The Effect of Managerial Ownership, Institutional Ownership, and
Foreign Ownership on Firm Value: An Empirical Study on
Manufacturing Companies
Prajnya Paramita Artantiwi and Hamidah
Department of Accounting, Economics and Business Faculty, Airlangga University,
Jalan Airlangga No. 4 – 6, Surabaya, Indonesia
Keywords: Managerial ownership, institutional ownership, foreign ownership, firm value
Abstract: The aim of this research is to examine the effect of managerial ownership, institutional ownership, and
foreign ownership on firm value. The study’s population were manufacturing companies listed on the
Indonesian Stock Exchange from 2013–2015. Based on purposive sampling, 315 firms constituted the
research sample. Data was analyzed by means of multiple regression analysis, with the help of SPSS 20.0.
The results of this study show that institutional ownership has no significant influence on firm value. On the
other hand, managerial ownership and foreign ownership have a significant influence on firm value.
1 INTRODUCTION
The rapid development of the business world
requires companies to continually adjust to
developments occurring in the external environment.
In running its business, every company has a vision
and a mission in order to achieve company goals
(Martono & Harjito, 2005, p. 2). The goals of a
company can be divided into three aspects: the first
is to maximize profit, the second is to increase the
wealth of the owner or the shareholders
(stockholders), and the third is to increase the value
of the company.
Corporate value can be defined as a certain
condition that has been achieved by a company as an
image of public trust to the company after going
through a process of activity for several years, which
means since company established until now.
The ownership structures examined in this research
are managerial ownership, institutional ownership,
and foreign ownership. Managerial ownership refers
to the shareholding of directors, managers,
commissioners, or any other parties involved in
corporate decision making (Jensen & Meckling,
1976).
According to Nuraina (2012), institutional
ownership refers to the stake in a company owned
by institutions such as investment companies,
insurance companies, etc. Institutional ownership
can reduce agency costs as it will result in more
optimal and improved supervision.
Several studies have been conducted in relation
to the effect of institutional ownership on corporate
value. Pakaryaningsih (2008) found a significant
influence of institutional ownership on the value of
companies listed on the Indonesian Stock Exchange
(IDX). However, a non-significant influence of
institutional ownership on corporate value was also
found. Wiranata and Nugrahanti (2013) conclude
that institutional ownership does not affect the
performance of firms; in this sense, the majority of
owners of institutions participate in corporate
control and tend to act on their own behalf, even by
sacrificing the minority ownership.
Foreign ownership refers to the percentage of
shares owned by foreign investors. Several empirical
studies conducted by Abukosim et al. (2014) found
that the presence of foreign ownership in a company
is able to increase the company’s value.
Based on this background, the present research
aims to obtain information and empirical evidence
regarding the influence of managerial, institutional,
and foreign ownership on the value of
manufacturing companies listed on the Indonesian
Stock Exchange (IDX) in the period 2013–2015.
Artantiwi, P. and Hamidah, .
The Effect of Managerial Ownership, Institutional Ownership, and Foreign Ownership on Firm Value: An Empirical Study on Manufacturing Companies.
In Proceedings of the Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study (JCAE 2018) - Contemporar y Accounting Studies in
Indonesia, pages 241-247
ISBN: 978-989-758-339-1
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
241

2 LITERATURE REVIEW
2.1 Theoretical Base
Agency theory describes the relationship that arises
because of a contract between the principal and
another party called the agent, where the principal
delegates a job to the agent. Agency theory assumes
that the principal does not have sufficient
information about the performance of the agent. In
this sense, the agent has more information than the
principal about the self-capacity, the work
environment, the company as a whole, and its future
prospects. This is what causes the information
imbalance between the principal and the agent.
Martono and Harjito (2010) argue that
“maximizing the value of the firm is called
maximizing the shareholder wealth, which also
means maximizing the price of the firm’s common
stock.”
2.2 Research Hypotheses
2.2.1 The Effect of Managerial Ownership on
Corporate Value
According to agency theory, the separation between
the ownership and management of a company can
lead to agency conflict, which is due to the
conflicting interests between the principal and the
agent, as each of them strives to increase his/her
own wealth. This difference in interests is what
triggers management to behave in a way that may
harm shareholders. As a result, supervision is
needed, which will result in agency costs for the
company.
