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Foreign Ownership and Firm Financing Constraint in Indonesia

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Author Info
Agustinus, Prasetyantoko

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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.

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File URL: http://mpra.ub.uni-muenchen.de/6500/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6500.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:6500

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Related research
Keywords: ownership structure financing constraint firm investment crisis

Find related papers by 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; Capital and Ownership Structure

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    Other versions:
  2. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  3. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Steven M. Fazzari & Bruce C. Petersen, 1993. "Working Capital and Fixed Investment: New Evidence on Financing Constraints," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 328-342, Autumn. [Downloadable!] (restricted)
  5. Laurence Booth, 2001. "Capital Structures in Developing Countries," Journal of Finance, American Finance Association, vol. 56(1), pages 87-130, 02. [Downloadable!] (restricted)
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  6. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June. [Downloadable!] (restricted)
  7. Fukunari Kimura & Kozo Kiyota, 2007. "Foreign-owned versus Domestically-owned Firms: Economic Performance in Japan," Review of Development Economics, Blackwell Publishing, vol. 11(1), pages 31-48, 02. [Downloadable!] (restricted)
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  9. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Sinha, Rajeeva, 1993. "Foreign Participation and Technical Efficiency in Indian Industry," Applied Economics, Taylor and Francis Journals, vol. 25(5), pages 583-88, May.
  11. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112. [Downloadable!] (restricted)
  12. George Allayannis & Gregory W. Brown & Leora F. Klapper, 2003. "Capital Structure and Financial Risk: Evidence from Foreign Debt Use in East Asia," Journal of Finance, American Finance Association, vol. 58(6), pages 2667-2710, December. [Downloadable!] (restricted)
  13. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February. [Downloadable!] (restricted)
    Other versions:
  14. Chirinko, Robert S. & von Kalckreuth, Ulf, 2002. "Further Evidence On The Relationship Between Firm Investment And Financial Status," Discussion Paper Series 1: Economic Studies 2002,28, Deutsche Bundesbank, Research Centre. [Downloadable!]
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  15. Claessens, Stijn & Djankov, Simeon & Xu, Lixin Colin, 2000. "Corporate Performance in the East Asian Financial Crisis," World Bank Research Observer, Oxford University Press, vol. 15(1), pages 23-46, February. [Downloadable!]
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