Concentrated Family Ownership Structures Weakening Corporate Governance: A Developing Country Story The Case of Indonesian Companies

Abstract

This research, project examines the effect of ownership structures on corporate governance. De-tailed analysis allowed for the identification of the ultimate owner by carefully tracing the chain of owner-ship. Our findings show that 62.86% of Indonesian firms are controlled by the owners who have a majority ownership and that 63.81% of firms are owned by an individual or group of family members. These ownership structures are mote inhibited than most other countries (Claessens et al. 2000). Yet, the percentage of independent board (commissioners) is only 39.12%. A majority of independent board members remains a rare event in Indonesia. Multiple regression analysis reveals that both ownership type and identity are moderately significant predictors for board Independence. Ownership structures In Indonesia do influence the level of board independence. This Indonesian pattern is a somewhat extreme but not uncommon scenario in Asian financial markets. Western solutions may not be applicable or effective. New rules and regulations may be needed to provide more protection of the smaller investors. Key words: Ownership structures, governance, developing countries