The Role of Capital on Islamic Bank Spin-Offs in Indonesia

The South East Asian Journal of Management, Vol. 13 No.2, 2019, pp. 119-139

21 Pages Posted: 16 Sep 2019

See all articles by Muhammad Budi Prasetyo

Muhammad Budi Prasetyo

Universitas Indonesia, Graduate School of Management

Rizky Luxianto

University of Indonesia - Faculty of Economics

Rahmat Aryo Baskoro

Universitas Indonesia, Graduate School of Management

Wardatul Adawiyah

University of Indonesia (UI) - Faculty of Economics and Business

Niken Iwani

University of Indonesia (UI) - Faculty of Economics and Business

Date Written: July 30, 2019

Abstract

Some Islamic banks have experienced decreasing performance after spinning off from the parent company, and it is presumed that the amount of capital may have contributed to the decline. Hence, this paper aims to find a minimum amount of capital that Islamic bank must own after spin-offs in order to able to compete in the market and to achieve excellent performance. We employ the OLS method for small banks (asset below Rp 5 trillion) with variable Capital as the dependent variable and Bank Performance as the independent variable. We found that the relationship between performance and bank capital is a non-linear (quadratic) relationship that is convex, indicating that capital is not the only critical factor that contributes to the bank’s improvement. The cluster analysis partially confirms that there is a specific pattern of capital in each of the clusters.

Keywords: spin-off, Islamic bank, capital, bank performance

JEL Classification: G21, G29

Suggested Citation

Prasetyo, Muhammad Budi and Luxianto, Rizky and Baskoro, Rahmat Aryo and Adawiyah, Wardatul and Iwani, Niken, The Role of Capital on Islamic Bank Spin-Offs in Indonesia (July 30, 2019). The South East Asian Journal of Management, Vol. 13 No.2, 2019, pp. 119-139, Available at SSRN: https://ssrn.com/abstract=3448410

Muhammad Budi Prasetyo (Contact Author)

Universitas Indonesia, Graduate School of Management ( email )

Depok, West Java 16424
Indonesia

Rizky Luxianto

University of Indonesia - Faculty of Economics ( email )

Campus UI Depok
Depok, West Java 16424
Indonesia

Rahmat Aryo Baskoro

Universitas Indonesia, Graduate School of Management ( email )

Depok, West Java 16424
Indonesia

Wardatul Adawiyah

University of Indonesia (UI) - Faculty of Economics and Business

Kampus Baru
Depok, West Java 16424
Indonesia

Niken Iwani

University of Indonesia (UI) - Faculty of Economics and Business

Kampus Baru
Depok, West Java 16424
Indonesia

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