Debt Policy, Free Cash Flow Hypothesis, and balancing of Agency Theory Through Ownership: Evidence From Indonesia.

Mahadwartha, Putu Anom and Ismiyanti, Fitri (2008) Debt Policy, Free Cash Flow Hypothesis, and balancing of Agency Theory Through Ownership: Evidence From Indonesia. Interntional Scientific Journal: Corporate Ownership & Control, 5 (2). pp. 256-263. ISSN 1727-9232

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Abstract

This research argues that there is conflict of interest between managers and shareholders. The conflict also varies based on growth opportunities. This research argues that disciplinary role exist in debt policy with the use of free cash flow hypothesis. This research explores the implications of free cash flow hypothesis concerning the disciplinary role of ownership structure in corporate debt policy. Managerial ownership and internal institutional are other mechanism to reduce agency conflict also has a significant impact on debt policy. The relationship between managerial ownership, internal institutional ownership, and debt policy is interdependence, as known as balancing of agency theory. This study uses 1264 observation of 154 listed Indonesian firms between the years 1995 until 2003. Three state least square (2SLS) model will be use for statistical and analytical purposes. This study finds (1) the relationship between debt and free cash flow are positive, but the relation differ between low-growth firms and high-growth firms, (2) internal institutional shareholders as control mechanism of agency conflict will have negative relationship with deb (balancing of agency theory)t, (3) the balancing of agency theory also hold between managerial ownership and debt policy.

Item Type: Article
Uncontrolled Keywords: balancing of agency theory, ownership structure, leverage, free cash flow, agency conflict
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Business and Economic > Department of Management
Depositing User: Adpesdam Ubaya
Date Deposited: 21 Mar 2012 03:05
Last Modified: 21 Mar 2012 03:05
URI: http://repository.ubaya.ac.id/id/eprint/236

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