The interplay of family ownership and political connections on value relevance: evidence from Indonesia

Abstract

Purpose This study examines the relationship between family ownership and the value relevance of accounting information, with a specific focus on the moderating role of political connections. Design/methodology/approach Using a panel dataset of 3,211 firm-year observations from publicly listed Indonesian non-financial firms over 2015–2023, this study employs fixed-effects regression models to test the hypotheses. Findings The results reveal that earnings (EPS) are generally more value relevant in family firms, whereas book value (BVPS) holds greater relevance in non-family firms. Political connections moderate these relationships asymmetrically: in pooled and family firm samples, political ties reduce the incremental value relevance of BVPS, while in non-family firms, they enhance the relevance of EPS. Subsample and robustness tests further reveal that this moderating effect is stronger in firms with lower family ownership. Collectively, these findings are consistent with agency theory, suggesting that political connections in family firms can exacerbate entrenchment and reduce transparency, while aligning with resource dependence theory in non-family contexts, where political ties serve as valuable strategic resources that enhance firm value. Practical implications The findings offer important insights for investors, regulators and policymakers concerned with improving corporate transparency and governance effectiveness in politically connected environments. Originality/value Unlike prior studies that examine family ownership or political connections in isolation, this study provides empirical evidence that value relevance of accounting information is jointly shaped by the intensity of political ties and the ownership structure, within Indonesia's unique institutional context.