A high level of managerial ownership will ensure
that managers actively work for the benefit of the
shareholders, themselves included, so as to increase
the value of the company and benefit the
shareholders. Research conducted by Bhabra (2007),
Chen and Steiner (1999), and Wahyudi and Pawestri
(2006) shows that managerial ownership has a
significant influence on firm value. The results of
these studies support agency cost theory, which
states that managerial ownership is an effective
mechanism for overcoming the agency problem that
impacts negatively upon company value. Applying
the theoretical base and the research results
described above, the first hypothesis can be
formulated as follows:
H1: Managerial ownership positively affects
corporate value
2.2.2 The Effect of Institutional Ownership
on Corporate Value
Agency theory suggests that institutional ownership
can act as a monitoring agent, with the role of
providing oversight of the managerial side through
supervision focusing on the proportion of ownership
of each institution in a company (Wahidahwati,
2001). Research conducted by Navissi and Naiker
(2006) and Vintila and Gherghina (2015) shows that
institutional ownership has a significant influence on
firm value. A high level of institutional ownership
will increase the institutional role in supervising the
performance of managers. In combining the
theoretical base and the research results described
above, the second hypothesis can be formulated as
follows:
H2: Institutional ownership positively affects
corporate value.
2.2.3 The Effect of Foreign Ownership on
Corporate Value
Multinational companies have the ability to increase
stock prices more than national companies. This is
because foreign ownership will result in a positive
influence on the company, such as the training
conducted by foreign companies to meet skilled
labor need and the existence of trained labor
employed in domestic companies (Fanani &
Hendrick, 2016).
Empirical research conducted by Al-Khouri et al.
(2004), Fanani and Hendrick (2016), and Wei et al.
(2005) shows that foreign ownership can increase
the value of a company, since the presence of
foreign ownership will result in a positive impact on
the company. Applying the theoretical base and the
research results described above, the third
hypothesis can be formulated as follows:
H3: Foreign ownership positively affects
corporate value.
3. RESEARCH METHODOLOGY
3.1 Research Approach
With regard to the problem under investigation, this
study utilizes an explanatory research approach,
which aims to provide an explanation of the
relationship (causality) between variables through
hypotheses testing (Sugiyono, 2012, p. 21). Based
on a quantitative approach, this research can also be
understood as confirmatory research, since it focuses
JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study
242

on theoretical confirmation of a particular research
object, either for explanation or prediction
(Sugiyono, 2012, p. 36).
3.2 Data Collection Procedure
The data collection procedure used in this study was
document analysis, through collecting secondary
data from the www.sahamok.com website, the
Indonesian Stock Exchange (IDX) website
(www.idx.co.id), and the www.yahoofinance.com
website during the period of 2013–2015.
3.3 Population and Sampling
A purposive sampling method was used in this
research, which is sample determination technique
with certain considerations (Sugiyono, 2012, p. 96).
4. DATA ANALYSIS AND
DISCUSSION
4.1 Description of Research Subjects and
Objects
The research subjects in this study were companies
engaged in the manufacturing sector, listed on the
Indonesian Stock Exchange (IDX), that had
published financial statements for the period 2013–
2015. Since there are many manufacturing
companies in Indonesia and they are engaged in a
homogeneous type of industry, a selection of
manufacturing companies can be expected to
provide representative results from data processing
and analysis.
The population in this study was manufacturing
companies that met the criteria specified in the
purposive sampling process. From the data of 407
manufacturing companies that had published
financial statements on the IDX in the period 2013–
2015, 315 met the criteria specified in the purposive
sampling. The research objects were all the variables
studied in this research, i.e. corporate value,
managerial ownership, institutional ownership,
foreign ownership, and company size.
4.2 Descriptive Statistic
Descriptive statistics were used to provide
information on the variables used in this study, i.e.
managerial ownership (MANOWN), institutional
ownership (INSOWN), foreign ownership
(FOROWN), corporate value, which used Tobin’s q
ratio as an assessment indicator (TOBINS), and
company size (SIZE) as the control variable in this
research.
Table 1: Descriptive Statistics
N Min Max Mean SD
MANOWN 315 0.00 0.74 0.04 0.11
INSOWN 315 0.00 0.60 0.04 0.10
FOROWN 315 0.00 0.99 0.34 0.33
SIZE 315 10.66 14.39 12.30 0.69
TOBINS 315 -6.76 19.02 1.44 2.60
Valid N (listwise) 315
Valid N (listwise) 315
Source: Processed Data, 2017
Based on Table 4.1, the average managerial
ownership of all sampled companies is 0.038812,
with a standard deviation of 0.1099713. The degree
of distribution of the managerial ownership data has
a variation rate of 283.343%. This shows that the
overall managerial ownership of the sampled
companies is heterogeneous, meaning that there are
companies with relatively different percentages of
managerial ownership, but also companies that do
not have managerial ownership.
