i PAST PERFORMANCE, FAMILY BUSINESS AND CEO SUCCESSION: THE CASE OF INDONESIA THESIS As a partial fulfillment to achieve a Master Degree Study Program in Magister Management Main interest: Strategic Management Submitted by Wulan Permatasari NIM: S411408040 PROGRAM MAGISTER MANAJEMEN FAKULTAS EKONOMI DAN BISNIS UNIVERSITAS SEBELAS MARET SURAKARTA 2016
ii APPROVAL PAST PERFORMANCE, FAMILY BUSINESS AND CEO SUCCESSION: THE CASE OF INDONESIA Prepared and Compiled by: Wulan Permatasari NIM: S 411408040 Approved by Advisor On: 11 th April 2016 Advisor Dr. Wisnu Untoro, MS NIP. 195402201980031002 The Head of Magister Management Program Sebelas Maret University Prof. Dr. Asri Laksmi Riani, MS NIP. 195901301986012001
iii LEGITIMATION FROM THE BOARD OF EXAMINERS PAST PERFORMANCE, FAMILY BUSINESS AND CEO SUCCESSION: THE CASE OF INDONESIA Compiled by WULAN PERMATASARI S. 411408040 This theses has been defended and examined by the Board of Examiners On 22th April 2016 Board of Examiners Name Signature Chairman : Prof. Dr. Asri Laksmi Riani, SE, M.Si NIP. 195901301968012001 Examiner : Irwan Trinugroho, SE, M.Si, Ph.D 198411062009121004 Advisor : Dr. Wisnu Untoro, MS NIP. 195402201980031002 Director of PPS UNS Head of Magister Management Program Prof. Dr. M. Furqon Hidayatullah, M.Pd Prof. Dr. Asri Laksmi Riani, MS NIP. 196007271987021001 NIP. 195901301968012001
iv PRONOUNCEMENT Name : Wulan Permatasari NIM : S 4114080140 This is to certify that I wrote this thesis entitled PAST PERFORMANCE, FAMILY BUSINESS AND CEO SUCCESSION: THE CASE OF INDONESIA. It is not a plagiarism or made by others. Anything related to other s work is written in quotation, the source of which is listed in bibliography. If then this pronouncement proves wrong. I am ready to accept any academic punishment, including withdrawal or cancellation of my academic degree. Surakarta, April 2016 Declared by, Wulan Permatasari S. 411408040
v MOTTO Nothing last forever (Unknown)
vi DEDICATION to my beloved sons Garda Adiwitya Sugiarto and Gheysar Rizky Sugiarto
vii ACKNOWLEDGMENT All praise and honor be to my God, Allah SWT who always gives bless, mercy, love, grace and joy to the writer. Then the writer would like to express her special gratitude to: 1. Prof Dr. Muhammad Furqon Hidayatullah, M.Pd, the Director of Graduate School of Sebelas Maret University for giving permission to conduct this research 2. Dr. Hunik Sri Runing, the Dean of Economics and Business Faculty of Sebelas Maret University for giving permission to conduct this study. 3. Prof. Dr. Asri Laksmi Riani, SE.MS, the head of Magister Management Program of Sebelas Maret University who has given her recommendation and opportunity to write this thesis 4. Dr. Wisnu Untoro MS, as Advisor for this research, for his valuable opportunity and guidance which are very helpful in finishing this thesis 5. Irwan Trinugroho, SE, M.Si. Ph. D, as Supervisor, for his invaluable insight, guidance and assistance during the whole process of this thesis writing. 6. Doddy Setiawan, SE, M.Si. IMRI Ph. D. Ak, as co reader, for his worthy, correction and suggestion to improve the quality of this thesis.
