The development of the banking industry, especially the increasingly complex and diverse products and services, will increase the risk exposure of banks.
OBJECTIVE:
This research aimed to examine the effects of Tier-1 capital in terms of Risk Management and Profitability on the performance of Indonesian commercial banks.
METHODS:
The research population consisted of all commercial banks listed in the Indonesian Stock Exchange. The data are presented in the form of financial statements of commercial banks for the periods of 2012 to 2016 with a total of 42 banks. 28 of these met the criteria and were included in the study.
RESULTS:
(a) Tier-1 capital has a direct positive effect on Risk Management, (b) Tier-1 capital has a positive indirect effect on Profitability with Risk Management as Mediation Variable, (c) Risk Management has a positive direct effect on Profitability, (d) Tier-1 Capital has a positive indirect effect on Performance with Risk Management and Profitability as Mediation Variables, (e) Risk Management has a positive indirect effect on Performance with a Mediation Variable, and (f) Profitability has a positive impact on Performance.
CONCLUSIONS:
The originality of this research can be deducted from the causal relationship between the effects of Tier-1 capital, risk management, and profitability on performance of commercial banks in the context of stock performance among Indonesian commercial banks. Also, the analysis tools that use the Multiple Fixed Effect Panel Data Model in this research are a novelty. In addition, previous research findings remain inconsistent and vary between one another. By conducting this research, it is expected that more consistent research findings can be generated.
FungáčováZ, PoghosyanT. Determinants of bank interest margins in Russia: Does bank ownership matter?Economic Systems. 2011;35(4):481–95.
2.
Žuk-ButkuvienėA, VaitulevičienėD, StaroselskajaJ. Capital Adequacy (Solvency) and Liquidity Risk Management: Analysis, Evaluation, and Possibilities for Improvement. Ekonomika. 2014;93(2).
3.
KraskerWS. Stock price movements in response to stock issues under asymmetric information. The Journal of Finance. 1986;41(1):93–105.
4.
HungerJD, WheelenTL. Essentials of strategic management. Upper Saddle River, NJ: Prentice Hall. (2003).
5.
PleshkoLP, HeiensRA. A Contingency Theory Approach to Market Orientation and Related Marketing Strategy Concepts: Does Fit Relate to Share Performance?Academy of Banking Studies Journal. 2011;10(1).
6.
DesfianB. Analisis Faktor-faktor Yang Berpengaruh Terhadap Kinerja Bank Umum Di Indonesia Tahun 2001-2003. Jurnal Manajemen Diponegoro, 2005.
7.
Chan-LauJA. Do dynamic provisions enhance bank solvency and reduce credit procyclicality? A study of the Chilean banking system. Journal of Banking Regulation. 2012;13(3):178–88.
8.
BikkerJA. Measuring performance of banks: An assessment. Journal of applied Business and Economics. 2010;11(4):141–59.
9.
HaneefS, RiazT, RamzanM, RanaMA, IshaqHM, KarimY. Impact of Risk Management on Non-Performing Loans and Profitability of Banking Sector of Pakistan. International Journal of Business and Social Science. 2012;3(7):307.
10.
FarukMO, AlamR. A Comparative Financial Performance Analysis of Bangladeshi PrivateCommercial Banks. International Journal of Information, Business and Management. 2014;6(1).
11.
NawazM, MunirS, SiddiquiSA, AhadTU, AfzalF, AsifM, AteeqM. Credit Risk and the Performance of Nigerian Banks. Interdisciplinary Journal of Contemporary Research In Business. 2012;4(7).
12.
HillAM. U.S. Patent No. 7,706,393.Washington, DC: U.S. Patent and Trademark Office. 2010.
13.
MyersSC, MajlufNS. Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics. 1984;13(2):187–221.
14.
KosmidouK, ZopounidisC. Measurement of bank performance in Greece. South-Eastern Europe Journal of Economics. 2008;1(1):79–95.
RubinG, NaydaW. Capital Windfall? American Bankers Association, ABA Banking Journal. 2008;100(10):46.
17.
Van DeventerDR, ImaiK, MeslerM. Advanced Financial Risk Management (Second Edition): Tools and Techniques for Integrated Credit Risk and Interest Rate Risk Management, John Wiley & Sons Singapore Pte. Ltd., Singapore. 2013.
18.
OnaliE. Moral Hazard, Dividends, and Risk in Banks. Journal of Business Finance & Accounting. 2014;41(1):128–55.
19.
