Corporate Governance in Indonesian Banking Industry

Global Journal of Business Research, Vol. 3, No. 2, pp. 131-140, 2009

10 Pages Posted: 1 Jul 2010 Last revised: 30 Jun 2011

See all articles by Eddy Junarsin

Eddy Junarsin

Universitas Gadjah Mada (UGM)

Fitri Ismiyanti

Airlangga University

Date Written: 2009

Abstract

The Indonesian banking sector has recently suffered from bad debt and liquidity problems. The Indonesian banking crisis that has occurred since 1997 has impoverished bank’s performance and reduced shareholder wealth. The deterioration of bank performance with respect to bank as an intermediation agent also affects the wealth of stakeholders, especially depositors. Agency problems cause severe effects on bank performance. This research examines agency theory arguments in the banking industry by analyzing the effect on the firm specific variables, managerial stock ownership, leverage, and dividend yield. Agency costs are proxied by earnings volatility, manager’s portfolio diversification losses, bank size, and standard deviation of bank equity returns. This is among the first research to examine the determination of financial policy variables based on agency theory perspectives in the banking industry. This research examines the largest 133 Indonesian banks during the period of 2000-2004. This study suggests that bank size and a measure of the manager’s portfolio diversification opportunity set affect the bank’s level of managerial stock ownership, leverage, and dividends.

Keywords: Bank, Agency Conflict, Ownership, Leverage, Dividend

JEL Classification: F23, G21

Suggested Citation

Junarsin, Eddy and Ismiyanti, Fitri, Corporate Governance in Indonesian Banking Industry (2009). Global Journal of Business Research, Vol. 3, No. 2, pp. 131-140, 2009, Available at SSRN: https://ssrn.com/abstract=1629462

Eddy Junarsin (Contact Author)

Universitas Gadjah Mada (UGM) ( email )

Bulaksumur, Yogyakarta
Yogyakarta, Special Province of Yogyakarta
Indonesia

Fitri Ismiyanti

Airlangga University ( email )

Jl. Darmawangsa Dalam 2
Surabaya, 60286
Indonesia

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