Email this article 
Do Financial Constraints Moderate the Impact of Financing Decisions From Internal-financing Sources on Investment?
Abstract
To prevent investment growth from 2013 to 2015 from decreasing, the Industrial Ministry provided fiscal incentives to stimulate investment-growth. Nevertheless, the investment growth of manufacturing firms still declined. This condition indicated that fiscal stimulus might be ineffective to prevent investment-growth from declining. The decline of investment might be influenced by the increase of firm financial constraints to access a source of long term debts. This study aimed to examine the influence of financial constraints in moderating the effect of financing decisions from internal financing sources on investment. The population of the study was all listed-manufacturing firms in Indonesia from 2013 to 2015. Samples were chosen based on the availability of firms’ financial report covering the period of the study. The study concluded that financial constraints significantly weaken the effect of internal funding decision on investment. Unconstrained firms had a higher beta than constrained firms. Although unconstrained firms had an opportunity to choose their source of funding, they preferred to finance their investment from cash flows because the cost of debts might be much higher than the cost of equity. Hence, to help firms to finance their feasible investment opportunity, the government should not only provide tax incentives but also provide a low-interest loan.
DOI: https://doi.org/10.26905/jkdp.v21i3.1357
Keywords
Full Text:
pdfReferences
Arslan-Ayaydin, Ö., Florackis, C., & Ozkan, A. 2014. Financial Flexibility, Corporate Investment and Performance: Evidence from Financial Crises. Review of Quantitative Finance and Accounting, 42(2): 211–250.
Aivazian, V.A., Ge, Y., & Qiu, J. 2005. The Impact of Leverage on Firm Investment: Canadian Evidence. Journal of Corporate Finance, 11(1-2): 277-291.
Baker, M., Stein, J.C., & Wurgler, J. 2003. When Does the Market Matter? Stock prices and the Investment of Equity-Dependent Firms. Quarterly Journal of Economics, 118: 969-1004.
Chang, X., Faff, R., Kwok, W.C., & Wong, G. 2009. Financial Constraints, Mispricing, and Corporate Investment. http://ssrn.com/abstract=1101361. Retrieved May 4, 2016.
Cleary, S. 1999. The Relationship between Firm Investment and Financial Status. The Journal of Finance, 54(2): 673-692.
Deng, K., Ding, Z., Zhu, Y., & Zhou, Q. 2017. Investment–Cash Flow Sensitivity Measures Investment Thirst, but Not Financial Constraint. Accounting & Finance Journal, 57(1): 165-197.
Dogru, T. & Sirakaya-Turk, E. 2017. The Value of Cash Holdings in Hotel Firms. International Journal of Hospitality Management, 65: 20-28.
Ehrhardt, M.C. & Brigham, E.F. 2014. Corporate Finance: A Focused Approach. 6th Edition. Ohio: Cengage Learning.
Eisenbeis, R.A. 1977. Pitfalls in the Application of Discriminant Analysis in Business, Finance, and Economics. The Journal of Finance, 32(3): 875-900.
Fazzari, S.M., Hubbard, R.G., & Petersen, B.C. 1988. Financing Constraints and Corporate Investment. Brookings Paper on Economic Activity, 1988(1): 141-206.
Ghozali, I. 2011. Aplikasi Analisis Multivariate dengan Program SPSS 19. Semarang: Badan Penerbit Universitas Diponegoro.
Hermeindito. 2004. Information Asymmetry and Management Control: Sensitivity Analysis of Investment and Leverage Funding Sources Selection. Dissertation. Gadjah Mada University Yogyakarta.
Hermeindito. 2004. Informasi Asimetri dan Kontrol Manajemen: Analisis Kepekaan Investasi dan Leverage terhadap Pemilihan Sumber-Sumber Pendanaan. Dissertation. Gadjah Mada University Yogyakarta.
Hidayat, R. 2010. Keputusan Investasi dan Financial Constraint: Study Empiris Pada Bursa Efek Indonesia. Buletin Ekonomi Moneter dan Perbankang, 12(4): 458-479.
International-Monetary-Fund. (2015a). Making Public Investment More Efficient. Washington: International Monetary Fund.
International-Monetary-Fund. (2015b). World Bank, OECD, UN, “Options for Low-Income Countries’ Effective and Efficient Use of Tax Incentives for Investment”. Washington: International Monetary Fund.
Jacobs, P. 2014. BI Rate tetap 7,50%: Bauran Kebijakan Bank Indonesia Diperkuat. Retrieved from Siaran Pers. http://www.bi.go.id/id/ruang-media/siaran-pers/Pages/SP_160214.aspx
Kaplan, S.N. & Zingales, L. 1997. Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints? Quarterly Journal of Economics, 112: 169-215.
Kaplan, S.N. & Zingales, L. 2000. Investment-Cash Flow Sensitivities are not Valid Measures of Financing Constraints. The Quarterly Journal of Economics, 115(2): 707-712.
Khan, A.S. & Adom, A.Y. 2015. A Test of the Pecking Order Theory of Capital Structure in Corporate Finance. Accounting & Taxation, 7(2): 43-49.
Lemmon, M.L. & Zender, J.F. 2016. Asymmetric Information, Debt Capacity, and Capital Structure. Journal of Financial and Quantitive Analysis, 45(5): 1161-1187.
Media-Industri. 2013. Perkembangan Industri Manufaktur 2013. Media Industri, 05, 62.
Media-Industri. 2016. Industri Makanan & Minuman Jadi Andalan. Media Industri, 2, 64.
Moyen, N. 2004. Investment-Cash Flow Sensitivities: Constrained Versus Unconstrained Firms. The Journal of Finance, 59(5): 2061-2092.
Myers, S.C. & Majluf, N.S. 1984. Corporate Financing and Investment Decisions When Firms Have Information that Investors Do Not Have. Journal of Financial Economics, 13(2): 187-221.
Vogt, S.C. 1994. The Cash Flow/ Investment Relationship: Evidence from U.S. Manufacturing Firm. Financial Management, 23(2): 3-20.
DOI: https://doi.org/10.26905/jkdp.v21i3.1357
Refbacks
- There are currently no refbacks.
Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)
Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang
Published by University of Merdeka Malang
Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: +62 813-3180-1534
Email: jkp@unmer.ac.id
This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0