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Assistant Editors Bora Bodur, $aban Qelik, Senem Yrlmaz, Onur i96z Editorial Office Intemational Joumal of Business, Management and Economics Yagar University, Faculty of Economics and Adrninistrative Sciences, Universite Caddesi No: 35-37 Bornova-izmir Yagar Universitesi Selguk Yaqar Kampiisij Universite Caddesi, No:35-37, Alagh Yol. Bomova, izmir PK. 35100 Tel :232-411 50 00 Fax: 232-411 50 2O e-mail: editor_ijbme@yasar.edu.tr Intemational Joumal of Business, Management and Economics is a peer-reviewed intemational joumal published three times a year in English. The Joumal accepts articles trat can be theoretical, applied, empirical, case - based or policy oriented in the areas ofBusiness, Management and Economics and other related fields. International Advisory Board Aylin Gilney Faculty of Economics and Administratve Sciences, Yagar University, Turkey A. Gtildem Cerit Faculty of Maritime, Dokuz Eylul University, Turkey Adnan Kasman Faculty of Business, Dokuz Eylijl University, Turkey Ahmet Fazrl Ozsoylu Faculty of Economics and Adminisb-ative Sciences, Cukurova University, Turkey Akira Yokoyama Gmduate Scirool of Policy Studies, Chuo University , ToWo, Japan Alican Kayas School of Business and Economics, Winston Salem Sbte University, Winston-Salem, US Anneli Andersson Cinneuniversitetet, lGlmar, Sweden Asm Y0cel Faculty of Economics and Administrative Scienes, Yagar University, Turkey Atilla Yaprak School of Business Adminisfation, Wayne Sabte Unive6ity, MI, USA Banu Durukan Faculty of Business, Dokuz EylUl University, Turkey Cengiz Erol Graduate School of Socail Sciences, Izmir Eonomy University, Turkey Cengiz Prnar Faculty of Economics and Administrabve Scienes, Yapr University, Turkey Ce\at Tosun Sctrool of Tourism & Hotel Managem€rit Mustafa Kemal University, Turkey Ceyhun 0zg0r College of Business Administ-ation Faorlty, Valpaciso University, Indiana, USA Qln Bulut Faculty of Economics and Administrative Sciences, Yasar University, Turkey David Bednall Deakin School of Management and Markeung, Deakin University, Aust-alia Dolan Gi]rsoy Schml of Hospitality Business Management, C-ollege of Business, Washingrton Shte University, WA" USA Douglas A. Hibbs Cenbe For Public Sector Resesardr, Gdteborg University, Sweden Eberhard Fess Aachen University of Applied Sciences and Technology, University of Franldtrt, cermany Faruk Griddr School of Business-Isom, Loyala University, Chicago, IN, USA Fewi Okumug Rosen College Faculty, University of Cenhal Florida, Fl USAGiancarlo Marini Faculty of Economics, University of Rome, Italy Halis Munt Yrldrz Faculty ofArts, Ryerson University, Canada Haluk Soyuer Faculty of Economics and Administrative Sciences, Ege University, Turkey ige Prmar Faculty of Economics and Administative Sciences, Yagar University, Turkey Kudu Zoral Faculty of Economics and Adminisbative Sciences, Yagar University, Turkey M.Hulusi Demir Faculty of Engineering/ Yasar University, Turkey Michael K.McCuddy College of Business Adnrinistration Fao.rlty, Valparaiso University, Indiana, USA Musa Prnar College of Business Administration,Valparaiso Unlversity, Indiana, USA Muzo (Muzaffer) Uysal School of Hotel, Restaurant and Tourism Management, University of South Carolina, SC, USA Nicholas A.Lash Scirool of Business, Loyala University, Chicago, IN, USA Orhan ig6z Faorlty of Economics and Administ-ative Sciene, Yagar University, Turkey Osman Gok Faculty of Eaonomics and Administrative Sciences, Ya5ar University, Turkey Omer BaybarsTek Faculty of Economics and Administrative Sciences, Ya5ar University, Tu*ey Prnar Ewim MaMacr Faculty of Business, Dokuz Eyl0l University, Turkey Refik Soyer Institute for Reliability and Risk Analysis, The George Washington University, Washinqrton, DC, USA Scott McDonald Sdrool of Business, Oxford Brookes University, United Kingdom 'S0leyman Yukgil Faculty of Economics and Administrative Sciences, Dokuz Eyl0l University, Turkey Tamer Qvuggil Robinson College of Business, Georgia Sbte University - USA Thomas Lange AUT Business School, Auckland University ofTedrnology, New Zealand YUksel Ekinci School of Business Oxford Brookes Univesity, United Kingdom Editor-In-Chief Orhan iQoZ Volurne 4 No. 1l-12 November - Decembet Z0I0 @ YASAR UNIVERSITY izmir 2010 ISSN 1306 1097 @ Author(s) and Yagar University No part of material protected by this copyright may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without written permission from the Yagar University. Author(s) have right to publish their article elsewhere electronically or in another publication. Cover Design Onur Erbaq Printed in Turkey: META Bastfn Marbaacrhk Hizmetleri Tel: 0.232. 