THE EFFECTS OF FOREIGN DIRECT INVESTMENT AND PROFITABILITY ON THE STOCK RETURNS

Vierkury Metyopandi, Ubud Salim, Siti Aisjah

Abstract


This research aimed to identify how to examine and analyze the effects of foreign direct investment and profitability on the stock returns in manufacturing companies registered on IDX during 2016 – 2018. The total population was 91 companies registered and filtered into 32 registered companies according to the sample criteria and analyzed through Eviews 10 software. The research result referred that the foreign direct investment received by multinational companies could not yet affect stock return directly. Also, foreign direct investment was not able to influence the return on asset (ROA), but it was able to affect the return on equity (ROE). Further, ROA was not able to affect the increase of stock returns, while ROE was able to affect the rise of stock returns. Another research finding showed that ROE was the only one that could be a mediation variable in the relationship between foreign direct investment affecting stock returns. At the same time, ROA could not be a mediation variable. For the next studies, the researchers suggested exploring the other financial performance variables suited to foreign direct investment to affect the stock returns. In practice implication from this research, the investors must see how strong the capital owned by a company that accepts foreign direct investment and the relation, how the capital they receive can improve or maintain the company's financial performance within a certain period of time.

Keywords


Foreign Direct Investment (FDI); Foreign Ownership; Profitability; Return on Asset (ROA); Return on Equity (ROE); Stock Return

Full Text:

PDF

References


Anwaar, Maryyam. 2016. Impact of Firms' Performance on Stock Returns (Evidence from Listed Companies of FTSE-100 Index London, UK). Global Journal of Management and Business Research: D Accounting and Auditing, Vol. 16, Issue 1.

BKPM. 2018. Realization of Foreign Investment by Sectandfor the January-March 2019 Period.

Brigham, E. F. and Houston, J. F. 2011. Fundamentals of Financial Management Translation. 10 Edition. Salemba Empat, Jakarta.

Cho, Yonghee, Daim, Tugrul, U., and Dabic, M. 2017. Investigating the Effects of Foreign Direct Investment (FDI) on Croatian Business. Journal of High Technology Management Research.

Clegg, J., Lin, H. M., Voss, H., Yen, I-Fan., and Shih, Y. T. 2016. The OFDI Patterns and Firm Performance of Chinese Firms: The Moderating Effects of Multinationality Strategy and External Factors. International Business Review.

Eitman, David K., Stonehill, Arthur I., and Moffett, M. H. 2011. Multinational Financial Management. Volume 2. Erlangga, Jakarta.

Fahmi, Irham. 2014. Financial Performance Analysis. Alfabeta, Bandung.

Hartono, Jogiyanto. 2014. Portfolio Theory and Investment Analysis. Tenth Edition. BPFE. Yogyakarta.

Hermiyetti and Katlanis, Erlinda. 2017. Analysis of the Influence of Managerial Ownership, Ownership Institutional, Foreign Ownership, and the Audit Committee Company's Financial Performance. Accounting Research Media, Vol. 6, No. 2.

Indonesia Stock Exchange (IDX). 2018. Financial Report. [Online]. Retrieved March 2019, from: www.idx.co.id.

Kang, Moonsoo, Khaksari, S., and Nam, K. 2018. Corporate Investment, Short-Term Return Reversal, and Stock Liquidity. Journal of Financial Markets, pp. 68-83.

Li, Chengchun and Tanna, Sailesh. 2019. The Impact of Foreign Direct Investment on Productivity: New Evidence for Developing Countries. Economic Modelling.

Lin, Qi and Lin, Xi. 2018. Expected Investment and the Cross-Section of Stock Returns. Ekonomics Letters.

Lo, D., Hong, F., and Li, G. 2016. Assessing the Role of Inward Foreign Direct Investment in Chinese Economic Development, 1990–2007: Towards a Synthesis of Alternative Views. Structural Change and Economic Dynamics, (37), pp. 107-120.

Madura, Jeff. 2012. International Financial Management. 11 Edition. South-Western, Cengage Learning, USA.

Madura, Jeff. 2015. International Financial Management. Twelfth Edition. Cengage Learning, USA.

Melvin, Michael and Norrbin, Stefan C. 2013. Chapter 11, Direct Foreign Investment and International Lending. International Money and Finance, 8 edition, pp. 201-221.

Moez, D., Marouan, K., and Tahar, R. M. 2015. Does Foreign Ownership Influence Firm Profitability? Evidence from the Tunisian Context. International Journal of Economics and Finance, Vol. 7, No. 8. Canadian Center of Science and Education.

Ngunjiri, Ndirangu. 2012. Relationship between Firms' Financial Performance and Stock Return for Firms Listed at Nairobi Securities Exchange. Degree of Master, School of Business, University of Nairobi.

Priyono, Dwi. 2016. Analysis of the Effect of Foreign Shareholders Ownership on Performance Registered Companies that Listed in the Kompas 100 Index on the Indonesia Stock Exchange. Jogjakarta: Gadjah Mada University.

Putra, Febriyansyah, L., Nurlaela, S., and Samrotun, Y. C. 2018. Effect of Return on Asset, Return on Equity, Debt to Equity Ratio to Return Stock Company Property and Real Estate in Indonesia Stock Exchange. PROCEEDING The 2nd International Conference on Technology, Education, and Social Science.

Saleh, Muhammad. 2015. Relationship between Firm's Financial Performance and Stock Returns: Evidence from Oil and Gas Sector Pakistan. Journal of Energy Technologies and Policy, Vol. 5, No. 10.

Vo, X. V. 2015. Foreign Ownership and Stock Return Volatility Evidence from Vietnam. Journal of Multinational Financial Management.

World Bank. 2019. Foreign Direct Investment. [Online]. Retrieved March 2019, from: www.data.worldbank.org/indicator.

Zaretta, Bara. 2015. The Effect of Foreign Investment on Market Returns with Vector Autoregression (VAR): A Study on the Indonesia Stock Exchange, the Period January 2008-December 2013. Semarang: Diponegoro University.

Zou, Yi. 2010. The Impact of Inward FDI on Host Country: Firm Performance in New Zealand. Degree of Master, International Business, Victoria University of Wellington.




DOI: http://dx.doi.org/10.21776/ub.jam.2023.021.02.11

Refbacks

  • There are currently no refbacks.