Firm Value in Indonesia: Will Foreigners be the Determinant?

Abstract

Despite considerable scholarly attention, the literature on foreign investors is characterized by inconsistency and mixed findings. Using a sample of 427 non-financial firms during the period 2012 to 2019, this study provides robust evidence of the relationship between foreign investors and changes in firm value in the Indonesian setting. The investigation results using robust panel regression show that the trading behavior of foreign investors is the cause of the decline in firm value. This finding is robust with a number of repeated tests and endogeneity bias. The results of this study can be generalized to the capital markets of developing countries in Asia with thin market characteristics, high information inequality, and weak investor protection. This study is especially useful for regulators in formulating policies and academics.