343 64 54 Bornova - izmirA MATHEMATICAL FRAMEWORK FOR SELECTINC A SUITABLE ORGANIZATIONAL STRUCTURE (CASE STUDY: TABRIZ MACHINE MANUFACTURING COMPANY) Alireza Bafandeh Zendeh, Mahdi parvizpoor............. ............1 n any THE EFFECTS OF CAREER COMMITMENT, ORGANIZATIONAL ng 0r COMMITMENT AND TRUST ON ORGANIZATIONAL CITIZENSHIP n the BEHAVIORS OF HOSPITAL AND HOTEL EMPLOYEES ically Krvang inelmen, Ezgi Ozgiimtiq, Gtilnihal parlak, Neqe Salti, Hatice Sarror ..................12 THE EFFECTS OF PERSON-ORGANIZATION FIT ON EMPLOYEE JOB ATTITUDES IN THE HOSPITALITY INDUSTRY IN TURKEY Mustafa Tepeci '10 - Vol 4. 12 Decem THE OWNERSHIP STRUCTURE ON THE CAPITAL STRUCTURE AND THE FIRM PERFORMANCE Agus Zainul Arifin............ IMPLEMENTING SIMPLE SLOPE TECHNIQUES TO INTERACTION OF WORK VARIABLES Aydem Qiftgioglu ,Ozer Arabacr ....................5g RECENT DEVELOPMENTS IN PHILIPS CURVE Erhan Yrldrnm, Selim eakmaklr EXAMININC THE IMPACT OF CUSTOMER AND PERSONNEL GENDER ON SERVICE QUALITY IN BANKING INDUSTRY Musa Prnar, Sandy Strasser, Zellha Eser............-. ELECTRICITY CONSUMPTION AND SPILLOVER EFFECTS _ A DYNAMIC PANEL DATA APPROACH Veysel Ulusoy, Erdem Krhg........ .... III ................g7 ............103 IV F ctc ul ty of E c o no mic s, T a r umana gara U n iv e r s ity, I ndr,t ne s ia aguszal808@gmail.com ABSTRACT The financing activity can generate a contlict between the management and the stockholder or creditor as a consequence of the opportunity management behaviours. These behaviours have also influence on tlre firm pertormance. The phenomenon of this research is the influence of the ownership structure in determining the selection of the firm's financing sources and on the firm performance.The aim of this research is to find the influence of theownership structure oti the capital structure and on the firm performance on the frarnework of the agency theory. This research was conducted at non financial public companies listed at the Jakaru Stock Exchange in yeals 2001-2003.This study used analysis tool of the rwo stages least square equation (2SLS) models. The first model is to test the influence of stock ownership structure, asset growth of the firm, and asset structure of the tirm on the capital sffucture. The second model is to test the intluence of the stock ownership structure, capital structure, firm size, and risk of stock return on the firm performance. The conclusions give answers to all the problems. Key words: Agency Theory, Stock ownership Structure, capital Structure, and Firm Performance JEL Classificiation: G32 l. TNTRODUCTION The existence of capital markets provides au opportunity for companies to increase funding and improve their capital structure so that they c:ur operate at a larger scale with more hea.lthy capital structure, which in turn n,ill help improve corporare eiunings, society, arrd the macro economy. According to data of Indonesian Capiral Mark4 Directory (2004), until the end of the yeu 2003 the number of companies that have financing for the colnpany was as many irs 333 cornpanies. with total market iilready utilized the capiul miuket (Jakarta Stock Exchange) rs an aiternative source of 40 hcld by the shareholders, while control functions are held by professioual managers rvho are paid and contracted to carry out opcrations in accordance with the objectives of shareholders. Thc sepzuation of functions is the initial cause of agency problems between the shareholders (owners or principals) and managers (agents). The problem rvas rooted in self-management (Jensen and Meckling , 197 6) . As a rational persou, the rnanager (agent) in addition to its role for the bcnefit of the owner, also has his own personal interest, that is maximizing his personal utility by charging the cost to the company. While in terms of risk, labor market