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Financing Constraint and Firm Investment Following a Financial Crisis in Indonesia

  • Agustinus Prasetyantoko

    ()

    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

This paper deals with the sensitivity relation between firm-level investment and its internal liquidity by splitting samples into two different groups of firms, which are tradable (T) and non-tradable (N) sector. The study includes 226 listed companies in Jakarta Stock Exchange (JSX) by at least five consecutive years in the period of 1994 – 2004. This paper finds that during boom period, N-sector is less financially constrained, but in burst period, N-sector has greater financial constraints. It leads us to the explanation that during boom period N-sector grows faster than T-sector, but when crisis hits T-sector recovers more easily. By employing panel data analysis, our findings support an argument that asymmetric financing opportunities among N and T-sector are common in developing countries. Accordingly, this paper provides important explanations on firm-level investment behavior around financial crisis, which could be pivotal considerations in monetary and other relevant policies

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Paper provided by HAL in its series Post-Print with number halshs-00133964.

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Date of creation: Jun 2006
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Publication status: Published - Presented, 23rd International Symposium on Banking and Monetary Economics, 2006, Lille, France
Handle: RePEc:hal:journl:halshs-00133964
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00133964/en/
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  1. Toni M. Whited, 1990. "Debt, liquidity constraints, and corporate investment: evidence from panel data," Finance and Economics Discussion Series 114, Board of Governors of the Federal Reserve System (U.S.).
  2. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  3. Gertler, M. & Gilchrist, S., 1992. "Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms," Working Papers 92-08, C.V. Starr Center for Applied Economics, New York University.
  4. A. Ganesh-Kumar & Kunal Sen & Rajendra R. Vaidya, 2002. "Does the source of financing matter? Financial markets, financial intermediaries and investment in India," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(2), pages 211-228.
  5. 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.
  6. Kristin J Forbes, 2002. "How Do Large Depreciations Affect Firm Performance?," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 214-238.
  7. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 169-215, February.
  8. Andrea Caggese, 2003. "Testing Financing Constraints on Firm Investment Using Variable Capital," Working Papers 65, Barcelona Graduate School of Economics.
  9. Fukunari Kimura & Kozo Kiyota, 2007. "Foreign-owned versus Domestically-owned Firms: Economic Performance in Japan," Review of Development Economics, Wiley Blackwell, vol. 11(1), pages 31-48, 02.
  10. W.A. Bruinshoofd, 2003. "Corporate Investment and Financing Constraints: Connections with Cash Management," WO Research Memoranda (discontinued) 734, Netherlands Central Bank, Research Department.
  11. 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.
  12. Fazzari, Steven & Ferri, Piero & Greenberg, Edward, 2008. "Cash flow, investment, and Keynes-Minsky cycles," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 555-572, March.
  13. 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.
  14. 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.
  15. Iwan J. Azis, 2002. "What Would Have Happened in Indonesia if Different Economic Policies Had Been Implemented When the Crisis Started?," Asian Economic Papers, MIT Press, vol. 1(2), pages 75-103.
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