The differences between family firms and non-family firms: Evidence in Indonesia

Abstract

A family firm is a firm controlled by members of a family through their ownership in the management. This study aimed to observe the presence of differences in gender diversity, cash holding, and financial performance on Family Firms (FFs) and Non-Family Firms (NFFs). The purposive sampling conducted in this study produced 67 samples of companies listed on the Compass 100 Index. They mostly belong to the FF criteria. They also have gender diversity, non-conservative capital structure, medium-size, and low cash holding. The results of difference tests proved the presence of significant differences between the FFs and the NFFs on the variables of firm size, leverage, and gender diversity. Although ROE did not show significant differences, the FFs had higher ROE than the NFFs. Furthermore, the practical implication of this study is the need to consider the presence of women on the board and their share in the firms' decision making. Abstrak Perusahaan keluarga adalah perusahaan dimana sebuah keluarga mengendalikan perusahaan melalui kepemilikannya dalam manajemen. Penelitian ini bertujuan untuk melihat apakah ada perbedaan keragaman gender, kas perusahaan, dan kinerja keuangan pada perusahaan keluarga dan perusahaan bukan keluarga. Purposive sampling menghasilkan 67 sampel atas perusahaan Indeks kompas 100. Uji beda yang digunakan menunjukkan bukti bahwa ada perbedaan yang signifikan antara perusahaan keluarga dan perusahaan bukan keluarga untuk variabel ukuran perusahaan, rasio utang, dan keragaman gender. Walaupun ROE tidak menunjukkan perbedaan yang signifikan, namun perusahaan keluarga memiliki ROE yang lebih tinggi dibandingkan perusahaan bukan keluarga. Implikasi praktisnya adalah perlunya mempertimbangkan kehadiran wanita dalam dewan dan mempertimbangkan porsi mereka dalam pengambilan keputusan perusahaan.

Determinants of Dividend Policy of Family Firms in Indonesia

“…There have been relatively few studies on dividend policy in family firms in Indonesia. Kristanti et al (2019), by examining family firms belonging to the Kompas 100 stock index in 2013-2016, found that cash holding, firm size, leverage, and profitability in family firms have a significant and negative effect on dividend policy, and firm size has no significant effect on dividend policy. In addition, Atmaja (2016) examined public firms in 2002-2009 and found that family control has a negative effect on dividend payments.…”

“…The Debt to Equity Ratio (DER) reflects the firm's ability to meet all of its obligations and shows how much capital is used to pay off their debts by showing how much capital is used to pay the debts (Kristanti et al, 2019). The higher the DER, the greater the fulfillment of obligations by the firm.…”

“…Firm profits will be reduced on high liability payments, thus affecting dividend payments. This is because firms with high debt are required to pay transaction costs including principal and interest payments (Kristanti et al, 2019;Wahjudi, 2020). Research by Wahjudi (2020) and Kristanti et al (2019) found that leverage has a significant and negative effect on dividend policy.…”

“…According to PwC (2014) in Kristanti et al (2019), family firms occupied more than 95% of firms in Indonesia. This refers to the involvement of the family in management positions.…”

“…This is important for shareholders because it can provide accurate, correct, and up-to-date information in distributing dividends (Rajput and Jhunjhunwala, 2019). According to Kristanti et al (2019), family firms involve owners, board of directors, family CEOs, and family managers. In other words, most family firms have family members as the main stakeholder.…”