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Foreign Ownership and Firm Financing Constraint in Indonesia

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  • Agustinus, Prasetyantoko

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.

Suggested Citation

  • Agustinus, Prasetyantoko, 2007. "Foreign Ownership and Firm Financing Constraint in Indonesia," MPRA Paper 6500, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:6500
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    File URL: https://mpra.ub.uni-muenchen.de/6500/1/MPRA_paper_6500.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    ownership structure; financing constraint; firm investment; crisis;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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