Family control and corporate performance: the role of independent commissioners in reducing agency problems

Jafar, Rosmiati; Basuki, Basuki; Windijarto, Windijarto; Setiawan, Rahmat

doi:10.1590/1806-9649-2024v31e7923

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Sumário

ORIGINAL ARTICLE • Gest. Prod. 31 • 2024 • https://doi.org/10.1590/1806-9649-2024v31e7923 copy

Family control and corporate performance: the role of independent commissioners in reducing agency problems

Controle familiar e desempenho corporativo: o papel dos comissários independentes na redução de problemas de agência

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

This study examines the influence of family control on firm performance, taking into consideration the moderating variable of the proportion of independent commissioners. The sample for this research consists of manufacturing sector companies listed on the Indonesia Stock Exchange (IDX) for the period 2012-2018, with 477 observations. Ordinary Least Squares (OLS) regression analysis and Moderated Regression Analysis (MRA) techniques were employed to test the hypotheses. The findings of this research indicate that family control has a significant negative impact on firm performance. Additionally, it was found that the proportion of independent commissioners significantly weakens the negative influence of family control on firm performance.

Keywords:
Family control; Corporate performance; Independent commissioners; Agency problems; Corporate governance; Family business

Abbreviations	Variable	Operationalization	Expected Sign
DFAM	Family Control	Dummy variable: 1 if the family owns a minimum of 20% of shares in a company or if the family owns at least 5% of shares in a company when there are family members within the management structure, either in the board of commissioners or in the board of directors, and 0 otherwise.	Negative
IND	Proportion of Independent commissioners	The number of independent commissioners on the board of commissioners to the total board of commissioners.	Positive
D_IND	Dummy independent commissioner	Categorizing independent commissioners based on the size of the proportion, wherein a value of 1 is assigned if the proportion of independent commissioners is above the average value and a value of 0 is assigned if the proportion of independent commissioners is below the average value.	Positive
INSOWN	Non-family institutional ownership	The proportion of shares owned by non-family institutional investors in a company	Positive
AGE	Firm Age	The log of firm age	Positive
LEV	Leverage	The ratio of total debt to total assets	Negative
Year Effect	Particular Year	Control year fixed effect

	N	Minimum	Maximum	Mean	Std. Deviation
DFAM	477	0	1	0.78	0.418
ROA	477	-0.39	0.92	0.0548	0.0969
ROE	477	-2.54	2.24	0.0828	0.3057
IND	477	0.20	1	0.4054	0.1174
D_IND	477	0	1	0.4507	0.4981
AGE	477	0.60	1.95	1.5526	0.1633
INSOWN	477	0	100	28.63	33.221
LEV	477	0.04	2.83	0.4528	0.2277

	ROA	ROE	DFAM	ENG	AGE	INSOWN	Lev
ROA	1
ROE	0.721**	1
DFAM	-0.213^ Correlation is significant at the 0.01 level (2-tailed). *Correlation is significant at the 0.05 level (2-tailed).	- 0.164**	1
IND	0.21	0.008	0.092	1
AGE	0.132*	0.068	- 0.191**	- 0.108	1
INSOWN	0.57	0.045	- 0.742**	- 0.134^*	.173**	1
LEV	-0.337**	- 0.272**	0.109	- 0.097	-.042	039	1

	(1)	(2)	(3)	(4)
Constant	0.072	-0.060	0.123	-0.047
	(7.716)	(-1.316)	(3.761)	(-0.879)
DFAM	-0.022^ and *** significant at the 5 and 1 percent levels. (): t-statistics values.	-0.041**	-0.175***	-0.167***
	(-2.092)	(-2.470)	(-4.717)	(-4.654)
IND			-0.127	-0.079
			(-1.623)	(-1.084)
DFAMxIND			0.376***	0.325***
			(4.274)	(3.966)
AGE		0.153^***		0.159***
		(5.503)		(6.283)
INSOWN		-0.001***		-0.001***
		(-2.914)		(-2.609)
LEV		-0.104***		-0.096***
		(-5.584)		(-5.367)
Year Effect	No	Yes	No	Yes
Obs	477	477	477	477
R²	0.009	0.153	0.086	0.224

	ROA	ROE
	(D_IND)	(IND)	(D_IND)
Constant	-0.080^* * , , * significant at the 10, 5, and 1 percent levels. (): t-statistics values.	-0.168	-0.213
	(-1.852)	(-0.950)	(-1.478)
DFAM	-0.044^**	-0.439^***	-0.191***
	(-2.489)	(-3.692)	(-3.211)
IND		-0.185
		(-0.770)
DFAMxIND		0.775***
		(2.855)
D_IND	0.038*		0.004
	(2.291)		(0.074)
DFAMxD_IND	0.035*		0.181***
	(1.880)		(2.883)
AGE	0.142***	0.413***	0.381***
	(5.751)	(4.926)	(4.598)
INSOWN	-0.000**	-0.002***	-0.002**
	(-2.246)	(-2.740)	(-2.376)
LEV	-0.095***	-0.199***	-0.200***
	(-5.446)	(-3.366)	(-3.423)
Year Effect	Yes	Yes	Yes
Obs	477	477	477
R²	0.266	0.143	0.164

Universidade Federal de São Carlos Departamento de Engenharia de Produção , Caixa Postal 676 , 13.565-905 São Carlos SP Brazil, Tel.: +55 16 3351 8471 - São Carlos - SP - Brazil
E-mail: gp@dep.ufscar.br

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[TFN1] ^**
Correlation is significant at the 0.01 level (2-tailed). *Correlation is significant at the 0.05 level (2-tailed).