PAST PERFOMANCE, FAMILY BUSINESS AND CEO SUCCESSION : THE CASE OF INDONESIA.

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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

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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: 11th April 2016

Advisor

Dr. Wisnu Untoro, MS

NIP. 195402201980031002

The Head of Magister Management Program

Sebelas Maret University

Prof. Dr. Asri Laksmi Riani, MS

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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

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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

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MOTTO

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DEDICATION

to my beloved sons

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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,

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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 [email protected].

Hopefully, this thesis can gives benefit for future educational research.

The writer

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TABLE OF CONTENT

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

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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

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

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LIST OF TABLES

Page

Table 3.1 Research Samples ... 35

Table 4.1 Descriptive Statistics ... 43

Table 4.2 Correlation Test ... 45

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LIST OF FIGURES

Page

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KINERJA MASA LALU PERUSAHAAN, PERUSAHAAN KELUARGA,

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

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PAST PERFORMANCE, FAMILY BUSINESS AND CEO

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.