Foreign Institutional Ownership and Firm Value: The Mediating-Moderating Role of Firm Risk in Indonesian Manufacturing Companies

Thifal Triananda; Herlinda Fitri Febriyanti

doi:10.55606/jimas.v5i3.2855

Authors

Thifal Triananda Universitas Negeri Padang
Herlinda Fitri Febriyanti Universitas Negeri Padang

DOI:

https://doi.org/10.55606/jimas.v5i3.2855

Keywords:

Agency Theory, Firm Risk, Firm Value, Foreign Institutional Ownership, Signaling Theory

Abstract

This study examines the influence of foreign institutional ownership (FIO) on firm value, with firm risk serving simultaneously as a mediating and moderating variable, among manufacturing companies listed on the Indonesia Stock Exchange during 2021–2025. Firm value is measured using Tobin's Q, while firm risk is proxied by annual stock return volatility. Using a purposive sampling technique, 128 companies were selected, yielding 640 firm-year panel observations. Data were analyzed through panel data regression, following the Baron and Kenny causal-steps procedure to test mediation and moderated regression analysis with mean-centered interaction terms to test moderation. Model selection tests indicate that the random effects model best fits the ownership–risk relationship, while the fixed effects model is more appropriate for models involving firm value as the dependent variable. The results show that FIO significantly reduces firm risk, consistent with its monitoring role under agency theory. However, firm risk does not significantly affect firm value, and neither the mediating nor the direct effect of FIO on firm value is statistically supported. The interaction between FIO and firm risk is only marginally significant, with a direction opposite to the hypothesized pattern, suggesting a flight-to-quality behavior among foreign investors during periods of elevated risk. These findings imply that FIO functions primarily as a risk-mitigating governance mechanism rather than a direct driver of firm value in the Indonesian manufacturing sector, carrying implications for corporate disclosure strategy and foreign investment policy.

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