of manager containing a total risk that can not be diversified, because management performance can rd the only be seen from its success in managing company that provides assurance to him that iours. he rvill still be able to work managing thc company or dimissed from his job. Failure of rf this a mitnager in managing the firrn will be an obstacle tor him to get another job at another of the company in the sarne position. Indonesia Capital Market watchdog Bapepam Code No. o find IX.1.6 paragraph 1.c yeiu 2004 sutes that prospective mernbers and commissioners of firm public company directors should not bc derived frorn other companies who have declared bankupcy or been tbund guilty of causing the company banlaupt rvithin five ,tkuta yeus prcceding his appointment. Because it has borne the risk. then management will stages reduce thc total risk by reducing thc debt or use under the optimal debt level although this may reduce firni value. stock )n the Agency problem between owners and managemeut can be reduced by monitoring :rship the management policies that iue opportunistic. Shiueholders wealth would be reduced 'rance. due to the management of opportunistic behavior if monitoring isn't done (called the agency cost of equity). The monitoring system can be done in two ways, i.e. the monitoring of internal and external monitoring (Bathala, Moon, and Rao, 1994). Internal d monitoring can be done by the managerial shareholders, the preserce of auditors, and the members of Independent Board of Directors placerncnt. Share ownership by management can reduce opportunistic behavior by miuragcment through the itself internal control, because every outcome of management decisions will have a dircct impact 0n theniselves. While cxternal monitoring can be conducted by external lrease sliareholdcrs (non-rnanagerial) and creditors. Effective rnonitoring by thc vilrious pruties : with atc expccted t0 encourage cornpanies to n'alk in the right direction that rvill improve nings, company perforniance. Iarket Ownership of shares at lssuers cornpanies rvhich are listed on the Jakiuta Stock havc Exchange (JSX) scattered at various parties in society. Pruties that have issuers' stocks rce of lrsted on the JSX can be classificd into threc groups (cliusification according to the narket anrtrral report issucd by tltc Irtdortcsian Capital Market Directory). Among the three .11 Stock Exchange showed tlrat the compositiou of the capital structure of non-financial issuers during the period 1993 to 2003 is more dominated by debt, indicated by the level of leverage The avcrage value above 60Vo. According to Lasher (2003:a3 l). the optirnal capital sfucture for the company's business his a debt level in thc range between 30Vo - 507o. Although this criterion is not a regulatory standard, it has becomc an accepted wisdom as a general guide in managing the company's capita.l structure. Performance of public companies on the JSX in the year 2001 to year 2003, can use the research results fiom SWA Magazine MarkPlus and Master of Accounting, University of Indonesia (MAKSI UI), which assesses the financial performance of companies with the EVA approach. The result, in 2001 (based on the finzurcial statements as of Decernber 31,2000), Companies that were able to record a positive EVA numbered 41, and in 2002 droped to 33 companies, and in 2003 only 24 companies. It showed some issuers in Indonesia have not been able to generate returns that can cover the risk capital (Poeradisasffa,2003:28). This means that fundamentally, it can be said that the management as an agent of the shareholders had failed to perform its role to achieve compimy goals. 2. FORMULATION OF- RESEARCH Based on the background described earlier, the problems in this research are as fbllows: a. Does the share ownership by institutions and the managerial share affect the capital structure? b. Does the share ownership by the institution and the managerial share ownership, and capital structure affect ttre corporate perfbrmance? 