Positive contribution of the good corporate governance rating to stability and performance: evidence from Indonesia

  • Received October 19, 2017;
    Accepted March 19, 2018;
    Published April 16, 2018
  • Author(s)
  • DOI
  • Article Info
    Volume 16 2018, Issue #2, pp. 1-11
  • Cited by
    3 articles

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

This paper aims to examine the impact of Good Corporate Governance (GCG) practice on bank stability and performance. Governance is measured using the GCG rating that covers eleven aspects. The authors apply instrumental regression to link governance to performance and stability. The study covers a sample of 150 banks. The result shows that bank stability can mediate bank governance and bank performance. On the determinant of bank performance, it can be concluded that the GCG rating is positive and directly influences bank performance. Bank stability is also positive for bank performance indicating the indirect contribution of the GCG rating to bank performance. NPL, LDR, CAR and bank’s size (LASSET) are all negative and significant. The aim of this paper is to provide strong empirical evidence on the importance of governance and stability for performance. The limitations of this paper are the size of the sample and that it only covers public banks which are theoretically required to apply better governance in all aspects of their business by the Capital Market Authority.

view full abstract hide full abstract
    • Figure 1. Research framework
    • Table 1. Variables, definition and sources of data
    • Table 2. The data description
    • Table 3. The results compared