THE INFLUENCE OF INSTITUTIONAL OWNERSHIP AND THE USE OF DEBT TOWARD AGENCY COST

Abstract

The different interest between principal and agent may leads to a conflict called agency cost. According to the previous research there are some factors affecting the increasing of agency cost. This research is try to investigate the influence of institutional ownership and the use of debt toward agency costs. The sample of this research is 54 non-financial companies listed on LQ45 Indonesia Stock Exchange 2014 until 2016. This research uses total asset turnover ratio and interaction between free cash flow and growth prospect as proxy to measure agency cost. The results of this study indicate that institutional ownership significantly affects agency costs. This proves that the higher percentage of institutional ownership will decrease agency costs through monitoring mechanisms. As for the use of both proxies, the use of debt also significantly influences on agency cost. It proves that the agency cost will decrease along with the increasing use of debt.