Do Financial Constraints Moderate the Impact of Financing Decisions From Internal-financing Sources on Investment?

To prevent investment growth in 2013 to 2015 from decreasing, the Industrial Ministryprovided fiscal incentives to stimulate investment-growth. Nevertheless, the investmentgrowthof manufacturing firms still declined. This condition indicated that fiscal stimulusmight be ineffective to prevent investment-growth from declining. The decline of investmentmight be influenced by the increase of firm financial constraints to access asource of long term debts. This study aimed to examine the influence of financial constraintsin moderating the effect of financing decisions from internal financing sourceson investment. The population of the study was all listed-manufacturing firms in Indonesia from 2013 to 2015. Samples were chosen based on the availability of firms' financialreport covering the period of the study. The study concluded that financial constraintssignificantly weaken the effect of internal funding decision on investment. Unconstrainedfirms had a higher beta than constrained firms. Although unconstrained firms had anopportunity to choose their source of funding, they preferred to finance their investmentfrom cash flows because the cost of debts might be much higher than the cost of equity.Hence, to help firms to finance their feasible investment opportunity, the governmentshould not only provide tax incentives but also provide a low-interest loan