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Leverage, capital adequacy, and financial stability in the fintech industry: Evidence from Indonesia

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  • Abubakar Jamilu Baita
  • Diah Bardiah
  • Suhail Suhail
  • Ebrahim Omar Basalma

Abstract

The paper examined the influence of leverage and capital adequacy on fintech's financial stability in Indonesia. We utilize both quantitative and qualitative methods. The findings showed that leverage significantly constrained the financial stability of the fintech industry in the short run. Contrarily, capital adequacy has no significant effect on financial stability. Specifically, the qualitative results indicated that a high liability-to-asset ratio depressed the financial stability of the fintech industry. However, the influence of the asset-to-equity ratio on financial stability depends on asset quality, liquidity, and riskiness. Furthermore, the respondents noted the insufficiency of capital requirements in the fintech industry. Thus, fintech firms should focus on asset quality, while regulators should tighten capital regulation.

Suggested Citation

  • Abubakar Jamilu Baita & Diah Bardiah & Suhail Suhail & Ebrahim Omar Basalma, 2024. "Leverage, capital adequacy, and financial stability in the fintech industry: Evidence from Indonesia," Modern Finance, Modern Finance Institute, vol. 2(2), pages 1-18.
    • Handle: RePEc:bdy:modfin:v:2:y:2024:i:2:p:1-18:id:148
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    References listed on IDEAS

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    1. Manu Abraham, 2024. "Shariah compliance and earnings management in India: Insights on reporting transparency and financial stability," Modern Finance, Modern Finance Institute, vol. 2(1), pages 145-165.
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