viii 7. My colleagues at Magister Management Program batch 43, very thankful for the solidarity and friendship during our course time. 8. The writer s parent Drs Agus Subroto and Prof. Dr. Hartiwiningsih, SH M.Hum, very grateful for the love, compassion and never ending support that always be given to the writer. 9. Sisters and brothers in law, dr. Shanti Kirana, Sp. PD. M. Kes and dr. Priyo Budi Santoso, Sp. A. M.Kes, Nareswari Kencana SH and Iptu (Pol) M Debby Tri Andrestian, SIK, Dinda Carissa, S.Ked, very thankful for the joy and love that we always share together. 10. Mayor Inf Roni Sugiarto, SH, the writer s life companion, the writer would not be able to accomplish this research without his material and immaterial support, thank you for the opportunity, the scholarship and the never ending understanding. The writer accepts every comment and suggestion to make this thesis even better, where it can be sent to the writer s email address wulansugiarto@gmail.com. Hopefully, this thesis can gives benefit for future educational research. The writer Wulan Permatasari
ix TABLE OF CONTENT Page TITLE... i APPROVAL... ii LEGITIMATION FROM THE BOARD OF EXAMINERS... iii PRONOUNCEMENT... iv MOTTO... v DEDICATION... vi ACKNOWLEDGEMENT... vii TABLE OF CONTENT... ix LIST OF TABLES... xii LIST OF FIGURES... xiii ABSTRAK (INDONESIAN)... xiv ABSTRACT (ENGLISH)... xv CHAPTER I 1.1 Introduction... 1 1.2 Introduction to Problem Definition... 7 1.3 Problem Definition and Research Question... 10 1.4 Research Objectives... 11 1.5 Thesis Structure... 12 CHAPTER II LITERATURE REVIEW... 13 2.1 Family Owned Business... 13 2.1.1 Definition of Family Owned Business... 13 2.1.2 The Advantages of Family Owned Business... 14 2.1.3 The Disadvantages of Family Owned Business... 16 2.2 Past Performance to CEO Succession... 16
x 2.3 Family Member Composition in Board of Directors and Board of Commissioners... 20 2.4 Successor Firm Experience to CEO Succession... 25 2.5 Conceptual Model... 26 2.6 Control Variables.. 28 2.5.1 Firm Size. 28 2.5.2 Firm Age. 28 2.5.3 Leverage 29 CHAPTER III METHODOLOGY... 30 3.1 Data and Sample... 31 3.2 Variables Measurement... 32 3.3 Data Analysis Technique... 37 CHAPTER IV DATA ANALYSIS... 39 4.1 Descriptive Statistics... 39 4.2 Correlation Test... 42 4.4 Logistic Regression... 44 CHAPTER V CONCLUSION... 49 5.1 Conclusion... 49 5.2 Contribution to the Literature and Managerial Practice. 51 5.3 Limitation and Future Research... 55 REFERENCES... 55 APPENDIX A... 59 APPENDIX B. 63
xi LIST OF TABLES Page Table 3.1 Research Samples... 35 Table 4.1 Descriptive Statistics... 43 Table 4.2 Correlation Test... 45 Table 4.10 Variables in the Equation... 47
xii LIST OF FIGURES Page Figure 2.1 Hypotheses Framework... 28
xiii KINERJA MASA LALU PERUSAHAAN, PERUSAHAAN KELUARGA, SUKSESI CEO: PENELITIAN DI INDONESIA oleh: Wulan Permatasari NIM S. 411408040 ABSTRAK Penelitian ini membahas kinerja masa lalu perusahaan terhadap penunjukan CEO di perusahaan yang tercatat di bursa efek indonesia. Studi ini juga membahas pengaruh dari komposisi anggota keluarga yang duduk di Dewan Direksi dan Dewan Komisaris serta pengalaman sukseor bekerja di perusahaan yang sama pada pemilihan CEO baru di perusahaan keluarga. Analisis yang dilakukan meliputi 148 perusahaan keluarga Indonesia yang tercatat di bursa efek Indonesia dari data yang dikumpulkan melalui ORBIS selama tahun 2006-2015. Regresi Logistik digunakan untuk mejawab pertanyaan dalam penelitian. Hasil penelitian menunjukkan bahwa penunjukan CEO dipengaruhi oleh kinerja masa lalu perusahaan dan jumlah anggota keluarga yang duduk di Dewan Direksi. Kinerja buruk perusahaan di masa lalu akan mengakibatkan perusahaan keluarga di Indonesia memilih CEO dari luar anggota keluarga dan semakin besar jumlah anggota keluarga yang duduk di Dewan Direksi akan membuat perusahaan keluarga memilih CEO dari dalam anggota keluarganya sendiri. Akan tetapi, jumlah anggota keluarga yang duduk di Dewan Komisaris dan pengalaman suksesor bekerja di perusahaan yang sama diketahui tidak memiliki pengaruh pada pemilihan CEO. Temuan ini menyiratkan bahwa perekrutan CEO dipengaruhi oleh kinerja masa lalu perusahaan dan jumlah anggota keluarga yang duduk di Dewan Direksi Kata kunci: Perusahaan Keluarga, Suksesi CEO, Dewan Direksi, Dewan Komisaris, Pengalaman Suksesor
xiv PAST PERFORMANCE, FAMILY BUSINESS AND CEO SUCCESSION: THE CASE OF INDONESIA by: Wulan Permatasari NIM S. 411408040 ABSTRACT The study examines the firm past performance to the appointment of the new CEO in Indonesian listed family owned business. Further, it also investigates the influence of family member composition in Board of Directors and Board of Commissioners also successor firm experience to the CEO succession. The analysis encompasses 148 succession events of Indonesian listed family owned business from ORBIS database for the years 2006-2015. The logistic regression methodology is used to examine these research questions. The results show that the appointment of the new CEO generally influenced by firm past performance and family member composition in Board of Directors. Negative past firm performance will lead Indonesian listed family owned business to choose CEO from outside the family member and the more number of family members sitting on the Board of Directors will lead family owned business to select the new CEO from inside family member. However, family member composition in Board of Commissioners and successor firm experience are found has no influence on CEO succession decision selection. This finding implies that firm past performance and family member composition in Board of Directors affect the CEO succession selection decision whether to choose from inside family member or outside family member. Keywords: Family Owned Business, CEO Succession, Board of Directors, Board of Commissioners, Successor Firm Experience