3. LITERATURE REVIEW The conipiury's maiu objective is to enhance shareholders' value by increasing and maximizing shareholders' wealth or firm (Ross, Westerfield, and Jafle, 2002) or maxirnizing corporate value (Keorvn,2002). Fama (1978) suggested that maximizing the value of the companies otten expressed with a form of miuimizing the value of company stock. Destination covered companies rvithin both the prosperity of the stock holders or bond securities. Cornponent selection decisions about which funding sources rvill be selected. ideally the conpany should ret'er to the company's ob.jective, that is rnaximizing welfiue. which can be realized through improved corporate pefformance. In other words. selection of the composition of capital structure by firms in financing activities will alsil affect thc perforrnance of the company. 42 I by debt, I to Lasher rbt level in lard. it has y's capital )3, can use ccounting, rmance of financial a positive \ only 24 Ite returns lmentally. o perform 'ch are as affect the wnership" asing iurd 2002) or ximizing vii.lue of the stock g sources e, that is nance. In financing Pua, (2002), structue of shareholding is grouped into: institutional shareholders, the cornpauy. Meanwhilc, according to Brailsfbrd, oliver, and individuals, and managerial. In conjunction with monitoring the activities of policy Oliver' and Pua, (2002), which differentiate into iustitutional shareholders, individuals, management, ownership sfructures are clixsitled based on the opinion of Brailsfbrd, and managerial. Demsetz (1983), Shteifer and Vishny (1996), Agrawat and Mandelker (1990); Bathala. Moon, and Rao (1994). Brailsford, oliver and pua (2002), stated that share ownership structure may aff'ect the company's capital structure. Share ownership by management is external control mechanism function. The eftectiveness of this control management is the application of interual control mechanism function, anasset structure, asset growth. company size and share retunr risk. Endogenous variables include variables of capital structure and corporate perfbnnance. The subject of this research is issuers listed on the Jakaru Stock Exchange (JSX) as lnany els 333 compaties. The dau used are secondary data in the form of annual financial statelnents of the period 2001 - 2003 (pooled data). These periods were chosen because the economic conditions rvere in a state of relatively normal after recovering fiom the econornic crisis in 1997. Sarnples are non-financial issuers (companies outside the banking and financial institutions and investment). The sampling technique used was purposive sampling criteria: (1) selected non-finalcial issuers outside the cornpany investment banking and finattciai institutions during the period 2001 to 2003 (2) issuers with positive equity. Based on these criteria. 193 finns rvere fbund. Each of the 193 issuers, research viuiables will be memured frorn anuual dau for 3 (three) years. except for annual share returu of risk v:uiabies that uses mollthly shiu'e price data. Operationalization of the vurables used in this study are presented in Tablc 40 literature rrtion of : capital ; capiul ructure. rf share . Biued rmpany l. iables: rowth. :apital )n the ndiiry data). tively mcial . The urcia I q the linns lor l harc 'ablc CP = gzl + p21CS + p22tS + B23MS $yaSLZ + + p25VAR + e21 Q) 'fablc 2. Operationaliz;ilion of Rcscarch Variablc Valiablc Variablc Conccpl I ndicalor Capilal Structurc (cs) Composition ol'debt with equity. (Welson and Copctand, 1992) '[he latio of book value of long-tcrnr obligation with a malket r,:r.luc of equily plus long-term obligation Company Pcrlbrmance (cP) Muasuring the rcsulLs of an inter.nal Thc ratio proccss canied oul within lhe company betwecn [(NOPAT/ Capiral) / WACCI nrult.iplied Capiral during lhe specilied period. (Mulyadi. 1993; and Steward, 1991) Instituti onal Percentage of sharcs held by institutions The latio between the numbcr of 0wncrship as an external monitoring agent due to (ts) ordinary shai'es owned by institutions thc size of their investments in capilal (companlrs. pcrrsion funds. insur.rnre, nr:ukcts. (Wahidawatr, 200 1 ; banks) to total outstanding Brailsford, Oliver. and Pua, 2002) comnton s{ock. Managerial "l'he pelcentage ou,nership ol shares held Thc ratio bettveen the nun.iber of ownersh ip by the management as internal monitoring ordinary shares orvned by members of (MS) agency that actively AGliciAGtc in the managers and direclors to the total corporale decision malSng. common sharcs outstanding Assct Structure (AS) Asset Growth (AC) Company Srze (SIZ) Rrsk Sharc Relurn (vAR) (Bathala lvloon, Rao. 19941 Wahidawati. 