INTERNAL CAPITAL MARKET EFFICIENCY AND ITS INFLUENCES ON DIVERSIFIED FIRM’S PERFORMANCE IN INDONESIA (Study on Diversified Firms Listed on IDX 2012 – 2016)

Abstract

Internal capital market becomes one of the strongest motive for firms to undergo diversification. The aim of this study was to see the effect of internal capital market efficiency on firm’s performance. The segment who practices internal capital market was divided into 4 categories of efficiency, which were efficient subsidy segment, inefficient subsidy segment, efficient transfer segment, and inefficient transfer segment. Each of category was determined by its resources and investment opportunities. The firm’s performance was measured using excess value. The study assumed that efficient internal capital market practices enhanced firm’s excess value, and vice versa, the inefficient internal capital market practices harmed firm’s excess value. Research population used was all diversified firms in Indonesia listed on IDX from 2012 – 2016 from 7 industries and excluded financial firms. The samples observed in total were 1276 samples. This research used The Ordinary Least Square method to analyze the influence of internal capital market efficiency to firm’s excess value. The results showed efficient transfer segment had positive significant impact to firm’s excess value, while efficient subsidy segment had positive insignificant impact to firm’s excess value. Otherwise, the inefficient transfer segment and inefficient subsidy segment had negative significant impact to firm’s excess value.