AyaydinH, KarakayaA. The Effect of Bank Capital on Profitability and Risk in Turkish Banking. International Journal of Business and Social Science. 2014;5(1).
20.
BrewerEJr, LeeCF. How the market Judges bank risk, economic perspectives. Federal Reserve Bank of Chicago, (1986), pp. 25–31.
21.
JacquesK, NigroP. Risk-based capital, portfolio risk and bank capital: A simultaneous equations approach. Journal of Economics and Business. 1997;49:533–47.
22.
AgusmanA, ManroeGS, GasbarroD, ZumwaltJK. Accounting and Capital Market Measures of Risk: Evidence from Asian Banks During (1998-2003). Journal of Banking and Finance, (2008), pp. 480–488.
23.
BergerAN, HerringRJ, SzegoGP. The role of capital in financial institutions. Journal of Banking and Finance. 1995;19:393–430.
24.
RimeB. Capital requirements and bank behavior: Empirical evidence for Switzerland. Journal of Banking and Finance. 2001;25(4):789–805.
25.
IannottaG, NoceraG, SironiA. Ownership structure, risk and performance in the European banking industry. Journal of Banking & Finance. 2007;31(7):2127–49.
26.
GoddardMA, DougillAJ, BentonTG. Scaling up from gardens: Biodiversity conservation in urban environments. Trends in Ecology & Evolution. 2010;25(2):90–8.
27.
Sugiyono. Qualitative and Quantitative Research Methods R & D (in Indonesian: Metode penelitian kuantitatif kualitatif dan R & D), Alfa Beta, Bandung. 2009.
28.
GreeneWH. Econometric Analysis, 7th ed., Prentice Hall, New York. 2011.
29.
FernandesAAR, BudiantaraIN, OtokBW, Suhartono. Spline Estimator for Bi-Responses and Multi-Predictors Nonparametric Regression Model in Case of Longitudinal Data. Journal of Mathematics and Statistics. 2015;11(2):61–9.
30.
IndartiS, Solimun, FernandesAAR, HakimW. The Effect of OCB In Relationship Between Personality, Organizational Commitment and Job Satisfaction To Performance. Journal of Management Development. 2017;36(10):1–10.
31.
ZhengC, XuT, LiangW. The empirical research of banks’capital buffer and risk adjustmentdecision making: Evidence from China’s banks. China Finance Review International. 2012;2(2):163–79.
32.
NaceurSB, OmranM. The effects of bank regulations, competition, and financial reforms on banks’ performance. Emerging Markets Review. 2011;12(1):1–20.
33.
Jalal-KarimA. Leveraging enterprise risk management (ERM) for boosting competitive business advantages in Bahrain. World Journal of Entrepreneurship, Management and Sustainable Development. 2013;9(1):65–75.
34.
TandelilinE. A Comparison of Some Philippine And Indonesian Common Stocks In Selected Financial Accounting Ratios And Securities Systematic Risk. Kelola. 1997;6.
35.
SaragihYS, SilalahiFH, MarpaungAM. Uji resistensi beberapa kultivar markisa asam terhadap penyakit layu fusarium. Jurnal Hortikultura. 2006;16(4).
36.
ShenJ, SongZ, QianX, LiuW. Modification of papermaking grade fillers: A brief review. BioResources. 2009;4(3):1190–209.
37.
ElliottWP, GaffenDJ. On the utility of radiosonde humidity archives for climate studies. Bulletin of the American Meteorological Society. 1991;72(10):1507–20.
38.
LeventisK, van EertenHJ, MelianiZ, WijersRA. Practical flux prescriptions for gamma-ray burst afterglows, from early to late times. Monthly Notices of the Royal Astronomical Society. 2012;427(2):1329–43.
39.
GriffinP, WallachS. Latin American lending by major US banks: The effects of disclosures about non-accrual loans and loan loss provisions1991.
40.
JogiyantoHM. Sistem informasi keperilakuan. Yogyakarta: Andi Offset. 2007.
41.
IvanaL, OhkawaY, BerkesCA, BergstromDA, DacwagCS, TapscottSJ, ImbalzanoAN. MyoD targets chromatin remodeling complexes to the myogenin locus prior to forming a stable DNA-bound complex. Molecular and Cellular Biology. 2005;25(10):3997–4009.
42.
RappaportR. Establishment of the mechanism of cytokinesis in animal cells. In International review of cytology (Vol. 105, pp. 245–281). Academic Press. 1986.
43.
VaraiyaN, KerinRA, WeeksD. The relationship between growth, profitability, and firm value. Strategic Management Journal. 1987;8(5):487–97.
