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Corporate Governance In Indonesian Banking Industry

Author

Listed:
  • Eddy Junarsin
  • Fitri Ismiyanti

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.

Suggested Citation

  • Eddy Junarsin & Fitri Ismiyanti, 2009. "Corporate Governance In Indonesian Banking Industry," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 3(2), pages 131-140.
    • Handle: RePEc:ibf:gjbres:v:3:y:2009:i:2:p:131-140
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    References listed on IDEAS

    as
    1. Timothy H. Hannan & Ferdinand Mavinga, 1980. "Expense Preference and Managerial Control: the Case of the Banking Firm," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 671-682, Autumn.
    2. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    3. Robert S. Hansen, 1988. "The Demise of the Rights Issue," The Review of Financial Studies, Society for Financial Studies, vol. 1(3), pages 289-309.
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    6. Herring, Richard J & Vankudre, Prashant, 1987. "Growth Opportunities and Risk-Taking by Financial Intermediaries," Journal of Finance, American Finance Association, vol. 42(3), pages 583-599, July.
    7. Michael S. Rozeff, 1982. "Growth, Beta And Agency Costs As Determinants Of Dividend Payout Ratios," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 5(3), pages 249-259, September.
    8. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-659, September.
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Myrna R. Berrios, 2013. "The Relationship between Bank Credit Risk and Profitability and Liquidity," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(3), pages 105-118.

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    More about this item

    Keywords

    bank; agency conflict; ownership; leverage; dividend;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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