2001) Reflects the value ofcorporate assets that can be used as collateral to obtain loans fiom the bondholder. (-l'rtman and Wessels. 19881 Wahidawati. 2001) 'lhe averagc rate ol annua.l gro*,th of tolal assets. (Titman and Wessels, 1988; Brailsford, Oliver. and Pua, 2002; The size ol thc cornpanl,'s sales duting thc pcliod. which can be seen from the sales. (Laulerbach and Vaninsky. 1999). Valiability corporate eamints ancl profit is deflned a.s the coelficient of v:u-iation. (Lauterbacb and Vaninsky. 1999). Sourch: fiom man1, sourches The ratio of fixcd assets to total assets The ratro betwecn the total value of assets by the end and begrnning of thc ycal divided b1, the total asset value lt beginnine of year. Natur:rl lo.c of annual sales Strrrd:ud tlcvi;,tron of stutk price change (per nronth) 41 = l) First Phase: Model Capital Structure At this stage built iuto one based on equation (l) to see the effect of Institutional share ownership (lS), Managerial share orvnership (MS). Srructure of Assets (SA), and thc Growth of Assets (AG) to the Capital Structure (CS). Resuls of statistica.l calculations are presented in Table 3. Model Constant IS MS SA AG Table 3. Calculation results of the First Phase (Modcl Capital Structure) Coefficients Unstandaldized Coefhcients STD. Enor Standardized Coeffi cients BETA .212 .M9 4.292 -.047 .01 I -.030 -2.241 .232 .062 .060 3.'142 .324 .046 1A) 1.059 -.038 .003 -.059 ,3.912 a. Dependent Variable: CS Source: Results of calculation Based on Table 3, the statistics shown in the model equation (Eq. 3) is: CS = 0.212 - 0.047 IS + 0.232 MS + 0.324 SA - 0.038 AG (3) F sig = 0000 2) Second Stage SIG .000 .0 l9 .000 .000 .000 Based on test results of the OLS equation of the first stage, then calculated the eft'ect of Institutional Ownership (lS), Managerial Ownership (MS), corporate capital structure (CS). Size of Company (SIZ). Risk of Shiues (VAR) on cornpany pertonnance (CP). In this test tfre value of capital structure (CS) ttrat is used is the value of capital structure predictions (Ci). fne value of capital structure predictions is obtained from the calculation of the first phiue, which form the basis tbr tlte calculation of the second stage OLS. Calculation results iri the form of equations presented in Table 4. 4B ;Ct IE ln tfe he nd lvtS 12.338 SA 3.353 AG -.265 EST CS a Aaa a. Dcpendent Variable: CP 5.202 1.966 .090 .821 Source: Results of calculation .011 2.371 .015 1.706 -.004 7.944 -.003 3.023 Based on Table 4, the statistics are shown in the model equatiou (Eq.4) is: cP = -105.733 + 15.336 IS + r2.338 MS + 3.353 sv-0.26s vAR - 2.482 cs F'sig = QS6g .023 .089 .000 .000 (4) b. Discussion of Research Results l) First Model: Corporate Capital Structure a) Effect of Institutioral orvnership (IS) to thc capital Structure (cs) Institutional orvnership is prut of the sh:reholders who couduct external monitoring. This p:rty hirs an effective capability to monitor because it has the systems and budget through the voting mechanics. The greater the proportion of shares held by institution the more eff'ective they monitor the maragement of opportunistic behavior, so the management can make a policy of funding and fund management well antl debt sewicing obligations are met. On equation 3. note that institutional ownership of individual vilriables (lS) has the negative inf'luence of capital structure of the company (CS). So in this economy means greater ownership by the institution, the institution tends to reduce the debt, or give priority to the use of equity iis a source of corporate funding, thus causing more and more leverage ratio to be reduced, ceteris paribus. The ability of institutional shiueholders to push the low leverage ratio indicates the monitoring by the institution has been eff'ective to reduce agency costs. Based on these empirical findings, the research is still consistent q,ith previous research results attd in accordance with the research hypothesis which states that sharc ownership of institution negatively affects the cornpany's capital structure. So this hypothesis can be proveli. This supports the results of research by Bathala, Moon, ancl Rao (1994). Significant rnonitoring activity by institutional investors due to the siz-e of their Compmies that luc uronitored by the liuger irrstitutions. rvill require less dcbt investments in shares, and hiu substantial econornic interests to rnake a profit. 