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Free cash flow, ownership structure, and capital structure: Impact on agency cost

Author

Listed:
  • Yoga Khomaini Aditya
  • Husnah Nur Laela Ermaya
  • Ratna Hindria Dyah Pita Sari

    (Accounting Department, Universitas Pembangunan Nasional Veteran Jakarta, Jakarta, Indonesia
    Accounting Department, Universitas Pembangunan Nasional Veteran Jakarta, Jakarta, Indonesia
    Accounting Department, Universitas Pembangunan Nasional Veteran Jakarta, Jakarta, Indonesia)

Abstract

The difference in interests between investors and company managers creates a conflict of interest, so in this case, a solution is needed to reduce this problem, namely by issuing an agency cost. This study was conducted to determine the effect of free cash flow, managerial ownership, outsider block ownership, and capital structure on agency costs in Indonesia. The population in this study were all non-financial sector companies that have been listed on the Indonesia Stock Exchange for the 2014-2018 period using multiple regression analysis techniques. The results of this study explain that free cash flow, managerial ownership, and capital structure have a significant positive effect on agency cost. Meanwhile, ownership of an outsider block does not affect agency cost. This study contributes to the science of corporate governance, especially the mechanism for reducing agency costs, and contributes to the non-financial companies themselves to reduce agency costs with manager or manager ownership programs and the right decisions in the use of corporate debt.

Suggested Citation

  • Yoga Khomaini Aditya & Husnah Nur Laela Ermaya & Ratna Hindria Dyah Pita Sari, 2020. "Free cash flow, ownership structure, and capital structure: Impact on agency cost," Journal of Contemporary Accounting, Master in Accounting Program, Faculty of Business & Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia, vol. 2(2), pages 63-71, May.
    • Handle: RePEc:uii:jcauii:v:2:y:2020:i:2:p:63-71
    DOI: 10.20885/jca.vol2.iss2.art1
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    References listed on IDEAS

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    More about this item

    Keywords

    Agency cost; free cash flow; ownership structure; capital structure;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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