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Ownership and Debt Financing: Indonesia Evidence

In: Financial Management from an Emerging Market Perspective

Author

Listed:
  • Razali Haron

Abstract

This study examines whether ownership concentration influences debt financing of firms in Indonesia. Known to be dominated by family owned, firms in Indonesia seem to have certain distinctive characteristics that are evidenced to have significant impact on their debt financing. Apart from the common firm-level determinants, ownership concentration does play an important role in determining the level of debt consumption of the firms. It is revealed that ownership concentration impacts the debt financing positively, reflecting the power and authority of the large controlling shareholders in using debt as controlling mechanism on the entrenched managers. The positive relationship may also be explained by the reluctance of large shareholders to engage with equity financing as to avoid ownership dilution and thus can maintain the control of the firms. In terms of ownership identity, however, family firms in Indonesia seem to consume much lesser debt level due to the alignment of interest between shareholders and managers, which makes issuing debts as manager's disciplinary tool less crucial for family-owned firms. This study contributes to the literature by offering insights on how ownership concentration and family-owned firms decide on their capital structure and how certain distinctive characteristics of the firms influence the financing decision.

Suggested Citation

  • Razali Haron, 2018. "Ownership and Debt Financing: Indonesia Evidence," Chapters, in: Soner Gokten & Guray Kucukkocaoglu (ed.), Financial Management from an Emerging Market Perspective, IntechOpen.
  • Handle: RePEc:ito:pchaps:120084
    DOI: 10.5772/intechopen.70618
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    Cited by:

    1. Razali Haron, 2018. "Firm Level, Ownership Concentration and Industry Level Determinants of Capital Structure in an Emerging Market: Indonesia Evidence," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 14(1), pages 127-151.

    More about this item

    Keywords

    ownership; ownership identity; family owned; debt financing; emerging; Indonesia;
    All these keywords.

    JEL classification:

    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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