ARE FOREIGN INVESTORS ATTRACTED TO POLITICALLY CONNECTED FIRMS?

• Main Author: Ardya Oktoriano P, Amertya
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/72290
• Institution: Institut Teknologi Bandung

This research analyzes the relationship between politically connected firms in Indonesia and their foreign share ownerships from presidential election in 2014 to 2015. Several researches believe that the political condition of one country gives significant impact in the value and performance of politically connected firms. Fajarriyanto et al. (2015) have proven that there is perceived value from Indonesian President Joko Widodo election in 2014 since investors tend to invest in politically winning connected firms. However, the previous research only covered Indonesian domestic investment. There is still limited research that relates political connection with the performance of foreign share ownership. Therefore, by relating the foreign share ownership data to the political connections of Indonesian firms, this research will study whether political connections influence foreign investors’ share ownership. This research employs OLS regression analysis to examine the relationship between political connections and foreign share ownership. Politically connected firms are divided into politically winning connected firms and politically losing connected firms. This research defines a company to be a politically winning connected or losing firm through its good governance – if at least one of its current/former board of directors/board of commissionaires is part of Indonesian winning and losing parties; it is either minister, parliament, or supporter of the parties. In addition, this research also measures the effects of ownership structure, performance, size, and market value of the firms. This research is limited to the sample selection and methodology employed. Hence, any kind of corporate action during examination period will be disregarded. Overall result shows that politically winning connection are more likely to increase its foreign share ownership. However, it depends on the perspective of the investor (individual or institutional) and with whom the firm is connected. In 2014 Presidential election, which has won Jokowi as the president, having its board/shareholder as a parliament member of winning party impacts most on increasing its foreign investment. Foreign investors valued parliament, as an institution which does not work under the direct supervision of Jokowi, may have more impactful power due to their flexibility in making decision.