SUCCESS LEVEL MEASUREMENT OF CEO USING AGENCY COST APPROACH

• Main Author: Samuel MP Sirumapea, Benidiktus
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/26069
• Institution: Institut Teknologi Bandung

The main objective of a company is to maximize shareholder value. The company managed by the manager (agent) is expected to generate high profits and give advantage to the owner/shareholder (principal) as a consequence of capital that has been given to the company. However, there are different interests between shareholders and the management towards the company's profit that will lead to the agency conflict. Shareholders are interested in getting profit of the company in the form of dividends. Otherwise, the management prefers that the profit obtained should be used as capital for expansion. The existence of agency conflicts that occur will cost the company in order to control the conflict. These costs are called as agency costs. In other words, when managers as the agent cannot achieve their objective which is to maximize shareholder value, then the agency cost was incurred. Besides that, revenue and asset of the company should be able to be managed in order to create value for the company which will also have an impact on shareholder value. This study aims to examine the impact of a CEO, revenue, and asset on the agency cost of PT Telecommunication XYZ as well as to determine who the most successful CEO is during the last three tenures using agency cost approach. The methodology used in this research is multiple linear regressions by using dummy variable. There are four regression models which are used as the proxy to measure the agency cost. They are ratios that can represent the shareholder value, i.e. PER, EPS, DPS, and WACC. The most successful CEO is the one whose value of PER, EPS, and DPS are the highest and value of WACC is the lowest considering other factors that might impact the number which are the revenue, and the assets. The result showed that Mr. C who served from 2012 – 2014 is the most successful CEO of PT Telecommunication XYZ during the last three tenures. The result also showed that increase in revenue and asset in PT Telecommunication XYZ is not always in line with the increase in shareholder value.