Do Foreign Firms Bring Value to Emerging Financial Market? (An Empirical Evidence Indonesia Banking)

Abstract

The research aims to study the value created by the foreign shareholders in the Indonesia banking industry from 2016-2018. The research analyzed the performance of foreignowned banks versus domestic owned banks. The banking industry is one of main drivers of the main drivers of economic growth. The study focused on the 19 banks that are categorized as bank books 3 and 4 asper the central bank regulation. The shareholders' status will be the independent variable, and the key financial ratios will be dependent variables. The financial ratios are capital structure, credit risk firm size, and profitability ratio. We use non-parametric (Mann Whitney) and parametric (Dummy Variable Regression). The empirical results show that there are differences in profitability and firm size. The profitability was shown in return on assets, return on equity, economic value-added. The firm size was shown in total assets and equity. The local banks performed better than foreign banks in return on assets, return on equity, economic value-added, and net interest margin. However, foreign banks only performed better than local banks in equity size. There was no significant difference in capital structure and credit risk. The results are significant at a= 1% for return on asset, economic value-added, and equity size.

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“…The non-parametric test model in this study follows the model developed by (Johan 2017) and (Johan 2020) This research model will focus on the performance difference between the two groups of independent and paired samples. This test aims to test the characteristics of the two groups of independent samples.…”