Can Debt Mitigate Majority-Minority Shareholders Agency Problem?

Voluminous research on agency theory has focused mainly on the significant challenge of how to mitigate the fundamental agency problem. Unlike the issue of independence, equity, and the market for corporate control that has been a substantial focus of previous studies on mitigating agency problems, very little empirical attention has been given on the role of debt to solve agency problems. This study contributes to the existing empirical literature of agency problem by empirically assessing the role of debt as a moderating variable in mitigating the agency problem of majority-minority shareholders from the perspective of Indonesia. Specifically, this study empirically discusses the relationship between concentrated ownership, loans, and the performance of family and non-family companies in Indonesia over the 2009-2018 period using the GMM-difference estimation method. The study found that ownership concentration has an inverted U shaped relationship with the performance of family and non-family companies. Agency conflicts between majority-minority shareholders occur at high concentrated levels of ownership. The interaction of high concentrated ownership with loans has a positive influence on company performance. This implies that conflicts between majority-minority shareholders can be mitigated through specific size of debts.