Foreign Ownership and Firm Financing Constraint in Indonesia

Agustinus, Prasetyantoko (2007): Foreign Ownership and Firm Financing Constraint in Indonesia.

Abstract

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
• Language: English
• 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

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