Ownership Structure and Governance Implementation: Evidence from Indonesia
Ferdinand T. Siagian

This paper investigates whether corporate governanceimplementationisassociatedwithownership structure.Using publicly traded firms in Indonesia, I regress different ownership variables on a corporate governance index (CGI) as my proxy for corporate governance implementation.I use family ownership, business group membership, institutional ownership, government ownership, and foreign ownershipfor ownership structure variables in the regression.I also run sensitivity tests to examine if the results are sensitive to how I measure the CGI. After controlling for variables that affect corporate governance, I find significant positive association between CGI score and government ownership and negative associations between the score and family ownership and institutional ownership. However, I do not find significant association between CGI score and foreign ownership or firms that are members of business groups. My findings suggest thatfirms with higher family ownershipor institutional ownershiptend to implement lower governance. This may indicate that majority family and institutional owners may have objectives that are negatively affected by good corporate governance practices and therefore, they choose not to implement them. Positive association betweengovernment ownership and corporate governance implementation suggests that the government is consistent with its efforts in promoting corporate governance among public firms in order to protect public interests.

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