8. Conclusion

the managers. The positive relationship may also be explained by the reluctance of large shareholders to engage with equity financing as to avoid ownership dilution and thus can

In terms of ownership identity, the result shows that ownership identity has significant influence on debt financing (p = 0.10), thus H2 is supported. Family-owned firms is found to consume lesser debt financing compared to the non-family-owned firms. This is well explained by the fact that family-owned firms are known with the reputation of being risk averse [19]; thus, debt engagement is very much avoided. The lesser consumption of debt by the familyowned firms depicted could also be the result of the alignment of interest between shareholders and managers, which makes issuing debts as manager's disciplinary tool less crucial for family-owned firms. It is expected that family-owned firms do not suffer from agency cost considering that the owner and the management of firms are the same people, and hence no

This study records a negative relationship between NDTS and debt financing (p = 0.01); thus, H3 is supported. Following the trade-off theory, since engaging to debts means bringing in risks and insolvency to the firms, firms may opt to NDTS. Frank and Goyal [36] argue that NDTS should be negatively correlated with debt financing as NDTS is the alternative to tax shields provided by debt financing. Significant negative relationship between NDTS and debt financing is reported in [42] on Indonesian firms. Looking from the lens of family-owned firms, debt is very much avoided being risk averse and the active monitoring by the family in the firm makes debt less needed as disciplinary tool on the managers and hence explains the negative relationship.

A negative relationship is reported between size and debt financing (p = 0.01), in contrast to H4 in which a positive relationship is expected. Haron [25] also depicts significant negative relationship between size and debt financing. Perhaps according to [25], the negative relationship is due to the effects of Indonesian financial market deregulation activities where the control over initial offering prices and the daily movement of stock prices were lifted and thus encouraged large firms to issue equity over debt. Nonetheless, looking at the nature of family-owned firms, the fear of power dilution and the concern over business risk and insolvency have hindered the firms to employ higher level of debt in the capital structure. The larger the firms, the more retained earning they have accumulated; thus, debt is the least choice of financing, following the pecking order theory.

Risk is also found to negatively related to debt financing (p = 0.10), and H5 is then supported. Trade-off theory explains that the higher the debt employment the riskier it gets for the firms in case of default payments; thus, debt financing should be avoided. Haron [25], Ameer [42], and De Jong et al. [43] find business risk having a significant negative relationship with debt financing among firms in Indonesia. One of the distinctive characteristics of family-owned firms is being risk averse for fear of losing the firm in case of bankruptcy risk and insolvency. It is therefore expected of these family firms to avoid debt employment in their capital structure

This study depicts a positive relationship between tangibility and debt financing (p = 0.01). This finding supports H6. Tangible assets help firms obtain more debt from lenders as tangible assets act as collateral, making debt less risky. Moosa and Li [24], Bunkanwanicha et al. [30],

maintain the control of the firms.

18 Financial Management from an Emerging Market Perspective

as to avoid the risks that come with it.

issue of diverging interests is between the two parties [7].

This study examines the impact of ownership concentration, ownership identity, and other firm-level determinants on debt financing decisions of firms in Indonesia based on the GMM technique. The result from this study is robust to heterogeneity, autocorrelation, endogeneity, and multicollinearity concern. Debt financing in this study is defined as total debt to total asset.

Certain firm-level determinants like ownership concentration, ownership identity, NDTS, size, risk, tangibility, liquidity, profitability, and age of firm do have significant influence on the debt financing of the firms understudy. However, certain hypotheses cannot be supported like size, liquidity and age where the study reveals contrasting results from what have been hypothesized.

