Investment decision, legal certainty and its determinant factors: evidence from the Indonesia Stock Exchange

Figures & data

Figure 1. Principal–agent relationship in municipal bonds issuance.

Source: Simonsen and Hill (1998).

Figure 2. Conceptual framework.

Source: Processed by the author (2023).

Table 1. Variable metrics and measurements.

Variable	Indicator	Source	Cronbach-Alpha (α)
Independent Judicial System (X1)	Legal basis for independence (X11)	Van Dijk and Vos (2018)	0.885
	Autonomy of the judiciary organization (X12)
	Judiciary funding (X13)
	Court system management (X14)
Legal Culture (X2)	Cultural aspects related to legal language (X21)	Bárd (2021), Piszcz and Sierocka (2020)	0.827
	Cultural aspects related to legal interpretation (X22)
	Cultural aspects related to legal translation (X23)
Existence of Government Authority (X3)	Government corruption and transparency (X31)	Kaufmann and Kraay (2007), MCC (2023), OECD (2023)	0.890
	Anti-corruption laws (X32)
	Anti-corruption bodies (X33)
	Predictability and consistency of legislation (X34)
Legal Certainty of Municipal Bonds (Y1)	Legal stability (Y11)	Yuriy and Vyacheslav (2021)	0.858
	Legal protection of investor rights (Y12)
	Information disclosure (Y13)
	Effective dispute resolution (Y14)
	Consistent law enforcement (Y15)
Investment Decision (Y2)	Internal factors (Y21)	Abdul Kareem et al. (2023)	0.869
	Information nature (Y22)
	Disclosure (Y23)
	External factors (Y24)
	Information technology (Y25)
	Perception (Y26)

Sources: Processed by the Author (2023).

Table 2. Convergent and discriminant validities.

Construct	Factor loading range	Composite reliability	AVE	Heterotrait-Monotrait ratio (HTMT)
				1	2	3	4
Independent judicial System (X1)	0.838–0.887	0.919	0.739
Legal Culture (X2)	0.806–0.907	0.897	0.744	0.415
Existence of Government Authority (X3)	0.830–0.900	0.924	0.753	0.437	0.688
Legal Certainty of Municipal Bonds (Y1)	0.753–0.853	0.898	0.637	0.437	0.622	0.621
Investment Decision (Y2)	0.702–0.788	0.893	0.581	0.317	0.358	0.415	0.761

Sources: Processed by the Author (2023).

Figure 3. Structural model (inner and outer) results.

Source: Processed by the author (2023).

Table 3. Hypotheses testing results.

Relationship	β	t-value	P-value	Decision
X1 → Y1	0.174	3.300	0.001	Accepted
X2 → Y1	0.280	3.840	0.000	Accepted
X3 → Y1	0.313	4.493	0.000	Accepted
Y1 → Y2	0.760	40.095	0.000	Accepted

Sources: Processed by the Author (2023).