Institutional Ownership (INSOWN) has a
minimum value of 0.0000 and a maximum value of
0.5971. The average institutional ownership of all
the sampled companies is 0.042550, with a standard
deviation of 0.0997606. The degree of distribution
of the institutional ownership data has a variation
rate of 234.455%. This shows that the overall
institutional ownership of the sampled companies is
heterogeneous, meaning that the percentage of
institutional ownership of each company is relatively
diverse, in addition to there being companies with no
institutional ownership.
Foreign Ownership (FOROWN) has a minimum
value of 0.0000 for 99 manufacturing companies,
meaning that about 30% of manufacturing
companies in the period 2013–2015 had no foreign
ownership. The average foreign ownership of all the
sampled companies is 0.342058, with a standard
deviation of 0.3250774. The rate of distribution of
the foreign ownership data has a variation rate of
95.04%. This shows that the overall ownership of
the sampled companies is homogeneous, meaning
that the percentage of foreign ownership of each
The Effect of Managerial Ownership, Institutional Ownership, and Foreign Ownership on Firm Value: An Empirical Study on
Manufacturing Companies
243

company is relatively the same, although there are
also companies that do not have any foreign
ownership.
The average size of companies owned by all the
sampled companies is 12.304000, with a standard
deviation of 0.6901883. The rate of distribution of
the company size data has a variation rate of 5.61%.
This shows that company size in the overall research
is relatively uniform, where each company is of a
comparatively similar size and with the relatively
same amount of total assets.
The average corporate value for all the sampled
companies is 1.445499, with a standard deviation of
2.5499268. The level of distribution of the corporate
value data has a variation level of 176.40%. This
shows that the overall value of the companies in the
research is heterogeneous, meaning that each
company has a relatively diverse corporate value.
4.3 Model Analysis and Hypotheses
Testing
This research used multiple linear regression to test
the hypotheses. To obtain results that are free from
bias, a classical assumption test was carried out.
4.3.1 Classical Assumption Test
To ensure that the results of the hypotheses testing
were free from bias in the multiple linear regression
model, a classical assumption test was carried out.
The classical assumption test in this study used four
tests: a normality test, an autocorrelation test, a
multicollinearity test, and a heteroscedasticity test.
The classical assumption test was performed with
the help of SPSS 20.0 software.
4.3.2 Analysis of the Multiple Linear
Regression Model
Analysis of the multiple linear regression model
aimed to determine the effect of managerial
ownership (MANOWN), institutional ownership
(INSOWN), foreign ownership (FOROWN), and
firm size (SIZE) –as the control variable – on
company value, projected with Tobin’s q (TOBINS),
at manufacturing companies listed on the Indonesian
Stock Exchange during the observation period 2013-
2015 and which met the target population criteria.
The result of the multiple linear regression analysis
are presented in Table 4.2.
Table 2: Results of the Multiple Linear Regression Model
Model Unstandardized Stand t Sig.
Coefficients Coef
f
B Std. Error Beta
(Constant) -2.1
9
0.39 -5.5
8
0.00
MANOWN 0.78 0.27 0.18 2.9
0
0.01
INSOWN 0.05 0.23 0.01 0.2
1
0.83
FOROWN 0.16 0.07 0.15 2.4
0
0.02
SIZE 0.22 0.03 0.43 7.0
3
0.00
Source: Processed Data, 2017
Based on the results in Table 4.2, the multiple
linear regression equation can be formulated as
follows:
TOBINS = -2,194 + 0,783 MANOWN + 0,049
INSOWN + 0,163 FOROWN + 0,224 SIZE + e
The regression coefficient as a positive value
indicates the occurrence of unidirectional change
between the independent variables and the
dependent variable. In this sense, a negative value
indicates the opposite relationship between the
independent variables and the dependent variable.
4.3.3 Hypotheses Testing
4.3.3.1 Coefficient Determination Test Result
A coefficient determination test was conducted to
determine the effect of all the independent variables
on the value of the company. The coefficient
determination test was measured by the Adjusted R
Square resulting from the multiple linear regression
analysis. The coefficient determination test results
are presented in Table 4.8.
Table 3: Coefficient Determination Test Results
Source: Processed Data, 2017
Based on the results in Table 4.3, the Adjusted R
Square value obtained is 0.192 (19.2%). This shows
that the independent variables used in this study can
predict the company value of manufacturing
Model R R Square Adjusted R Square
1 .454
a
.206 .192
JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study
244

companies by 19.2%, while the remaining 80.8% is
influenced by other variables not used in this study.
4.3.4 Hypotheses Proofing
This study aims to determine the effect of
managerial ownership, institutional ownership, and
foreign ownership on corporate value. The sample
for this research was manufacturing companies
listed on the Indonesian Stock Exchange (IDX) from
2013 to 2015, which presented financial statements
and completed the required data during the study
period.