49 has a positive intlucncc on the direction of cornpaly's capital structure lt mcans that greater rnanagerial owuership will lead to increasing leverage ratio. This findings is in contra.st with tlie research hypothesis. The inconsistency of research results with the proposed hypothesis, cai be explained as follows: i. Risk lnanagelnent is covered by a total risk that cannot be diversified iu the rnanagerial labor miuket. Pertbrrnance generated by the matagetnent will impact positively or negatively oo their future career as a melnber of the tnanagement cotnpany. This will also be able to determine whether the managerial labor rnarket accepts thern if they rnove to another company. With a total risk inherent on self-manager, then they will maximize their own welfiue by doing busirtess expansions that ue expected to enhance the status. salary, bonus, comper)sation. and require excessive facilities. Expansiorr of the managentent will use internal funds and external sources (including deb$. To that ettd. the company funding source selection decisions are necessary to colltrol and supervise. ii. Managerial shue orvnership is part of the functionality parallels between lnanagelnent and shareholders. So nranagerial share orvncrship is part of internal rnonitoring by the shaleholders (Jensen and Nleckling. 1976; Brailsford, Oliver, and Pua, 2002). Hor',,ever, the e ffectivetress of intental rnot.titoring by shareholders against rnanagerial opportunistic behavior is deterrnilied by the size of their voting power through its share orvnership proportion. If the proportiott of shares held by rnanagerial is relatively sniall, the interual rnonitoring function is not etfective. as a result of opportunistic behavior by rnanagement that can not be controlled, and vice versa. The study shows that managerial ownership levels are relatively low (2.72Vo,2.39V0 and 2.29Va respectively fbr the years 2001.2002. 2003). Bathala, Moon, and Rao (1994) found similar evidence that ownership shares below 5% is considered less effectivefor monitoring. Based on this. it cart be said that the company's intemal monitoring capacity is relatively small nurnber. so the company's ititernal rnonitoring functions are also weak. In order for the monitorinq function is runs rvell. there should be external nionitoring by creditors (bondholders). Creditots u,ill supervise the use of tnoney loaned to conforrn with the ciedit proposal submitted to the company. Creditors will also conduct oversight of these policics with the company eutered into a conffact that would restr ict the nlanase nrcnt in rni$dng polic), (bolld covenarts). Bond covenants may reduce the opportunistic nature of managetnent. so that agency costs decrease. Thcy raise the debt burden reniains of interest. These expcnses rvill reduce fiee cash florvs ttrat can be used bi, r.natiagetreltt. The bigger the 50 is party to domirtate rnanagemellt of infbrmation (infbrmation superiority) compared he to the other party. If so, the management pref'ers debt financir)g thiul equity financing, and debt will optimize resources, since the debt will lower the cost of capiul (Myers and Majluf, 1984). he rct 2) Modcl'Ilvo: Company Pcrformance rllt This section will study the int'luence of institutional ownership (lS), managerial 0t share ownership (MS), ind capiul structure (CS) on company performance (CP). rtlt ss a) Effect of Institutional Share Orvnership (IS) to Performance (CP) n, The compirny's rnain objective is to rnaximize shnreholder wealth. Separation of the tal two functions has a conflict of interest leading to problems of agency that lg simuluneously generate agency costs because of the opportunistic nature of the agents. Rationally he also wanted his personal goal achieved that is maximizing individual ln utility. At the same tirne, the public cornpany, the ownership sliarc is owned by many parties, consistittg of iustitutional shzreholders, tounders' shares, and individual shares. al )t, and othcr parties. Each party has different interests zurd abilities in directing the company's goals. The spread of shiue orvnership zrnd control functions with a separation )y between owrrership functions causes the control of the cornpany by the owner of the ze company's overall weakened. 