The concentrated ownership phenomenon among the emerging market and in this case Indonesia does have a significant impact on debt financing of firms. The positive relationship recorded in this study may be explained by the reluctance of large shareholders to engage with equity financing as to avoid ownership dilution and thus can maintain the control of the firm. In terms of family-owned firms, it is revealed that family-owned firms in Indonesia consume lesser leverage compared to the non-family-owned firms perhaps for several reasons depending on the management of the firm. Literature acknowledges family-owned firms as being risk averse [19]; thus, debt engagement is very much avoided. The lesser consumption depicted could also be the result of the alignment of interest between shareholders and managers, which makes issuing debts as manager's disciplinary tool less crucial for familyowned firms. It is expected that family-owned firms do not suffer from agency cost considering that the owner and the management of firms are the same people, and hence no issue of diverging interests is between the two parties [7].

From the study, it is apparent that large firms with higher profitability in Indonesia seem to employ low level of debt for they fear of bankruptcy risk and insolvency. These large firms seem to use the non-debt tax shield in their capital structure as to avoid the cost of debt. The riskier it gets, the lesser debt engagement it would be for these firms, and they would opt to retained earnings accumulated being a large firm with a high profitability level. The fear of business risk and insolvency reflects the effect of trade-off theory, and at the same time the pecking order theory is also in the picture when internal financing is more preferred. Nevertheless, aged firms with high tangible assets and high level of liquidity seem to engage with a higher level of debt in their capital structure. This must be due to the tax shield advantage that comes with debt employment as explained by the trade-off theory. Another possible explanation is that these aged, very liquid firms with high tangible assets employ debt to mitigate agency conflict that may occur.

The finding from this study has important policy implications. This study reveals that firms in Indonesia do not seem to consider equity issuance as an alternative to debt financing with insignificant impact on the influence of share price performance being detected from the analysis. This may be perhaps, according to Ref. [51], Indonesia has a limited number of nonbank financial institutions and the equity and debt markets are still under developed. This phenomenon also reflects the distinctive characteristic of family-owned firms where controlling power and succession of firms onto the next generation being the main agenda instead of economic advantage. The fear of dilution of power from the intrusion of outsiders through equity issuance has slashed out equity financing in their capital structure agenda. Managers should be sensitive over the interests of the shareholders who are normally the board of directors of the firms to preserve the controlling power among the family forever without any interference from outside. The large shareholders should also be aware of the possibility of expropriation of wealth in the expense of the minority shareholders that may exist.

Therefore, looking what have been revealed from the findings, this study contributes significantly to the existing literature with a deeper insight of the determinants of debt financing of firms in Indonesia. The very recent dataset used and the robust methodology employed have indeed enriched the literature on Indonesia being an emerging market. The nature of familyowned firms does have great influence in the debt financing decisions, and this input is a valuable contribution to the literature of corporate governance particularly regarding ownership concentration in terms of family-owned firms. The policy implications discussed earlier could definitely help in constructing better and more efficient policy in the future.

Being an emerging market, the findings can definitely be extended as a base for future research in the area of corporate financing regardless of the economic landscape, whether developed or emerging market as both markets have been evidenced to share similar significant determinants in deciding the debt financing of the firms. Both developed and emerging markets can also learn from this case study of Indonesia especially on the impact of family-owned firms on debt financing decisions. Other emerging markets particularly can also infer their economic and legal systems standing and learn from Indonesia for being an emerging market they are known to have weak legal systems with less developed financial market comparative to their developed market counterparts. Other emerging markets with high ownership concentration level in their corporate governance can also learn from Indonesia as depicted in this study. Debt can be an effective controlling mechanism to discourage managers to manage cash flows and investments at their own self-interest. Debt can also act as a safeguarding mechanism as to avoid ownership dilution; thus, the large shareholder can maintain their controlling power in the firm.

This study, however, has limitation. Despite relatively utilizing recent data and bigger sample firms compared to the previous limited studies on Indonesia, the results of this study, however, need to be cautiously interpreted. This study does not perform each industry regression individually. All the industries are pooled together as the main focus of this study is to examine the factors affecting debt financing of firms in general without giving particular attention to individual industry. Perhaps for future research, study can be done on individual industry as firms in different industry react differently, responding to certain characteristic of each individual industry.
