Related Party Transactions and Earning Quality in Agency Conflict between Family and Non-family Controlling Ownership and The Board Effectiveness

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  In Poster Session: Research Interaction Forum

Abstract

This research aims to investigate the effect of agency conflict between family controlling and non family -controlling ownership to related party transactions and earning quality. This research also investigates the impact of the board effectiveness to related party transactions and earning quality. We argue that companies with families as controlling shareholders may have higher agency conflict between the controlling shareholders and non-controlling shareholders. This conflict potentially leads to negative entrenchment effect. Families as controlling shareholders can indirectly influence related party transactions and earning quality. Effectiveness of the board is required to monitor the management as well as to protect non-controlling shareholders. Therefore, we predict that effective board can reduce negative entrenchment effect of controlling shareholders. This research analyses secondary data of manufacturing companies in Indonesia from 2006 to 2011.
The result of this research gives empirical evidence of the impact of agency conflicts through positive alignment effects and negative entrenchment effects of the controlling shareholder to related party transactions as well as its influence on the quality of earnings. This research also predicts that the board and audit committee with higher effectiveness can reduce negative entrenchment effects of controlling shareholders on both related party transactions as well as on the earning quality.


Key Words:
Family Controlling and Non family -controlling Ownership, Entrenchment Effect , Alignment Effect, Board Effectiveness, Related Party Transaction, Earning quality

Author

• Vera Diyanty, Universitas Indonesia