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Do board size, institutional ownership and external auditors matter to market discipline in Indonesian banking?

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  • Saheruddin, Herman
  • Soedarmono, Wahyoe

Abstract

Using a sample of listed banks in Indonesia during the 2008-2017 period with a limited guarantee system, this paper aims to highlight the interplay of bank governance and market discipline. Our empirical results, using a dynamic panel data model, highlight that higher bank credit risk is associated with lower deposit growth, suggesting the presence of market discipline by depositors in Indonesian banking. However, a deeper analysis documents that market discipline is more pronounced for banks with larger board size and more external auditors, while the degree of institutional ownership does not affect the link between credit risk and deposit growth. Overall, this study advocates the importance of larger board size and more external auditors in banking to enable market discipline.

Suggested Citation

  • Saheruddin, Herman & Soedarmono, Wahyoe, 2022. "Do board size, institutional ownership and external auditors matter to market discipline in Indonesian banking?," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 389-395.
    • Handle: RePEc:eee:quaeco:v:86:y:2022:i:c:p:389-395
    DOI: 10.1016/j.qref.2022.08.010
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit risk; deposit growth; board size; institutional ownership; audit committee;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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