Foreign Ownership and Firm Financing Constraint in Indonesia

Agustinus Prasetyantoko ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: ownership structure; financing constraint; firm investment; crisis (search for similar items in EconPapers)
JEL-codes: F23 G32 L25 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-cfn and nep-sea
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