The Impact of Ownership Structure and Diversification of Business on Firm Performance in Controlling Conflicting Agency for Listed Companies in BEl

This study employs structural equation modeling to investigate the impact of ownership structure and diversification of business on firm performance in an agency perspective. Listed companies on Indonesia Stock Exchange during 1998 102005 were used. Based on pooled data, 198 firm-years are selected. Insider ownership, foreign ownership and shareholders dispersion formed the dimensions of ownership structure latent. Diversification of business was measured by Herfindahl index by sales, Herfindahl index by total assets, and number of segment; whereas return on equity, return on total assets and market 10 book value ratio were indicators of firm performance. All dimensions that formed the three latents have significant loading factors at 1%. The study found that structural model hypothesis was suitable as all the goodness of fit indexes fulfilled their requirement. Ownership structure was found not to have influence on firm performance; however, diversification had a significant positive relationship on firm performance at 5% level.