 1838–2012. Journal of Banking and Finance, 85, 113–131. https://doi.org/10.1016/j.jbankfin.2017.08.013
Morck, R., Shleifer, A., & Vishny, R. W. (1988). Management ownership and market valuation: An empirical analysis. Journal of Financial Economics, 20, 293–315. https://doi.org/10.1016/0304-405X(88)90048-7
Muniandy, P., Tanewski, G., & Johl, S. K. (2016). Institutional investors in Australia: Do they play a homogenous monitoring role? Pacific Basin Finance Journal, 40, 266–288. https://doi.org/10.1016/j.pacfin.2016.01.001
Navissi, F., & Naiker, V. (2006). Institutional ownership and corporate value. Managerial Finance, 32(3), 247–256. https://doi.org/10.1108/03074350610646753
Octariawan, A., & Ruslanti, E. (2019). Pengaruh corporate social responsibility (CSR) dan kepemilikan manajerial terhadap nilai perusahaan dengan ukuran perusahaan sebagai variabel moderasi pada perusahaan pertambangan sub sektor batubara yang terdaftar di Bursa Efek Indonesia periode 2014–201. Jurnal Riset Akuntansi Kontemporer, 11(2), 60–68.
Phillips, R. (2003). Stakeholder theory and organi-zational ethics. San Francisco, CA: Berrett-Koehler Publishers.
Pound, J. (1988). Proxy contests and the efficiency of shareholder oversight. Journal of Financial Economics, 20, 237–265. https://doi.org/10.1016/0304-405X(88)90046-3
Queen, P. E. (2015). Enlightened shareholder maxi-mization: Is this Strategy achievable? Journal of Business Ethics, 127(3), 683–694. https://doi.org/10.1007/s10551-014-2070-6.
Rasmussen, S. (2013). Production economics: The basic theory of production optimisation (Second Edition). Springer.
Redding, L. S. (1997). Firm size and dividend payouts. Journal of Financial Intermediation, 6(3), 224–248. https://doi.org/10.1006/ jfin.1997.0221
Sharma, S., Durand, R. M., & Gur-Arie, O. (1981). Identification and analysis of moderator variables. Journal of Marketing Research, 18(3), 291–300. https://doi.org/10.2307/3150970
Shen, L., Sun, C., & Ali, M. (2021). Influencing factors and paths of upgrading consumer goods industry in Shanghai: A FsQCA approach. International Journal of Emerging Markets. https://doi.org/10.1108/IJOEM-04-2021-0603
Sienetra, K. B., Sumiati, & Andarwati. (2015). Struktur kepemilikan sebagai determinan nilai Perusahaan. Jurnal Akuntansi Multiparadigma, 6(1), 124–132.
Sofiamira, N. A., & Haryono, N. A. (2017). Capital expenditure, leverage, good corporate gover-nance, corporate social responsibility: Pengaruhnya terhadap nilai perusahaan. Jurnal Ekonomi dan Bisnis, 20(2), 191–212. https://doi.org/10.24914/jeb.v20i2.691
Stulz, R. M. (1990). Managerial discretion and optimal financing policies. Journal of Financial Eco-nomics, 26(1), 3–27. https://doi.org/10.1016/0304-405X(90)90011-N
Tang, Y. (2018). When does competition mitigate agency problems? Journal of Corporate Finance, 51, 258–274. https://doi.org/10.1016/j.jcorpfin.2018.06.004
Thanatawee, Y. (2014). Institutional ownership and firm value in Thailand. Asian Journal of Business and Accounting, 7(2), 1–22.
Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1–19. https://doi.org/10.1111/j.15406261.1988.tb02585.x
Walker, P. (2017). The theory of the firm: An overview of the economic mainstream. Routledge.
Wallace, J. S. (2003). Value maximization and stakeholder theory: Compatible or not? Journal of Applied Corporate Finance, 15(3), 120–127. https://doi.org/10.1111/j.17456622.2003.tb00466.x
Williamson, O. E. (1975). Markets and hierarchies: Analysis and antitrust implications, A study in the economics of internal organization. The Free Press.
Williamson, O. E. (1996). The Mechanisms of governance. Oxford University Press.
Yu, H. C., Sopranzetti, B. J., & Lee, C. F. (2012). Multiple banking relationships, managerial ownership concentration and firm value: A simultaneous equations approach. Quarterly Review of Economics and Finance, 52(3), 286–297. https://doi.org/10.1016/j.qref.2012.07.002.
Downloads
Published
How to Cite
Issue
Section
License
Authors who publish on this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).