0f is The preseuce of institutional shareholders that control problems can be overcome. le Institutions ru shareholders have the resources and budget. It functions as a part owner t0 of the company with the sarne goal. so he will conduct an active and simultaneous ,| control of the actions and policies of the management. So the more eff'ectively it ip controls. resulting in the management of opportunistic behavior can be suppresed and ul the company lnanagement can decide to remain on the company's ffue goal. If the goal is achieved well company, it can improve company performance. In equation 4, it is dl shown that individual institutional ownership variable (IS) has the direction of a positive influertce on company performance (CP). It is still consistent with previous empirical )y tesearch by Kuznetsov aud Muravyev (2001). Bathala et al. (1994) and Berger and Patti l0 (2002). They conclude that institutional shareholders have the good efl'ect of monitoring i0 (monitoring) that can reduce agency costs. so that company performance can be at improved. Ld :y b) Effect of Managerial Sharc Orvnership (MS) to Performance (CP) )S Equation 4 shows that individual managerial share ownership vuiable (MS) has the te direction of a positive influence on cornpany perfonn:ince (CP). Ownership of shares [r1, 51 c) Bffect of Capital Structure (CS) to perftrrnrancc (Cp) Debt financing decisions irvorve the two piuties directly concenred, namery wmhaentahgeermpeonstitoivferisokrs.nBegoathtivpeo.sFsiobrilitthiees mgiav'eageeftm'eectnst,thuastecaonf bdeeebxtprlaaisineesdthaer fpbrlolobwlesm: of trpnaraoxnbarleegmleiemsfeoonftnaagiennndtecrycercseotdsicttosorsastn.sd.FBproroombthlethmisessuseoidsfechooanvftertohlaleinncgiommcapppaaitcant.ylo,co.thscetsodrapenobdrtaaptlesoospebeserftnbwermfoitamfnrcoaenin,r i' If a relatively large share of ownership. then the externar monitoring by shiueholders against managernent is more etfective and thus reduci'g agency the result of monitoring by institutional shueholders and creditors at the same costs. The use of debt would cause the cost of monitoring by credrtors. overall, so decreasing corporate pertbrmance. So we can conclude the greater the debt, tirne increase the cost of agency. This wilr reduce the cost of meanrngful results. the proponion of large institutional ownership, will reduce the company,s perfbrmance. ii. ll institutiona-l orv.crship is reratively smail so that exter'ar monitoring of management eff'ectiveness is low, the management of opportunistic behavior is smuopneritioorriinngfb,ntnhaetiounsecoomfpdaerebdt tios thae motihdedrrep:'gtyro.uTnod imbeptrwoveeenthesheafrfeechtoivredneersssiuordf high. opportunistic behavior by ma'agement is greater if the ma'agement has the risk of unpaid receivables. Thus cost ofagency will be reduced. management Creditors will conduct monitoring over the lif-e of the loan to reduce iii' According to agency theory, the total risk borne by the management carnot be perfbrmance miillagement will ensure the sustainability of the work, if otherwise diversified in the managerial labor market. The success of prooucing a good ois' ditisfficcuunltefnotrptohseitrio'nto, gtheetybravcikll troedwuocrek.thTeoriskekeopf tbhaen,knac,rruapietcmyes'ot tshteiilcrovmorpkainngy they can be dismissed. If ma'agernent dismissed because of poor pedbrmance, it risk of bank cruptcy, tire managernent wiil use the roiu funds below the optimum will survive, which means ensuring its presence on the job now. .ro reduce the level (sub-optimal), or if the company hru high leverage he will reduce the debt, bccause debt can increasc the risk of bank cruptcy due to finarcial fixed expenses 52 Ec;uation 4 indicates that the capital shucture of individual variables (CS) has a direction of negative influence on firm perfomrance (CP). Based on these findings, this tesearch is still consistent with the hypothesis and the results of previous research