Do corporate governance implementation and bank characteristics improve the performance of Indonesian Islamic banking? Before-COVID-19 pandemic analysis
-
DOIhttp://dx.doi.org/10.21511/bbs.18(3).2023.11
-
Article InfoVolume 18 2023, Issue #3, pp. 126-135
- 426 Views
-
168 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Islamic banking has existed in Indonesia since 1992. The performance of Islamic banking is interesting for further analysis. This study aims to analyze the impact of good corporate governance (GCG) implementation and bank characteristics on the performance of Islamic banking in Indonesia before the COVID-19 pandemic. Profitability is a measure of banking performance and is proxied by return on assets (ROA) and return on equity (ROE). The research sample consists of Islamic commercial banks that published financial and annual reports between 2011 and 2019. The data collection method used is documentation. Multiple regression analysis was used for data analysis. The results indicate that the implementation of GCG has no significant impact on performance (probability values of 0.425 and 0.420 on ROA and ROE with coefficients of 0.016 and 0.019). The P-value of the non-performing loans (NPF) variable is < 0.001 on ROA and ROE, which means that NPF has a significant negative impact on ROA and ROE. Third-party funds only have a significant impact on ROE with a p-value of 0.046. Meanwhile, the size of a bank has not been shown to have a significant impact on the performance of Islamic banking in Indonesia. Efforts to maintain NPF are critical for banks to achieve good performance (profitability). NPF demonstrates the risk of nonpayment of Islamic bank financing.
Acknowledgment
We gratefully acknowledge the research funding provided by LPPM Universitas Negeri Semarang (contract number: 19.8.3/UN37/PPK.3.1/2022).
- Keywords
-
JEL Classification (Paper profile tab)G21, G34, M41
-
References37
-
Tables5
-
Figures0
-
- Table 1. GCG self-assessment indicators in Islamic banking
- Table 2. Composite rating of GCG self-assessment implementation results
- Table 3. Descriptive statistics
- Table 4. Performance and implementation of GCG in Indonesian Islamic banking before the pandemic (2011–2019)
- Table 5. Hypotheses testing results
-
- Al-Harbi, A. (2019). The determinants of conventional banks profitability in developing and underdeveloped OIC countries. Journal of Economics, Finance and Administrative Science, 24(47), 4-28.
- Alharbi, A. T. (2017). Determinants of Islamic banks’ profitability: international evidence. International Journal of Islamic and Middle Eastern Finance and Management, 10(3), 331-350.
- Ali, M., & Puah, C. H. (2019). The internal determinants of bank profitability and stability: An insight from banking sector of Pakistan. Management Research Review, 42(1), 49-67.
- Al-Sartawi, A. M. A. M., & Reyad, S. M. R. (2019). The relationship between the extent of online financial disclosure and profitability of Islamic banks. Journal of Financial Reporting and Accounting, 17(2), 343-362.
- Boachie, C. (2021). Corporate governance and financial performance of banks in Ghana: the moderating role of ownership structure. International Journal of Emerging Markets, 18(3), 607-632.
- Connelly, B. L., Certo, S. T., Ireland, R. D., & Reutzel, C. R. (2011). Signaling Theory: A Review and Assessment. Journal of Management, 37(1), 39-67.
- Ekpu, V., & Paloni, A. (2016). Business lending and bank profitability in the UK. Studies in Economics and Finance, 33(2), 302-319.
- Elseoud, M. S. A., Yassin, M., & Ali, M. A. M. (2020). Using a panel data approach to determining the key factors of Islamic banks’ profitability in Bahrain. Cogent Business and Management, 7(1), 1-16.
- Farooq, M., Noor, A., & Ali, S. (2022). Corporate governance and firm performance: empirical evidence from Pakistan. Corporate Governance, 22(1), 42-66.
- Ferdyant, F., Anggraini ZR, R., & Takidah, E. (2014). Pengaruh Kualitas Penerapan Good Corporate Governance dan Risiko Pembiayaan terhadap Profitabilitas Perbankan Syariah [The Influence of Quality of Good Corporate Governance Implementation and Financing Risk on Sharia Banking Profitability]. Jurnal Dinamika Akuntansi Dan Bisnis, 1(2), 134-149.
- Fidanoski, F., Choudhry, M., Davidović, M., & Sergi, B. S. (2018). What does affect profitability of banks in Croatia? Competitiveness Review, 28(4), 338-367.
- Gati, V., Nasih, M., Agustia, D., & Harymawan, I. (2020). Islamic index, independent commissioner and firm performance. Cogent Business and Management, 7(1), 1-12.
- Haddad, A. (2022). Effect of board quality on the financial performance of conventional and Islamic banks: international comparative study after the Subprime crisis. Journal of Accounting in Emerging Economies, 13(2), 399-449.
- Hakimi, A., Rachdi, H., Ben Selma Mokni, R., & Hssini, H. (2018). Do board characteristics affect bank performance? Evidence from the Bahrain Islamic banks. Journal of Islamic Accounting and Business Research, 9(2), 251-272.
- Hery, S. E. (2020). Manajemen Perbankan (1st ed.). Grasindo.
