Does Debt Affect Firm Financial Performance? The Role of Debt on Corporate Governance in Indonesia  

Oleh:

Ismiyanti, Fitri ; Mahadwartha, Putu Anom

Jenis: Article from Journal - ilmiah internasional - terdaftar di DIKTI
Dalam koleksi: The Indonesian Journal of Accounting Research (Jurnal Riset Akuntansi Indonesia) vol. 11 no. 1 (Jan. 2008), page 1-22.
Topik: Constraint; Facilitate; Debt; Performance; Agency; Group

Ketersediaan

Perpustakaan Pusat (Semanggi) Nomor Panggil: RR17.6 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

This research address main quetion of the conditions of debt-constraint expropriation and debt-facilitate expropriation, and the difference between those conditions on type of group ownership (group or no group-affiliate). Agency theory predicts that debt is bonding and monitoring mechanism for manager's perquisites action. Expropriation of minority shareholders by majority shareholders hurt good corporate governace practices. The expropriation also hurts debtholders value. The research argues that the use debt will minimize the expropriation level and maintain certain control to managers and majority shareholders, on behalf of minority shareholders and debtholders. The problem of majority versus minority and debtholders spread widely in Indonesia. This research conduct analytical and statistical methods to examine the roles of debt policy as mechanism of good corporate governance practices in Indonesia. This research argues that debt has difference effect on financial performance based on certain debt characteristic. Two charateristics of debt are debt-constraint expropriation (DCE) and debt-faciliate expropriation (DFE).Different types of ownership , which are group and no group-affliate, are also examined to support the main issues of DCE and DFE. The results will be useful for economic policy makers; firms level policy makers, investors, academican, and reseachers in the area of finance, social science, and humanities. The research test the main question with four hyptheses using ordinary least squares (OLS) regression and Wald test for coefficient test. The result shows support for differences in effect on debt to performance for DCE(positive effect) and DFE (negative effect). On DCE, no group-affiliate firms have higher positives effect of debt on performance thab group-affiliate firms do. However, on DFE due to risk reduction mechanism, group-affiliate firms have less negative effect of debt on performance than no group-affiliate firms do.

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