The impact of private equity investment on financial and stock performances of companies listed on Indonesia stock exchange
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Institusion
Sekolah Tinggi Manajemen Ipmi
Author
Kristine, Yosia
Subject
H Social Sciences (General)
Datestamp
2024-01-08 06:14:54
Abstract :
Private equity (PE) has expanded significantly during the past decades. PE invests in companies with growth potential to raise their value over time. Some studies indicate that large PE firms hesitate to invest in Indonesia. Despite political and regulatory challenges, most companies that families or local conglomerates control still need to comprehend the impact of PE on their businesses and are unwilling to share ownership with other investors. Therefore, this study compares the financial performance of PE-backed and non-PE-backed companies and examines how PE investment affects Indonesia stock exchange-listed companies. The variables used in the first model are liquidity, leverage, profitability, sales growth, and firm size as control variables. The second model uses the same four variables, PE investment, market return, and firm age, as control variables. The sample consists of 600 quarterly financial data of 15 PE-backed and 15 non-PE-backed companies from 5 years after IPO or after PE's investment, whichever is the newest. The research uses a quantitative research method and purposive sampling, with differential tests as the method. Research findings show that PE-bucked companies have better liquidity and profitability than non-PE-backed companies. In terms of the impact on financial performance, It is found that PE has a positive and significant effect in liquidity, profitability, and sales growth. Regarding the effect on stock performance, this study found that only profitability and market return have positive and significant effects on stock return, while sales growth has a marginally significant on stock return. This study supports the principal agent theory and efficient market hypothesis. For practical purposes, investors may view PE investment as a good indicator of portfolio performance, while entrepreneurs may view it as a funding option that improves company performance.
Private equity (PE) has expanded significantly during the past decades. PE invests in companies with growth potential to raise their value over time. Some studies indicate that large PE firms hesitate to invest in Indonesia. Despite political and regulatory challenges, most companies that families or local conglomerates control still need to comprehend the impact of PE on their businesses and are unwilling to share ownership with other investors. Therefore, this study compares the financial performance of PE-backed and non-PE-backed companies and examines how PE investment affects Indonesia stock exchange-listed companies. The variables used in the first model are liquidity, leverage, profitability, sales growth, and firm size as control variables. The second model uses the same four variables, PE investment, market return, and firm age, as control variables. The sample consists of 600 quarterly financial data of 15 PE-backed and 15 non-PE-backed companies from 5 years after IPO or after PE's investment, whichever is the newest. The research uses a quantitative research method and purposive sampling, with differential tests as the method. Research findings show that PE-bucked companies have better liquidity and profitability than non-PE-backed companies. In terms of the impact on financial performance, It is found that PE has a positive and significant effect in liquidity, profitability, and sales growth. Regarding the effect on stock performance, this study found that only profitability and market return have positive and significant effects on stock return, while sales growth has a marginally significant on stock return. This study supports the principal agent theory and efficient market hypothesis. For practical purposes, investors may view PE investment as a good indicator of portfolio performance, while entrepreneurs may view it as a funding option that improves company performance.
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