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Agency Problem: The Role of Governance as a Mitigant in two Tier Governance System in Indonesia

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  • ALEXANDER Nico

    (Department of Accounting, Trisakti School of Management, INDONESIA)

Abstract

The issue of conflicting interests between company management and stakeholders arises when the management prioritizes its own compensation over the interests of other parties. This disparity in interests is commonly referred to as the agency problem. To address this problem, corporate governance has been implemented as a mechanism to mitigate its effects. Consequently, this study aims to provide empirical evidence on the role of governance in alleviating the agency problem. The agency problem is measured using discretionary accrual, and panel data regression is employed to test the research hypothesis. The study focuses on 24 food and beverage companies listed on the Indonesian stock exchange, with data collected from 2018 to 2021. The findings indicate that governance, particularly in terms of the board of commissioners, can effectively reduce agency problems. In Indonesia, the implementation of a two-tier system, which separates the supervisory and executive organs, enables proper management oversight and helps mitigate agency problems. These research findings can inform capital market regulators in enhancing existing governance regulations especially for a country that applied two-tier system.

Suggested Citation

  • ALEXANDER Nico, 2025. "Agency Problem: The Role of Governance as a Mitigant in two Tier Governance System in Indonesia," Foundations of Management, Sciendo, vol. 17(1), pages 25-36.
    • Handle: RePEc:vrs:founma:v:17:y:2025:i:1:p:25-36:n:1002
    DOI: 10.2478/fman-2025-0002
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    References listed on IDEAS

    as
    1. Rajashri Chatterjee & Debdas Rakshit, 2023. "Association Between Earnings Management and Corporate Governance Mechanisms: A Study Based on Select Firms in India," Global Business Review, International Management Institute, vol. 24(1), pages 152-170, February.
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    5. repec:eme:jaar00:jaar-11-2019-0158 is not listed on IDEAS
    6. Zhi‐Yuan Feng & Hua‐Wei Huang, 2021. "Corporate governance and earnings management: A quantile regression approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5056-5072, October.
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    More about this item

    Keywords

    Corporate Governance; Agency Problem; Agency Theory; Earnings Management;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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