BANK INDUSTRY OPENNESS IN INDONESIA: CONTROL OF AGENCY PROBLEMS
ABSTRACT: Indonesian banking
sector has recently been suffering from bad debt and liquidity problems. Crisis
since 1997 has impoverished bank’s performance and reduced shareholder wealth.
The deterioration of bank’s performance with respect to bank’s purpose to be an
intermediation agent also affects the wealth of stakeholders, especially
depositors. Agency problem has severe effects on bank’s performance. Openness
policy especially in bank ownership structure also has an effect on competition
between banks. Globalization forces early openness on banking industry,
therefore foreign ownership in banking industry becomes usual in Indonesia.
Central bank has an obligation to support citizen with variety of banking
services, without sacrificing security. Although Indonesia has several
prospective domesticowned banks, however crisis weakened national banking
industry. Therefore, type of ownership should have difference effect on agency
problems controlling mechanism. This research examines agency theory arguments
in banking industry by analyzing the effect on firm specific variables, which
are managerial stock ownership, leverage, dividend yield, and type of
ownership. Agency costs proxy by earnings volatility, manager’s portfolio
diversification losses, bank size, and standard deviation of bank equity
returns. Types of ownership are domestic-owned banks, and foreign-owned banks.
It is one of the first researches that examine the determination of financial
policy variables based on agency theory perspective in banking industry. This
research examines the largest 51 banks during the period of 1999-2004 using
quarterly financial report. The result showed bank size and a measure of manager’s portfolio diversification
opportunity set affect the bank’s level of managerial stock ownership,
leverage, and dividends. The result also confirms the difference effect of type
of banks ownership to controlling mechanism of agency problems.
Keywords: bank, agency,
ownership, leverage, dividend
Penulis: Putu Anom Mahadwartha
Kode Jurnal: jpmanajemendd080124
