AGENCY CONFLICT, ESG DISCLOSURE, AND EBITDA VOLATILITY IN INDONESIAN FAMILY SMEs: THE MODERATING ROLE OF DIRECTOR COMPETENCY AND GENERATIONAL SUCCESSION

Abstract

This study examines the effect of agency conflict and ESG disclosure on earnings instability in family-controlled SMEs. Agency conflict is operationalized through residual cash flow (RCF) and ownership concentration. The sample consists of 42 family SMEs listed on the IDX Development and Acceleration Boards, yielding 252 firm-year observations from 2019 to 2024. Grounded in Agency Theory and Upper Echelon Theory, this research applies Moderated Regression Analysis with random effects and a one-period lagged specification to address reverse causality. Director competency and generational succession serve as moderating variables. The Director Competency Score (DCS) is constructed as a composite index of education, board tenure, and professional certifications, with strong inter-rater reliability (κ > 0.80). The empirical results demonstrate that ESG disclosure significantly reduces EBITDA volatility (β=−0.431, p=0.021) when board competency is accounted for. Furthermore, director competency directly lowers earnings volatility (β=−0.164, p=0.055) and negatively moderates the impact of excess cash flow (β=−0.016, p=0.016). Otherwise, the interaction between ESG and DCS positively affects earnings fluctuations (β=+0.218, p=0.056), indicating a sustainability investment paradox where competent boards undertake resource-intensive sustainability commitments. Generational succession does not exhibit a significant moderating effect, primarily due to the sample's uniform first-generation composition. So that, this study proposes the DCS as a practical benchmarking tool for regulators such as OJK and Kementerian Koperasi, offering implications for SDG 8 and SDG 17.