and that capital structure negatively aftbcts company performance can be proved. Lmher (2003,43 l) provides guidance on the optimurn capital structure adopted by business firtns on the level of leverage ranged between 30% - 5070. Empirical evidence of the average leverage ratio per year of the study was 31.63%, 3l.72go and28.03vo respectively for the years 2001,2002, and 2003. This means that the capital structure of research the object is at the lower levels in the optimum range. This allows the company increase the value of its debt to reach the optimum point fbr the best. The potential to increase the company's debt capacity is supported by the state of the asset sffucture that has been used fbr collateral for loans that are still below 10070. From the company's point of view, if you follow the theory of optimurn capital structure, the compiury still hix the potential to increase the value of debt to enhance shareholder value, because the optimization of debt can still be improved, which can be seen from the ratio of toral debt and the collateral value of assets under 100% and the average leverage ratio at the position below the optfunal rmge (307o - 50Vo) according to Lasher (2003) criteria. According to the trade-otr theory of capital structure, this condition should encourage companies to add debt to enhance shareholder value. This meiuts if the company adds debt, it will increase corporate perfbrmance. In other words capital sffucture is positively related to company performance. Empirical facts frotn the reseiuch and the research hypothesis states the opposite, in which capital sffucture is related negatively to company perforrnance. This fact can be explained by agency theory. The nature of the relationship between capital structure ard c0rporate perfbrmance depends on the nature of the complex relationship between shiueholders, management and creditors. Thnee party relationships will determine the ettectiveness of monitoring and overall agency coss. The nature of this relationship ciin be simplified through the level of effectiveness of monitoring by shareholders against managetnent policies in the use ol finincial resources. Level of effectiveness depends 0n the strength of the voting rights (voting power) of the shareholders. The ernpirical fact explains that the average institutional ownership in the observation period was above 50%. ie. 67 .62Vo.66.99V0 and 6l .35Vo respectively for the years 2001. 2002, and 2003. This means that institutional shareholders have absolute voting power, which meims they have the effective monitoring of rnanagement policy, so agency costs can be reduced. 53 rnonitoring by institutional shareholders. 56. the total cost of monitoring by cxternal Parties (institutional sharcholders artd creditors) would rise. As result, perfortnance a will go down. Options are to encourage thc use of debt by shareholders despite the increase of agency costs, assuming that tlte cost due to loss of intbrrnation due to the infbnnation domination by the management is greater than monitoring by creditors. This analysis will be vatid with the a;sumption that the company's true character of asymmefiic information, i.e. information of the company management is superior compared to the other Party. 7. CONCLUSION Bixed on the formulation of the problem and hypotheses that have been built as well as analysis of the research. results can be summarized as fbllows: l) Share ownership by external parties (institutions) and the managerial share ownership have effecls on non-financial issuers of capital structure listed on the Jakaru Stock Exchange during the study period. Effect of each independent vzffiable on the capital structure, are as follows: a. lnstitutional share orvnership negatively affect the capiral structure of companies. b. Managerial share ownership has positive eft'ect on the compiury's capital sfructure. 2) Share ownership by external parties (institutions), the managerial share ownership. and corporate capital structure have an intluence on the performance of non- financial issuers listed on the Jakarta Stock Exchange during the study period. Eff'ect of each independent veniable on firnt peffbflnance follows: a. 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