Agustinus, Prasetyantoko (2007): Foreign Ownership and Firm Financing Constraint in Indonesia.
Download (144kB) | Preview
This paper reveals why foreign ownership participation matters in the sensitivity relationship between investment and the internal liquidity of listed companies in Indonesia. This paper finds that foreign-owned enterprises are less financially constrained than domestic-owned ones, especially in terms of short-term investment following a financial crisis. Empirical evidence is provided by dividing 157 firms listed on the Jakarta Stock Exchange for at least five consecutive years between 1994 and 2004 into foreign-owned enterprises, and comparing their financing constraints and performance before and after the financial crisis during that period. The results also demonstrated that post-crisis foreign-owned enterprises performed better with higher sales, greater market opportunity and less leverage, leading to lower financing constraint. Subsequently, foreign-owned enterprises have a better capacity to invest more than local-owned ones.
|Item Type:||MPRA Paper|
|Original Title:||Foreign Ownership and Firm Financing Constraint in Indonesia|
|Keywords:||ownership structure, financing constraint, firm investment, crisis|
|Subjects:||L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification, and Scope
F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill
|Depositing User:||Agustinus Prasetyantoko|
|Date Deposited:||31. Dec 2007 06:57|
|Last Modified:||13. Feb 2013 00:06|
Aguiar, M. 2005. Investment, devaluation, and foreign currency exposure: the case of Mexico, Journal of Development Economics, 78/1, 95-113. Allayannis, G., G. W. Brown, & L.F. Klapper. (2003). Capital structure and financial risk: evidence from foreign debt use in East Asia. The Journal of Finance, 58/6, 2667 – 2710. Aitken, B., & A. Harrison (1999). Do domestic firms benefit from FDI? evidence from Venezuela. American Economic Review, 89/3, 605 - 618. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17/1, 99-120. Bernanke, B.S., & M. Gertler. (1989). Business fluctuations and the choice between internal and external finance, American Economic Review, 79, 14-31. Blalock, G., & P.J. Gertler. (2005). Foreign direct investment and externalities: the case for public intervention, in Theodore H. Moran, Edward M. Graham and Magnus Blomström (editors). Does Foreign Direct Investment Promote Development? Institute for International Economics, Washington DC, US. Blalock, G., P.J. Gertler, & D.I. Levine. (2005). Investment following a financial crisis: does foreign ownership matter? Working Paper, University of California, Santa Cruz. Booth, L., V. Aivazian, A. Demirguc-Kunt, & V. Maksimovic. (2001). Capital structures in developing countries. The Journal of Finance, 56/1, 87-130. Bruinshoofd, A. (2003). Corporate investment and financing constraints: connections with cash management. DNB Staff Report, no.110, De Nederlandsche Bank, The Netherlands. Chirinko, R. S., & U. von Kalckreuth. (2002). Further evidence on the relationship between firm investment and financial status. Discussion paper, 28/02, Economic Research Centre of the Deutsche Bundesbank, Frankfurt, Germany. Claessens, S., S. Djankov, & L. H.P. Lang. (2000). The separation of ownership and control in East Asian corporations. Journal of Financial Economics, 58/2, 82-112. Claessens, S., S. Djankov, & L. C. Xu. (2000). Corporate performance in the East Asian financial crisis. The World Bank Research Observer, 15/1, 23-46. Doms, M.E. & J.B. Jensen. (1998). Comparing wages, skills, and productivity between domestically and foreign-owned manufacturing establishments in the United States, in R. Baldwin, R. Lipsey and J.D. Richardson (eds.), Geography and Ownership as Bases for Economic Accounting, Chicago: Chicago University Press, 235-255. Desai, M.A., C.F.Foley, & K.J. Forbes. (2004). Financial constraints and growth: multinational and local firm responses to currency crisis. Working Paper, Harvard Business School, US. Forbes, K.J. (2002). How do large depreciations affect firm performance? IMF Staff Paper, 49/Special Issue. Fazzari, S.M., & B.C. Petersen. (1993). Working capital and fixed investment: New Evidence on Financing Constraints. The RAND Journal of Economics, 24/3, 328-342. Fazzari, S.M., G.R. Hubbard, & B. C. Petersen. (1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity, 1, 141-195. Fazzari, S.M, P. Ferri, & E. Greenberg. (2003). Cash flow, investment, and Keynes-Minsky cycles. Working Paper, Washington University in St. Louis (USA). Haddad, M., & A. Harrison. (1993). Are there positive spill-overs from foreign direct investment? evidence from panel data for Morocco. Journal of Development Economics, 42, 51-74. Hoshi, T., A. Kashyap, & D. Scharfstein. (1991). Corporate structure, liquidity, and investment: evidence from Japanese industrial groups. The Quarterly Journal of Economics, 106/1, 33-60. Kimura, F., & K. Kiyota. (2004). Foreign-owned versus domestically-owned firms: economic performance in Japan. Discussion Paper No. 506, Research Seminar in International Economics, School of Public Policy, The University of Michigan, US. Lee, K., & C.Y. Kwok. (1988). Multinational corporations vs. domestic corporations: international environmental factors and determinants of capital structure. Journal of International Business Studies, 19, 195–217. Modigliani, F., & M. Miller. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48, 261-297. Myers, S., & N.S. Majluf. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13, 187-221. Pfaffermayr, M., & B. Christian. (2000). Why foreign-owned firms are different: a conceptual framework and empirical evidence for Austria, in: Jungnickel (ed.). Foreign-Owned Firms - Are They Different? Palgrave Macmillan, Houndmills, 13-57. Pomerleano, M. (1998). The East Asia crisis and corporate finances: the untold story. Working Paper, World Bank. Rumelt, R.P., D. Schendel, & D.J. Teece. (1991). Strategic management and economics. Strategic Management Journal, 12, 5-29. Sinha R. (1993). Foreign participation and technical efficiency in Indian industry. Applied Economics, 25, 583-588. Wernerfelt B. (1984). A resource-based view of the firm. Strategic Management Journal, 5, 171-180. Whited, T. (1992). Debt, liquidity constraints, and corporate investment: evidence from panel data. Journal of Finance, 47, 1425-1459.