Agency Problem: The Role of Governance as a Mitigant in two Tier Governance System in Indonesia

Abstract The issue of conflicting interests between company management and stakeholders arises when the management prioritizes its own compensation over the interests of other parties. This disparity in interests is commonly referred to as the agency problem. To address this problem, corporate governance has been implemented as a mechanism to mitigate its effects. Consequently, this study aims to provide empirical evidence on the role of governance in alleviating the agency problem. The agency problem is measured using discretionary accrual, and panel data regression is employed to test the research hypothesis. The study focuses on 24 food and beverage companies listed on the Indonesian stock exchange, with data collected from 2018 to 2021. The findings indicate that governance, particularly in terms of the board of commissioners, can effectively reduce agency problems. In Indonesia, the implementation of a two-tier system, which separates the supervisory and executive organs, enables proper management oversight and helps mitigate agency problems. These research findings can inform capital market regulators in enhancing existing governance regulations especially for a country that applied two-tier system.