Does foreign ownership structure increase Indonesian firms’ risk-taking?
DOI:
https://doi.org/10.24914/jeb.v25i1.4952Keywords:
Ownership structure, foreign ownership, risk-takingAbstract
This research seeks to investigate the effect of foreign ownership structure on the level of listed Indonesian manufacturing firms’ risk-taking behavior. We predict that foreign owners prefer high-risk investment projects because they aim for short-term profits, and we use earnings volatility as the proxy of risk-taking behavior. This study uses unbalanced panel data from listed Indonesian manufacturing firms from 2014- 2017, resulting in 438 firm-year observations. The research results show that foreign ownership structure has a significantly positive impact on firms’ risk-taking behavior. Furthermore, the robustness test indicates that only firms with 80-90 percent of foreign ownership exhibit a significantly positive effect of foreign ownership on firms’ risk-taking behavior. Thus, foreign shareholders can affect firms’ risk-taking behavior more effectively when they have (almost) full control.
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