The Impact of Ownership Structure, Business Diversification and Company Size on Performance of Listed Companies in Indonesia Stock Exchange (IDX)

This thesis examines the impact of ownership structure, diversification of business, and company size on performance of listed companies in Indonesia Stock Exchange (IDX) between 1996 and 2005. Structural equation modeling (SEM) is utilized to answer the research questions. To verify the construct v...

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Main Author:	Masdupi, Erni
Format:	Thesis
Language:	eng
Published:	2010
Subjects:	HD2709-2930.7 Corporations
Online Access:	https://etd.uum.edu.my/2723/1/Erni_Masdupi.pdf
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id	my-uum-etd.2723
record_format	uketd_dc
spelling	my-uum-etd.27232013-07-24T12:17:34Z The Impact of Ownership Structure, Business Diversification and Company Size on Performance of Listed Companies in Indonesia Stock Exchange (IDX) 2010 Masdupi, Erni Abdullah, Nur Adiana Hiau College of Business (COB) College of Business HD2709-2930.7 Corporations This thesis examines the impact of ownership structure, diversification of business, and company size on performance of listed companies in Indonesia Stock Exchange (IDX) between 1996 and 2005. Structural equation modeling (SEM) is utilized to answer the research questions. To verify the construct validity of the measurement model, confirmatory factor analysis (CFA) is used, i.e., to examine the fitness of the hypothesized measurement model on the data collected. The structural model then investigates the influence of ownership structure, diversification of business and company size on company performance. Based on 210 company-year observations, it is found that the hypothesized measurement model fits the data as shown by the goodness of fit indices and the significant factor loadings. The structural model showed that ownership structure, which includes insider ownership, institutional ownership, foreign ownership, and shareholder dispersion, did not affect company performance, which is represented by a latent variable which was manifested through return on equity (ROE), return on total assets (ROA) and market to book value ratio (MBVR). Similarly, diversification of business was also found to be insignificant in influencing company performance. Diversification of business could increase company performance through internal capital market, but this could not be proven in the listed companies on IDX. The only variable that had a significant and positive effect on performance of listed companies on IDX was company size. Perhaps, in an emerging market such as Indonesia, size plays a significant role in influencing company performance due to the presence of greater economies of scales, better competitive position, having more skilled managers, and having greater access to cheaper sources of funds. It means that listed companies on the IDX could increase performance by increasing their size. This implies that the regulators should adopt policies that encourage or at least do not impede companies to grow in size. Ownership structure as a mechanism to mitigate agency conflict as suggested by the agency theory could not be supported in the context of the IDX. Excessive stock ownership was not modelled for specifically in the IDX. This result was also inconsistent with the efficient monitoring hypothesis, conflict of interest and strategic alignment hypothesis, and rescue acquisition hypothesis. This might be due to differences in the rules, regulations and law enforcement in Indonesia, which might not be as stringent as those in developed markets. Investor’s protection is rather low in IDX which should reflect the reduced ability of investors to influence management decision, and thus reduce the influence of ownership structure on company performance. To reinforce the findings of SEM, regression was executed, and the analysis produced an almost similar finding. Size significantly contributed to company performance for all models while two proxies of business diversification were found to be significant in influencing two (accounting/or book value) proxies of company performance. Ownership structure did not seem to influence company performance. 2010 Thesis https://etd.uum.edu.my/2723/ https://etd.uum.edu.my/2723/1/Erni_Masdupi.pdf application/pdf eng validuser http://lintas.uum.edu.my:8080/elmu/index.jsp?module=webopac-l&action=fullDisplayRetriever.jsp&szMaterialNo=0000770482 Ph.D. doctoral Universiti Utara Malaysia
institution	Universiti Utara Malaysia
collection	UUM ETD
language	eng
advisor	Abdullah, Nur Adiana Hiau
topic	HD2709-2930.7 Corporations
spellingShingle	HD2709-2930.7 Corporations Masdupi, Erni The Impact of Ownership Structure, Business Diversification and Company Size on Performance of Listed Companies in Indonesia Stock Exchange (IDX)
description	This thesis examines the impact of ownership structure, diversification of business, and company size on performance of listed companies in Indonesia Stock Exchange (IDX) between 1996 and 2005. Structural equation modeling (SEM) is utilized to answer the research questions. To verify the construct validity of the measurement model, confirmatory factor analysis (CFA) is used, i.e., to examine the fitness of the hypothesized measurement model on the data collected. The structural model then investigates the influence of ownership structure, diversification of business and company size on company performance. Based on 210 company-year observations, it is found that the hypothesized measurement model fits the data as shown by the goodness of fit indices and the significant factor loadings. The structural model showed that ownership structure, which includes insider ownership, institutional ownership, foreign ownership, and shareholder dispersion, did not affect company performance, which is represented by a latent variable which was manifested through return on equity (ROE), return on total assets (ROA) and market to book value ratio (MBVR). Similarly, diversification of business was also found to be insignificant in influencing company performance. Diversification of business could increase company performance through internal capital market, but this could not be proven in the listed companies on IDX. The only variable that had a significant and positive effect on performance of listed companies on IDX was company size. Perhaps, in an emerging market such as Indonesia, size plays a significant role in influencing company performance due to the presence of greater economies of scales, better competitive position, having more skilled managers, and having greater access to cheaper sources of funds. It means that listed companies on the IDX could increase performance by increasing their size. This implies that the regulators should adopt policies that encourage or at least do not impede companies to grow in size. Ownership structure as a mechanism to mitigate agency conflict as suggested by the agency theory could not be supported in the context of the IDX. Excessive stock ownership was not modelled for specifically in the IDX. This result was also inconsistent with the efficient monitoring hypothesis, conflict of interest and strategic alignment hypothesis, and rescue acquisition hypothesis. This might be due to differences in the rules, regulations and law enforcement in Indonesia, which might not be as stringent as those in developed markets. Investor’s protection is rather low in IDX which should reflect the reduced ability of investors to influence management decision, and thus reduce the influence of ownership structure on company performance. To reinforce the findings of SEM, regression was executed, and the analysis produced an almost similar finding. Size significantly contributed to company performance for all models while two proxies of business diversification were found to be significant in influencing two (accounting/or book value) proxies of company performance. Ownership structure did not seem to influence company performance.
format	Thesis
qualification_name	Ph.D.
qualification_level	Doctorate
author	Masdupi, Erni
author_facet	Masdupi, Erni
author_sort	Masdupi, Erni
title	The Impact of Ownership Structure, Business Diversification and Company Size on Performance of Listed Companies in Indonesia Stock Exchange (IDX)
title_short	The Impact of Ownership Structure, Business Diversification and Company Size on Performance of Listed Companies in Indonesia Stock Exchange (IDX)
title_full	The Impact of Ownership Structure, Business Diversification and Company Size on Performance of Listed Companies in Indonesia Stock Exchange (IDX)
title_fullStr	The Impact of Ownership Structure, Business Diversification and Company Size on Performance of Listed Companies in Indonesia Stock Exchange (IDX)
title_full_unstemmed	The Impact of Ownership Structure, Business Diversification and Company Size on Performance of Listed Companies in Indonesia Stock Exchange (IDX)
title_sort	impact of ownership structure, business diversification and company size on performance of listed companies in indonesia stock exchange (idx)
granting_institution	Universiti Utara Malaysia
granting_department	College of Business (COB)
publishDate	2010
url	https://etd.uum.edu.my/2723/1/Erni_Masdupi.pdf
_version_	1747827413620883456

The Impact of Ownership Structure, Business Diversification and Company Size on Performance of Listed Companies in Indonesia Stock Exchange (IDX)

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