Ownership Structure Variation and Firm Investment Inefficiency

Abstract

This article examines the effect of ownership structure on firm investment inefficiency of 605 firm-years observations over the period 2009 to 2019 in the Indonesian stock market. Using a panel EGLS regression analysis, the study found that both the ownership structure of the largest shareholders and the second-largest shareholders have significant positive effects on firm investment inefficiency. These findings imply that the second-largest shareholder could not improve monitoring of management and failed to reduce conflicts of interest; thereby the presence of majority shareholders contributed to an increase in inefficient investment policies. Thus, to further improve firm investment efficiency, the firms need to minimize the conflict of interest of majority shareholders.