Formulation of the Problem

14 investors believe that managers will give benefit to them, by believing in that the manager will not misuse the invested fund to the illegal projects. Besides that, corporate governance also relates to how the investors control the managers Siallagan and Machfoedz, 2006. Special authority in every region in Indonesia in implementing corporate governance is based on Law no. 5 of 1974 on the Principles of Governance in the Region, as well as explaining the relationship between central and local government. After the implementation of policies to implement regional autonomy in Indonesia through Law no. 22 of 1999 as amended by Law no. 32 of 2004 on Regional Government has change a paradigm and a very basic structure, especially the local government relations Executive with the Regional Representatives CouncilDPRD Legislative. In this relationship, the Legislative delegates authority to run the government to the executive. Agency problems that arise among executives tend to maximize utility self- interest in the creating or composing the local budget, because they have the advantage of information information asymmetry. As a result, executives tend to do budgetary slack. This happens due to the executive try to secure its position in the government in the point of view of legislative and the public people, even for the sake of the next election, but budgetary slack of APBD is more for personal interest among executives self-interest rather than for the benefit of society. Latifah, 2010. 15

2. Family Business

According to Bennedsen, M., Gonzalez, F. P. and Wolfenzon, D. 2010, A “family firm” is herein defined as an organization that shares four common traits: 1. Family. Two or more members of the same family blood or marriage are direct participants in the firm’s formal governance institutions such as management and the board of directors. 2. Ownership. The family owns a “significant” fraction of the shares in the firm. Using classic portfolio theory as a benchmark, a significant threshold is defined as an investment exceeding the firms’ share in the overall market portfolio. In other words, this threshold is not necessarily related to a fraction of shares held. 3. Control rights. Members of the family exert “significant” control rights in the firm, where the control threshold is at least as large as the fraction of ownership rights held. 4. Preference for within firm inter-generational transfers. Families attach value to retaining their ownership and control rights within the family firm across generations. a. Type of Ownership in Companies According to the classical theory of managerial Firm Baumol,1959; Galbraith 1967; Sep-ris,1964; Williamson,1964 as quoted by Gόrriz and Fumás 1996, in general the type of ownership and control of a company is divided into two, 1 the company owned by many shareholders and controlled by management, 2 is owned and controlled by the company. Both types have different effects on the performance of each company. Kang and Sorensen 1999 stated that the type of ownership and control of the company