- Hidayat, S. E., Sakti, M. R. P., & Al-Balushi, R. A. A. (2021). Risk, efficiency and financial performance in the GCC banking industry: Islamic versus conventional banks. Journal of Islamic Accounting and Business Research, 12(4), 564-592.
- Jensen, M. C., & Meckling, W. H. (1976). Theory of The Firm: Managerial Behavior, Agency Cost and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.
- Khan, S., Baig, N., Hussain, S., Usman, M., & Manzoor, H. (2021). Bank-firm equity-based relationships and firm’s performance: evidence from Islamic and conventional banks of OIC countries. Cogent Business and Management, 8(1), 1-28.
- Khasawneh, A. Y. (2016). Vulnerability and profitability of MENA banking system: Islamic versus commercial banks. International Journal of Islamic and Middle Eastern Finance and Management, 9(4), 454-473.
- Kinanti, R. A., & Purwohandoko, P. (2017). Influence of Third-Party Funds, CAR, NPF and FDR Towards the Return on Assets of Islamic Banks in Indonesia. JEMA: Jurnal Ilmiah Bidang Akuntansi Dan Manajemen, 14(2), 135.
- Kusuma, H., & Ayumardani, A. (2016). The corporate governance efficiency and Islamic bank performance: An Indonesian evidence. Polish Journal of Management Studies, 13(1), 111-120.
- Lisa, O. (2016). Determinants Distribution of Financing and the Implications to Profitability: Empirical Study on Cooperative Sharia Baitul Maal wa Tamwil (BMT) in Indonesia. Asian Journal of Accounting Research, 1(2), 44-51.
- Mamatzakis, E., Alexakis, C., Yahyaee, K. Al, Pappas, V., Mobarek, A., & Mollah, S. (2023). Does corporate governance affect the performance and stability of Islamic banks? Corporate Governance (Bingley), 23(4), 888-919.
- Manu, R. E. H. R., Alhabsji, T., Rahayu, S. M., & Nuzula, N. F. (2019). The Effect of Corporate Governance on Profitability, Capital Structure and Corporate Value. Research Journal of Finance and Accounting, 10(8), 202-214.
- Narwal, K. P., & Pathneja, S. (2016). Effect of bank-specific and governance-specific variables on the productivity and profitability of banks. International Journal of Productivity and Performance Management, 65(8), 1057-1074.
- Nurkhin, A., Rohman, A., Rofiq, A., & Mukhibad, H. (2018). The role of the Sharia Supervisory Board and corporate governance mechanisms in enhancing Islamic performance – evidence from Indonesia. Banks and Bank Systems, 13(4), 85-95.
- Ofoeda, I. (2017). Corporate governance and non-bank financial institutions profitability. International Journal of Law and Management, 59(6), 854-875.
- Parenrengi, S., & Hendratni, T. W. (2018). Pengaruh dana pihak ketiga, kecukupan modal dan penyaluran kredit terhadap profitabilitas bank [The influence of third party funds, capital adequacy and lending on bank profitability]. Jurnal Manajemen Strategi Dan Aplikasi Bisnis, 1(1), 9-18.
- Saidat, Z., Silva, M., & Seaman, C. (2019). The relationship between corporate governance and financial performance: Evidence from Jordanian family and nonfamily firms. Journal of Family Business Management, 9(1), 54-78.
- Saif-Alyousfi, A. Y. H., & Saha, A. (2021). Determinants of banks’ risk-taking behavior, stability and profitability: evidence from GCC countries. International Journal of Islamic and Middle Eastern Finance and Management, 14(5), 874-907.
- Salman, K. R. (2021). The effect of non-performing financing an third party funds on the profitability through PS/RS and PLS Financing. International Journal of Islamic Banking and Finance Research, 6(1), 19-31.
- Shawtari, F. A. M. (2018). Ownership type, bank models, and bank performance: the case of the Yemeni banking sector. International Journal of Productivity and Performance Management, 67(8), 1271-1289.
- Tarek Al-Kayed, L., Raihan Syed Mohd Zain, S., & Duasa, J. (2014). The relationship between capital structure and performance of Islamic banks. Journal of Islamic Accounting and Business Research, 5(2), 158-181.
- Teixeira, J. C., Vieira, C., & Ferreira, P. (2021). The effects of government bonds on liquidity risk and bank profitability in Cape Verde. International Journal of Financial Studies, 9(1), 1-23.
- Tjondro, D., & Wilopo, R. (2011). Pengaruh Good Corporate Governance (GCG) Terhadap Profitabilitas Dan Kinerja Saham Perusahaan Perbankan Yang Tercatat Di Bursa Efek Indonesia [The Effect of Good Corporate Governance (GCG) on the Profitability and Stock Performance of Banking Companies Listed on the Indonesian Stock Exchange]. Journal of Business and Banking, 1(1), 1-14.
- Virk, N. S., Nawaz, T., & Molyneux, P. (2022). A canary in a Coalmine! religious agency and its impact on the performance of Islamic banks. Journal of International Financial Markets, Institutions and Money, 78, 1-11.
- Zarrouk, H., Ben Jedidia, K., & Moualhi, M. (2016). Is Islamic bank profitability driven by same forces as conventional banks? International Journal of Islamic and Middle Eastern Finance and Management, 9(1), 46-66.