Table

Variable	Indicator	Item
Independent judicial System (X1)	Legal basis for independence (X11)	Municipal bond regulations are firmly established in laws ensuring regulatory bodies’ independence from external influence. Legal frameworks empower regulatory agencies to enforce compliance without political or industry pressures. Legislation provides clear mandates, reinforcing regulatory authorities’ independence.
	Autonomy of the judiciary organization (X12)	Regulatory bodies overseeing municipal bonds operate with administrative autonomy. Transparent appointment processes ensure impartiality and integrity in regulatory actions. Regulatory agencies have control over their budgets, enabling effective market oversight.
	Judiciary funding (X13)	Adequate budgets support essential regulatory functions. Diversified funding sources reduce reliance on government appropriations Transparent budgetary processes ensure effective resource utilization.
	Court system management (X14)	Efficient case management expedites regulatory matters. Technology integration facilitates data management and market surveillance. Professional development programs enhance regulatory staff expertise.
Legal Culture (X2)	Cultural aspects related to legal language (X21)	Legal documents reflect local cultural norms, enhancing understanding and compliance. Culturally appropriate terminology fosters trust in the legal system. Legal language promotes inclusivity and accessibility for diverse backgrounds.
	Cultural aspects related to legal interpretation (X22)	Legal interpretations consider cultural contexts, ensuring fair application. Decisions incorporate cultural values, enhancing legitimacy. Interpretations minimize conflicts, promoting social harmony.
	Cultural aspects related to legal translation (X23)	Translations accurately convey cultural meanings, bridging language barriers. Translated documents respect customs, fostering cross-cultural understanding. Translators navigate complexities, preserving original intent.
Existence of Government Authority (X3)	Government corruption and transparency (X31)	Widespread corruption undermines trust in public institutions. Lack of transparency hinders accountability mechanisms. Documented corruption instances highlight the need for action.
	Anti-corruption laws (X32)	Comprehensive legislation signals commitment to combatting corruption. Laws provide framework for prosecution, deterring misconduct. Weak enforcement undermines effectiveness and trust.
	Anti-corruption bodies (X33)	Independent agencies investigate and prosecute corruption. Adequate resources empower bodies to combat corruption effectively. Independence and impartiality are crucial for effectiveness.
	Predictability and consistency of legislation (X34)	Legislation for municipal bonds remains stable, providing market certainty. Market participants can anticipate regulatory changes, aiding long-term planning. Changes in legislation are communicated clearly, minimizing disruptions.
Legal Certainty of Municipal Bonds (Y1)	Legal stability (Y11)	Legal framework ensures stability for municipal bond investors, reducing risk. Investor rights are protected by clear legal provisions. Stability encourages investment in municipal bonds, supporting development.
	Legal protection of investor rights (Y12)	Investors enjoy legal safeguards against fraud or breaches. Legal remedies are available for investor grievances. Transparency is promoted through clear guidelines on investor rights.
	Information disclosure (Y13)	Issuers must disclose pertinent information, enhancing transparency. Investors have access to reliable data for informed decisions. Mandatory disclosure mitigates information imbalances in the market.
	Effective dispute resolution (Y14)	Dispute resolution mechanisms are accessible and impartial. Legal processes for dispute resolution are well-defined and enforced. Alternative dispute resolution methods expedite conflict resolution
	Consistent law enforcement (Y15)	Regulatory enforcement is consistent and impartial. Violations are promptly addressed, maintaining market integrity. Sanctions deter non-compliance, ensuring regulatory adherence.
Investment Decision (Y2)	Internal factors (Y21)	Internal factors play a key role in shaping investor confidence and risk assessment in municipal bond markets. Bond issuer’s financial health greatly influence investor decisions regarding municipal bonds. Understanding current investor’s financial health is vital for making well-informed investment choices.
	Information nature (Y22)	The quality and availability of information greatly impact investor decisions in municipal bonds. Accurate and timely information is crucial for assessing risks and potential returns. Investors rely on information reliability to guide their actions in municipal bond markets.
	Disclosure (Y23)	Transparency through disclosure is fundamental for fostering trust and confidence among investors in municipal bond markets. Adequate disclosure practices enable investors to assess the risks and rewards associated with municipal bond investments. Effective disclosure mechanisms promote accountability and market integrity, enhancing investor participation and liquidity in municipal bond markets.
	External factors (Y24)	External elements outside investors’ control play a pivotal role in municipal bond investments. Economic indicators, such as interest rates and inflation, play a pivotal role in shaping municipal bond investments. Economic trends, regulatory changes, and global events influence investor sentiment and market dynamics in municipal bond investments.
	Information technology (Y25)	Information technology plays a crucial role in facilitating access to market data and investment platforms for municipal bond investors. Leveraging technology enhances the efficiency and transparency of municipal bond transactions. Effective utilization of information technology enables investors to make timely and well-informed investment decisions in municipal bonds
	Perception (Y26)	Investor perception of regulatory oversight and market stability influences investment decisions in municipal bonds. Maintaining positive perceptions of market integrity and regulatory effectiveness is essential for attracting and retaining investors in municipal bond markets. Perceptions of transparency, fairness, and risk management practices shape investor trust and participation in municipal bond investments.

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Data availability statement

Data available on request from the authors.