DOES MISPRICING AFFECT INVESTMENT AND CAPITAL STRUCTURE OF INDONESIAN FIRMS?
ABSTRACT: Stock price movement
is not entirely a reflection of its fundamental value because of there are
non-fundamental factors such as market sentiment (Keynes, 1936), behavioral
biases of investors (Lakonishok et al., 1994), systematic errors when assessing
stock (Stein, 1996), asymmetric information (Tobin, 1969) causing the value of
stock deviate from its fundamental value (misprice). This condition can affect
corporate investment decisions because managers can take advantage of
overvalued stock condition as a source of investment funding because the cost
of capital becomes cheaper. Conversely, firms avoid selling stocks at
undervalued due to high cost of capital. Therefore, the objectives of this
research is to examine the effect of mispricing to firms investment behavior
and to firms capital structure. We also test the role of the level of financial
constraint in the relationship between mispricing and investment.
Using panel data regression with data observation for five years, we find
that mispricing have positif impact to firms investment level. However, this
effect is not diverse whether on a group of firms which have a high level of
financial constraint (financially constraint) or those which have a low level
of financial constraint (less constraint). Moreover, this research also find
that the mispricing can also influence firms in choosing sources of funding
which can be seen on their debt to equity ratio (D/E). To check the accuracy of
examination, we employ some robustness test and use several control variables.
These results are consistent with and can be explained using market timing and
catering hypotesis.
Keywords: Mispricing,
investment, capital structure, financial constraint, market timing hypothesis,
catering hypothesis
Penulis: Risal Rinofah, Irwan
Trinugroho
Kode Jurnal: jpmanajemendd110408
