Financing Constraint and Firm Investment Following a Financial Crisis in Indonesia

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