The Indirect Impact of Busy Directors on the Relationship of Family Structure and Cash Flow Sensitivity of Cash
Wahyu Purbo Santoso (a*), Cynthia Utama (b)
Magister Management
University Indonesia
Abstract
In Indonesia, agency problems in the family structure has developed even further due to concentrated ownership adoption on publicly traded firms. This study aimed to determine the effect of family structure on the cash flow sensitivity of cash (CFSC) in manufacture sector. It also investigates the indirect impact of busy directors as a moderating effect on this relation. These finding suggests that families are likely to hold more cash out of their cash flows for expropriation purposes. This study uses secondary data from all manufacturing firms that are listed on Indonesia Stock Exchange in 2013-2017. Family structure is measured by family ownership and a CEO family member, cash flow sensitivity of cash is determined by the change in cash and cash equivalent of total assets, meanwhile busy directors as a attribute of board is measured by dummy of board of commissionaires. In this study also measured the control effect of firm-s size, the market to book ratio, capital expenditure, and the change in net working capital. The results shows that family structure has positive impact on cash flow sensitivity of cash and statistically significant. Meanwhile, the indirect impact of busy directors found to have a negative effect and weakened the relationship of family structure and cash flow sensitivity of cash, suggesting that the quality of busy directors is an efficient corporate governance tools that is likely to monitor family corporate decisios.
Keywords: family structure, cash flow sensitivity of cash, cash holdings, busy directors,corporate finance, free cash flow agency theory
Topic: Finance