Information Disclosure by Family-Controlled Firms: The Role of Board Independence and Institutional Ownership

31 Pages Posted: 24 Jan 2013

See all articles by Salim Darmadi

Salim Darmadi

Indonesia Financial Services Authority (OJK)

Achmad Sodikin

Indonesian Tax Office (DJP)

Date Written: January 23, 2013


Family control is a common phenomenon among listed corporations in the Indonesian capital market. In family-controlled firms, the so-called “Agency Problem II” may arise due to differences of interests between the controlling shareholder and minority shareholders. Firms may choose certain mechanisms to mitigate information asymmetry, including the disclosure on information in the annual report. This study aims to investigate the influence of family control on the extent of voluntary disclosure in the annual report of Indonesian listed firms. This study employs a sample comprising non-financial firms on the Indonesia Stock Exchange (IDX) that published the 2010 annual reports. Our evidence reveals that family control negatively and significantly influences the extent of disclosure. This finding suggests that family-controlled firms have lower motivation to disclose additional voluntary information, which might unexpectedly expose private benefits maintained by the controlling family. This lower level of disclosure seems to exacerbate agency issues in family-controlled firms. Further, this study seeks to investigate the role of corporate governance mechanisms in explaining the association between family control and voluntary disclosure. Governance mechanisms addressed in our analysis include board independence and institutional ownership. We find that the relationship between institutional ownership and disclosure is stronger in family firms. However, independent commissioners do not contribute to improving the extent of disclosureby family firms.

Keywords: Agency problem, corporate governance, family firm, Indonesia, voluntary disclosure

JEL Classification: G32, G34, M41

Suggested Citation

Darmadi, Salim and Sodikin, Achmad, Information Disclosure by Family-Controlled Firms: The Role of Board Independence and Institutional Ownership (January 23, 2013). Available at SSRN: or

Salim Darmadi (Contact Author)

Indonesia Financial Services Authority (OJK) ( email )

Jalan M.H. Thamrin No. 2
Jakarta, Jakarta 10350

Achmad Sodikin

Indonesian Tax Office (DJP) ( email )

Jalan Jend, Gatot Subroto
Jakarta, Jakarta 12190

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