Investment decision, legal legitimacy and its determinant factors: evidence from Indonesia’s subnational bond market

Purpose The role of legal legitimacy in subnational debt investment in developing countries remains underexplored. This research aims to determine the effect of justice and benefit (two core normative legal values) on legal legitimacy, and subsequently explore how legal legitimacy influences investment decisions in the context of Indonesia’s municipal bond market. Design/methodology/approach This study uses a cross-sectional design with a self-reported survey of Indonesian investors across nine Indonesia Stock Exchange sectors. From 150 random samples through investment managers, 120 valid responses were collected (80% response rate). Partial least squares structural equation modeling was adopted to analyze the primary data collected. Findings The findings reveal that both justice and benefit have a statistically significant and positive impact on legal legitimacy. In turn, legal legitimacy exerts a strong and positive influence on investment decision-making. These results underscore the importance of incorporating normative legal foundations into regulatory frameworks to enhance investor trust. This study reframes legal certainty as necessary but insufficient; legitimacy arises when justice, certainty and benefit jointly convince investors that rules are fair, effective and insulated from political arbitrariness. Originality/value This study operationalizes the normative legal values of fairness and utility, examining their relationship with legal legitimacy and investment decisions using investor-level data. The findings reposition legal certainty as necessary but insufficient, offering practical regulatory insights to strengthen local bond markets in developing countries.