Analysis Of The Effect Of Corporate Governance, CAR, LDR, And Firm Growth On Financial Performance At Conventional Commercial Banks Listed On The Indonesia Stock Exchange For The 2017-2020 Period
Introduction
The financial performance of conventional commercial banks in Indonesia is a crucial aspect of the country's economy. The banking sector plays a vital role in facilitating economic growth, and the performance of commercial banks has a direct impact on the overall economic stability. In recent years, the Indonesian banking sector has experienced significant growth, but it has also faced challenges such as increasing competition, regulatory changes, and economic uncertainty. Therefore, it is essential to analyze the factors that influence the financial performance of conventional commercial banks in Indonesia.
Literature Review
Corporate governance, capital adequacy ratios (CAR), credit ratios to third-party funds (LDR), and firm growth are some of the key factors that have been identified as influencing the financial performance of commercial banks. Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It includes aspects such as institutional ownership, public ownership, and the board of directors. A well-governed company is more likely to have a strong financial performance.
Capital adequacy ratios (CAR) are a measure of a bank's ability to absorb risk and maintain financial stability. A high CAR indicates that a bank has sufficient capital to absorb potential losses and maintain its financial stability. Credit ratios to third-party funds (LDR) refer to the proportion of a bank's credit to its total deposits. A high LDR indicates that a bank is lending more than it is depositing, which can increase its risk exposure.
Firm growth, on the other hand, refers to the rate at which a company's sales, profits, or assets are increasing over time. A company with high firm growth is more likely to have a strong financial performance.
Methodology
This study uses a saturation sampling method, where the entire population of conventional commercial banks listed on the Indonesia Stock Exchange (IDX) is used as the research sample. The data used comes from secondary sources obtained from the official website of the IDX. The data analysis technique applied is a multiple linear regression test, which is processed using SPSS version 25 software.
Results
The results of this study show that the Board of Directors and CAR have a positive and significant influence on bank financial performance. This means that improving the quality of the Board of Directors and the ratio of capital adequacy can improve bank financial performance. However, institutional ownership, public ownership, LDR, and firm growth do not show a partial significant effect on bank financial performance.
However, simultaneously, all independent variables, namely institutional ownership, public ownership, board of directors, CAR, LDR, and firm growth, have an influence on bank financial performance. This indicates that these various factors are interrelated and interact in shaping bank financial performance.
Deeper Analysis
Board of Directors
Research results showing the positive influence of the Board of Directors on financial performance in line with the theory Agency and Governance. The board of directors who are independent, professional, and have high competencies can improve supervision and better decision making, so as to increase bank efficiency and profitability.
CAR
High CAR shows the ability of banks to absorb risk and maintain financial stability. This study shows that high CAR has a positive impact on bank financial performance.
Institutional Ownership, Public Ownership, LDR, and Firm Growth
Although it does not have a partial significant effect, these six variables show simultaneous effects on bank financial performance. This indicates that other factors that are not examined in this study, or interactions between variables, can affect bank financial performance.
Recommendation
The results of this study can be taken into consideration for conventional commercial banks to improve their financial performance. Focus on developing the quality of the board of directors and increasing CAR can be an effective strategy. Further research needs to be done to understand the interactions between variables and the influence of other factors that may not be examined.
Conclusion
This study provides insights into the factors that influence the financial performance of conventional commercial banks in Indonesia. The results show that corporate governance, CAR, and firm growth have a significant impact on bank financial performance. However, institutional ownership, public ownership, LDR, and firm growth do not show a partial significant effect on bank financial performance. The study recommends that conventional commercial banks focus on developing the quality of the board of directors and increasing CAR to improve their financial performance.
Limitation
This study has some limitations. Firstly, the study only examines the factors that influence the financial performance of conventional commercial banks in Indonesia and does not consider other factors that may influence bank performance. Secondly, the study uses a saturation sampling method, which may not be representative of the entire population of conventional commercial banks in Indonesia.
Future Research
Future research should focus on understanding the interactions between variables and the influence of other factors that may not be examined in this study. Additionally, future research should consider other factors that may influence bank performance, such as regulatory changes, economic uncertainty, and technological advancements.
References
- Agency Theory (1983)
- Governance Theory (1995)
- Capital Adequacy Ratio (CAR) (2017)
- Credit Ratio to Third-Party Funds (LDR) (2018)
- Firm Growth (2020)
Note: The references provided are fictional and for demonstration purposes only.
Frequently Asked Questions
Q1: What is the main objective of this study?
A1: The main objective of this study is to analyze the effect of corporate governance, capital adequacy ratios (CAR), credit ratios to third-party funds (LDR), and firm growth on financial performance at conventional commercial banks listed on the Indonesia Stock Exchange (IDX) for the 2017-2020 period.
Q2: What are the key factors that influence financial performance in this study?
A2: The key factors that influence financial performance in this study are corporate governance, CAR, LDR, and firm growth. Specifically, the study examines the impact of institutional ownership, public ownership, board of directors, CAR, LDR, and firm growth on bank financial performance.
Q3: What is the significance of this study?
A3: This study is significant because it provides insights into the factors that influence financial performance at conventional commercial banks in Indonesia. The findings of this study can be used by banks to improve their financial performance and by policymakers to develop effective regulatory frameworks.
Q4: What are the limitations of this study?
A4: The limitations of this study include the use of a saturation sampling method, which may not be representative of the entire population of conventional commercial banks in Indonesia. Additionally, the study only examines the factors that influence financial performance and does not consider other factors that may influence bank performance.
Q5: What are the implications of this study for banks and policymakers?
A5: The implications of this study for banks are that they should focus on developing the quality of the board of directors and increasing CAR to improve their financial performance. For policymakers, the study suggests that regulatory frameworks should be developed to ensure that banks maintain adequate capital adequacy ratios and credit ratios to third-party funds.
Q6: What are the future research directions based on this study?
A6: Future research directions based on this study include examining the interactions between variables and the influence of other factors that may not be examined in this study. Additionally, future research should consider other factors that may influence bank performance, such as regulatory changes, economic uncertainty, and technological advancements.
Q7: What are the practical implications of this study for banks and policymakers?
A7: The practical implications of this study for banks are that they should prioritize developing the quality of the board of directors and increasing CAR to improve their financial performance. For policymakers, the study suggests that regulatory frameworks should be developed to ensure that banks maintain adequate capital adequacy ratios and credit ratios to third-party funds.
Q8: What are the potential applications of this study?
A8: The potential applications of this study include improving the financial performance of conventional commercial banks in Indonesia, developing effective regulatory frameworks, and informing policy decisions.
Q9: What are the potential limitations of this study?
A9: The potential limitations of this study include the use of a saturation sampling method, which may not be representative of the entire population of conventional commercial banks in Indonesia. Additionally, the study only examines the factors that influence financial performance and does not consider other factors that may influence bank performance.
Q10: What are the potential future research directions based on this study?
A10: The potential future research directions based on this study include examining the interactions between variables and the influence of other factors that may not be examined in this study. Additionally, future research should consider other factors that may influence bank performance, such as regulatory changes, economic uncertainty, and technological advancements.
Conclusion
This Q&A article provides a summary of the key findings and implications of the study on the effect of corporate governance, CAR, LDR, and firm growth on financial performance at conventional commercial banks listed on the Indonesia Stock Exchange for the 2017-2020 period. The study provides insights into the factors that influence financial performance and has implications for banks and policymakers. Future research directions are also discussed, including examining the interactions between variables and the influence of other factors that may not be examined in this study.