4.3.4.1 The Effect of Managerial Ownership on
Corporate Value
Table 4: Test Results of the Effect of Managerial
Ownership on Corporate Value
Variable
Regression
Coefficient
Sig Conclusion
MANOWN 0,783 0,004
Positive
Effect
Source: Processed Data, 2017
Based on the results of the multiple linear
regression test in Table 4.4, since the significance
level is 0.004, and therefore the significance level of
count < trust level (0.05), it can be concluded that
managerial ownership has a positive and significant
effect on firm value.
The value of the managerial regression
coefficient is 0.783, so it can be concluded that
managerial ownership can increase the value of a
company. The positive value of the regression
coefficient shows that there is a unidirectional
relationship between managerial ownership and firm
value, meaning that if managerial ownership
increases once, the value of the firm will increase by
0.783 times.
4.3.4.2 The Effect of Institutional Ownership on
Corporate Value
Table 5: Test Results of the Effect of Institutional
Ownership on Corporate Value
Source: Processed Data, 2017
Based on the results of the multiple linear
regression test in Table 4.5, since the significance
level is 0.832, and therefore the significance level of
count > trust level (0.05), it can be concluded that
institutional ownership has a positive but non-
significant effect on corporate value.
Since the value of the institutional ownership
regression coefficient is 0.049, it can be concluded
that institutional ownership can increase the value of
the company. The positive value of the regression
coefficient indicates that there is a unidirectional
relationship between institutional ownership and
corporate value, meaning that when institutional
ownership increases once, the value of the firm will
increase by 0.049 times. According to the level of
significance and the regression coefficient with
regard to the effect of institutional ownership on
company value, institutional ownership has no effect
on firm value. In this sense, H2 (institutional
ownership affects company value) is rejected.
4.3.4.3
The Effect of Foreign Ownership on
Corporate Value
The influence of foreign ownership on company
value in this research was analyzed by using the t
test produced in the multiple linear regression
model. The result of the multiple linear regression
analysis regarding the effect of foreign ownership on
company value is presented in Table 4.6.
Variable
Regressio
n
coefficient
Sig Conclusion
INSOWN 0,049 0,832
Insignificant positive
effect
The Effect of Managerial Ownership, Institutional Ownership, and Foreign Ownership on Firm Value: An Empirical Study on
Manufacturing Companies
245

Table 6: Test Results for the Effect of Foreign Ownership
on Corporate Value
Source: Processed Data, 2017
According to the results of the multiple linear
regression test in Table 4.6, since the significance
level is 0.017, and therefore the significance level of
count < trust level (0.05), it can be concluded that
foreign ownership has a positive and significant
effect on company value.
The value of the foreign ownership regression
coefficient is 0.163, meaning that foreign ownership
can increase the value of a company. The positive
value of the regression coefficient shows a
unidirectional relationship between foreign
ownership and company value, so if foreign
ownership increases once, then the value of the firm
will increase by 0.163 times. Based on the level of
the significance and regression coefficient relating to
the effect of foreign ownership on company value,
foreign ownership has a positive and significant
effect on the value of the company. Therefore, H3
(foreign ownership has a positive effect on company
value) is accepted.
5. CONCLUSIONS AND
SUGGESTIONS
5.1 Conclusions
Based on the results of the research analysis, the
following can be concluded:
1. Managerial ownership positively affects
company value. The results show that the
greater the ownership of managers in a
company, the less likely the managers are to
perform actions that can harm the company.
2. Institutional ownership does not have a positive
effect on corporate value. The results show that
institutional ownership can reduce
opportunistic behavior by managers through
active supervision. Active supervision will
become passive as the amount of institutional
ownership in the firm increases due to the
possibility of compromise between institutional
shareholders and managers acting for their own
interests regardless of other shareholders.
3. Foreign ownership positively affects the value
of the company. The greater the foreign
ownership, the greater rights that shareholders
have in decision making, thus indirectly
providing monitoring on managerial
performance, which will affect the value of the
company.
5.2 Suggestions
Based on the research results, the author suggests
that future research examines other industrial
sectors, such as the financial industry sector, which
have different characteristics from the
manufacturing industry.
For investors, the results can be used to consider
possible future investments. In this sense,
investments or stock purchases are preferable in
companies with foreign ownership and managerial
ownership because the presence of foreign and
managerial ownership will have a positive impact on
the company’s operational performance, which will
increase the value of the company and therefore the
welfare of the shareholders.
For the company, the results can be used to
overcome any agency problems that occur within the
company, and thus reduce the information gap
between shareholders and managers so as to improve
the performance of the company and increase
corporate value.
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