1. Introduction

Ownership structure, an element in corporate governance, is an important mechanism in mitigating the agency problems as evidenced in many capital structure studies. Literature of corporate financing documents that agency problem in ownership structure impacts firm performance significantly. Nevertheless, not many studies tackle the issue of how concentrated ownership structure, particularly family-owned firms, impacts capital structure by taking into account the agency problem especially on emerging markets. [1] argues that the agency conflicts

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

© The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited.

between the owner and the manager occur when the manager manipulates the capital structure decisions to reap wealth through activities that do not lead to value maximization. When other capital structure theories assume that managers always act in the best interests of shareholders, agency theory is focusing on the agency conflict that may arise when managers pursue their selfserving interests at the expense of the value-maximizing activities of the firm [1]. In this case, debt acts as a disciplinary tool to mitigate such agency conflict by curbing manager's self-interest management and investment decisions [2]. Entrenched managers on the other hand, who have discretion over capital structure choice, may opt to lower debt levels to avoid the disciplining role of debt. These are the most common situations investigated and explored on in the literature relating to the agency conflict when examining the impact of ownership structure on capital structure decision.

Focusing on the emerging market in the East Asian region, these markets were badly hit by the 1997 Asian financial crisis. This turmoil has been frequently documented to be attributed by a very poor corporate governance system [3]. The need for a more strategic and effective corporate governance becomes vital over the years, and ownership structure is one of the crucial mechanisms that need to be scrutinized and studied. As documented by [4], East Asian markets are known with the reputation of having a high level of ownership concentration and family control. In such an environment where high ownership concentration and family control are prevalent, the agency problems may arise between the controlling shareholders and minority shareholders and can consequently give a significant impact on the financial decision of the firms.

Firms with highly concentrated ownership, particularly family owned, have specific goals and visions comparative to nonfamily or firms with diverse ownership. Value maximization is not the only vision as they also strive for non-economic goals too, like continuous control over the firm without any interference from outside [5]. Undiversified portfolios normally carry exaggerated risks. This then cautions them over unnecessary risks that may come with debt employment in capital structure [6]. Anderson and Reeb [7] on the other hand state that family firms would opt to debt over equity to avoid dilution of control over the firm. These specific characteristics and aims of the family owned will definitely affect the financing decisions and thus require further investigation, especially on the emerging market.

Therefore, this study sets out to examine the impact of family-owned structure plus firm-level determinants on capital structure of Indonesian firms, being an emerging market to fill the gap in the literature. By using a set of recent data from the year 2000–2014 extracted from the Datastream database and annual reports over 402 firms with the employment of the Generalized Method of Moment (GMM) technique, this study seeks to examine the impact of familyowned structure plus firm-level determinants on the financing decision of the Indonesian firms. Like her other regional neighbors, Indonesia's capital market is featured by higher ownership concentration and family control [3, 4], weaker legal system and investor protection, and weaker disclosure requirements [8] and thus offers a unique case for this study to examine the impact of concentrated ownership on the financing decisions of the firms. Besides that this study also looks at the influence of the commonly cited firm-level determinants on the financing choices of firms in Indonesia. Finally, to analyze which capital structure theories are able to explain the financing decisions of the firms in Indonesia. These objectives shine out this study from the existing one and offer policy implication to not just Indonesia but also the rest of other economies as well.

The rest of the study proceeds as follows. The next section deals with capital structure theories through the lens of family-owned firms, a literature review of past studies on related issue, brief explanation of the determinants examined with the development of hypotheses and follows by the data and methodology employed for the purpose of this study. Later comes the analysis of the findings, discussion, and the last section concludes the study.
