Ownership of public companies in Indonesia is generally concentrated in nature. Concentrationcan be found in financial claims against the company's shareholders (cash flow rights), right of ordinary shareholders to vote the board of directors, and various company’s policies (the right to control), and the difference between control rights and cash flow rights leverage as the holder of controlling shareholder. "This could encourage controlling shareholders to do expropriation, namely the use of control right to maximize their personal welfare with the distribution of wealth from other parties," said I Putu Sanjaya Sugiartha, SE, M. Si, a lecturer of Faculty of Economics, University of Atma Jaya Yogyakarta in his open Doctoral Program at BRI Auditorium, Faculty of Economics and Business UGM, Tuesday (26/ 10).
According to Sanjaya, expropriation is feasible because of the limitation of civil law that is applied in Indonesia. The low protection of non-controlling shareholders 'rights in Indonesia is an incentive for controlling shareholders to make expropriation. Improvement of expropriation by controlling shareholders implies entrenchment effect, which is the action of controlling shareholder that is protected by control right to do expropriation.
Defending his dissertation entitled Entrenchment and Alignment Effects on Profits Management, Sanjaya said that controlling shareholders also have strong incentives to monitor managers and maximize profit while having substantial cash flow rights. This shows the commitment of the controlling shareholders to not expropriate which implies the existence of the effect of alignment, which is the controlling shareholder's action that is consistent with the interests of non-controlling shareholders.
The man born in Klungkung, 24 October 1970 mentioned that the analysis showed control right has positive and significant influence statically against profits management. This confirms that the increase of control rights lead to increased profit management. Controlling shareholderd also raise profits when the company's financial condition worsened. This condition indicates the controlling shareholders do the opportunistic profit management.
Meanwhile, the cash flow right has negative and statically significant to profits management. In other words, increase cash flow rights lead to decreased profits management. Profits management decrease is due to the increase in ownership of controlling shareholders.
The research done by the husband of Ida Meliani, S.E, showed that there was entrenchment effect of controlling shareholders. This was indicated by positive and significant cash flow rights leverage against profits management. "The wider the difference between control right and cash flow right, the more increasing profits management. The increased profits management decreases the quality of financial report information," explained the man who graduated cum laude.