Entrenchment And Alignment Effect Of Controlling Ownership To Corporate Diversification Strategy & Firm Performance And The Role Of Board Effectiveness

• In Event: Reception with ELS and Research Interaction Forum Posters
  In Poster Session: Research Interaction Forum

Abstract

This research aims to evaluate the effect of controlling ownership to corporate diversification strategy applied by firms in Indonesia and the effect of such conglomeration to firms’ performance. This research also seeks to observe the effectiveness of board of commissioners in monitoring corporate diversification practices to achieve satisfactory firms’ performance. Conglomeration in Indonesia is a phenomena that is described by highly concentrated ownership in firms applying corporate diversification strategy. These firms expanded from family businesses to public companies by IPO mechanism. Conglomeration commonly includes a parent company with subsidiaries that cover diverse business segments and industries.
This research uses ultimate shareholder data that trace company ownership until its ultimate shareholder using companies’LembarBerita Negara or articles of association. This research identifies related and not-related corporate diversification strategy by analyzing companies’ annual reports to account for diversification data.This research traces information in companies’ annual reports and corporate governance report to account for the effectiveness of board of commissioners. Data is gathered for the years 2006 – 2011.
Research results give a comprehensive analysis of the negative effect of corporate diversification strategy to firms performance . The negative effect entrenchment will strengthen the negative effect of diversification strategy to firms performance. Mean while The effectiveness of Board of commissioners can not weaken the effect the relationship between diversification and company's performance.

Keyword:
Controlling ownership, related diversification strategy, unrelated diversification strategy, effectiveness of board of commissioners, firm performance

Authors

• Vera Diyanty, Universitas Indonesia

• Sylvia Veronica Siregar, universitas indonesia

• maria christininingrum, universitas Indonesia

• rafika yuniasih, universitas Indonesia