There is no significant difference in agency costs between the two groups of companies

Oct 13, 2025 by talynt.org 108 views

Analysis of Differences in Proxies Agency Cost Between Companies and Managerial Ownership and Without Managerial Ownership in the Manufacturing and Property Sector on the Indonesia Stock Exchange

Introduction

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a significant number of companies listed in various sectors, including manufacturing and property. The IDX has implemented various corporate governance mechanisms to ensure the effective management of companies and to protect the interests of shareholders. One of the key aspects of corporate governance is the management of agency costs, which refers to the costs incurred by companies due to the separation of ownership and control.

Background

Agency costs are a significant concern for companies, as they can lead to inefficient use of resources, poor decision-making, and ultimately, reduced shareholder value. In the context of the IDX, agency costs can arise due to the presence of managerial ownership, where managers have a significant stake in the company and may prioritize their own interests over those of shareholders. On the other hand, companies without managerial ownership may be more susceptible to agency costs due to the lack of alignment between management and shareholders.

Research Objectives

This study aims to explore the differences in agency costs between companies with managerial ownership and those without managerial ownership in the manufacturing and property sectors on the IDX. The research objectives are:

To examine the differences in agency costs between companies with managerial ownership and those without managerial ownership in the manufacturing and property sectors on the IDX.
To identify the factors that contribute to agency costs in companies with and without managerial ownership.
To provide insights into the effectiveness of corporate governance mechanisms in managing agency costs.

Methodology

This study used financial statement data from 2007, which included 64 issuers with managerial ownership and 91 issuers without managerial ownership, making a total of 155 issuers as research objects. The analysis technique used includes descriptive analysis and different tests to compare the two independent observational groups. The proxies used to measure agency costs are Selling and General Administrative (SGA) and Free Cash Flow (FCF).

Results

The results of this study showed that there was no significant difference in agency costs between companies with managerial ownership and those without managerial ownership in the manufacturing and property sectors on the IDX. This finding suggests that the structure of ownership does not significantly affect manager's behavior in managing company resources.

Implications

The results of this study have several important implications:

There is no significant difference in agency costs between the two groups of companies. This finding suggests that the structure of ownership does not significantly affect manager's behavior in managing company resources.
Corporate governance mechanism on the IDX seems to have been effective enough in managing manager's behavior, both those who have shares in the company and those who do not.
Other factors In addition to ownership structure, such as External factors such as capital market regulations, and Internal factors such as corporate culture, may play a more significant role in determining agency costs.

Conclusion

This research provides important insights for stakeholders in the manufacturing and property industry in Indonesia. The results of this study strengthen the role of corporate governance in maintaining the effectiveness and operational efficiency of the company. This research also opens opportunities for further research by considering other factors that might affect agency costs.

Recommendations

Based on the findings of this study, the following recommendations are made:

Strengthen corporate governance mechanisms on the IDX to ensure that managers are held accountable for their actions.
Conduct further research on the factors that contribute to agency costs in companies with and without managerial ownership.
Develop and implement effective corporate culture that promotes transparency, accountability, and fairness in the management of companies.

Limitations

This study has several limitations:

Sample size: The sample size of this study is relatively small, which may limit the generalizability of the findings.
Data availability: The data used in this study is from 2007, which may not reflect the current situation in the IDX.
Proxy measures: The proxies used in this study may not fully capture the complexity of agency costs.

Future Research Directions

This study opens opportunities for further research in the following areas:

The role of the Board of Commissioners in overseeing management.
Impact of ownership structure on company performance.
The role of external factors such as regulations and economic conditions on agency costs.

References

[List of references cited in the study]

Appendix

[Appendix materials, such as additional tables and figures, that support the findings of the study]
Frequently Asked Questions (FAQs) on Analysis of Differences in Proxies Agency Cost Between Companies and Managerial Ownership and Without Managerial Ownership in the Manufacturing and Property Sector on the Indonesia Stock Exchange

Q: What is agency cost, and why is it important in the context of the Indonesia Stock Exchange (IDX)?

A: Agency cost refers to the costs incurred by companies due to the separation of ownership and control. It is a significant concern for companies, as it can lead to inefficient use of resources, poor decision-making, and ultimately, reduced shareholder value. In the context of the IDX, agency costs can arise due to the presence of managerial ownership, where managers have a significant stake in the company and may prioritize their own interests over those of shareholders.

Q: What are the two proxies used to measure agency costs in this study?

A: The two proxies used to measure agency costs in this study are Selling and General Administrative (SGA) and Free Cash Flow (FCF). These proxies are commonly used in accounting and finance research to measure agency costs.

Q: What are the main findings of this study?

A: The main findings of this study are that there is no significant difference in agency costs between companies with managerial ownership and those without managerial ownership in the manufacturing and property sectors on the IDX. This finding suggests that the structure of ownership does not significantly affect manager's behavior in managing company resources.

Q: What are the implications of this study?

A: The implications of this study are that the structure of ownership does not significantly affect manager's behavior in managing company resources. This suggests that corporate governance mechanisms on the IDX are effective in managing manager's behavior, both those who have shares in the company and those who do not. Other factors, such as external factors (e.g., capital market regulations) and internal factors (e.g., corporate culture), may play a more significant role in determining agency costs.

Q: What are the limitations of this study?

A: The limitations of this study are:

Sample size: The sample size of this study is relatively small, which may limit the generalizability of the findings.
Data availability: The data used in this study is from 2007, which may not reflect the current situation in the IDX.
Proxy measures: The proxies used in this study may not fully capture the complexity of agency costs.

Q: What are the recommendations of this study?

A: The recommendations of this study are:

Strengthen corporate governance mechanisms on the IDX to ensure that managers are held accountable for their actions.
Conduct further research on the factors that contribute to agency costs in companies with and without managerial ownership.
Develop and implement effective corporate culture that promotes transparency, accountability, and fairness in the management of companies.

Q: What are the future research directions of this study?

A: The future research directions of this study are:

The role of the Board of Commissioners in overseeing management.
Impact of ownership structure on company performance.
The role of external factors such as regulations and economic conditions on agency costs.

Q: What are the implications of this study for stakeholders in the manufacturing and property industry in Indonesia?

A: The implications of this study for stakeholders in the manufacturing and property industry in Indonesia are that corporate governance mechanisms on the IDX are effective in managing manager's behavior, and that other factors, such as external factors and internal factors, may play a more significant role in determining agency costs. This suggests that stakeholders should focus on developing and implementing effective corporate culture and governance mechanisms to ensure the effective management of companies.