Banking companies should pay attention to good risk management in dealing with changes in interest rates

Oct 13, 2025 by talynt.org 58 views

Analysis of Financial Risk Factors Affecting Stock Returns with Earning Per Share as Variable Moderating (Empirical Study of Banking Companies Listed on the Indonesia Stock Exchange)

Introduction

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a significant number of banking companies listed on it. The performance of these banking companies is influenced by various financial risk factors, including credit risk, interest rate risk, liquidity risk, and solvency risk. Understanding the impact of these risk factors on stock returns is crucial for investors and market analysts to make informed investment decisions. This study aims to analyze the financial risk factors affecting stock returns in banking companies listed on the IDX, with a focus on the role of earnings per share (EPS) as a moderating variable.

Literature Review

Financial risk factors have been extensively studied in the context of stock returns. Credit risk, interest rate risk, liquidity risk, and solvency risk are some of the key risk factors that can affect the performance of banking companies. Credit risk refers to the risk of default by borrowers, while interest rate risk is the risk of changes in interest rates affecting the value of assets and liabilities. Liquidity risk is the risk of not being able to meet short-term obligations, while solvency risk is the risk of not being able to meet long-term obligations. Earnings per share (EPS) is a key metric in company performance analysis, and it is often used as a moderating variable to analyze the relationship between financial risks and stock returns.

Research Methodology

This study used a multiple linear regression analysis to examine the relationship between financial risk factors and stock returns in banking companies listed on the IDX. The population studied included all banking companies listed on the IDX during the period 2006 to 2010, which amounted to 30 banks. Of these, 17 banks were chosen as samples using the purposive sampling method. The analysis method applied in this study is multiple linear regression analysis, equipped with a residual test to ensure the validity of the model.

Research Result

The results of the first hypothesis testing showed that simultaneously, all independent variables have an influence on stock returns. However, partial testing indicates that only interest rate risk variables have a significant effect on the stock returns of banking company shares. Meanwhile, credit risk, liquidity risk, and solvency risk do not show a significant effect on stock returns. In testing the second hypothesis, it was found that earnings per share (EPS) did not function as moderating variables, which means that even though EPS is an important metric in company performance analysis, it is unable to influence the effect of financial risk factors on stock returns in the expected way.

Analysis and Discussion

The results of this study have important implications for investors and market analysts. In particular, the effect of interest rate risk on stock returns underlines the importance of good risk management in dealing with changes in interest rates, which are often influenced by monetary policy and macroeconomic conditions. On the other hand, there is no significant effect of credit risk, liquidity risk, and solvency risk can indicate that in the period studied, investors are more sensitive to changes in interest rates than other risk factors. The existence of Earning Per Share that does not act as a moderating variable also shows that the company's profit performance may not be enough to change investor responses to existing risks. This implies the need for banking companies to not only focus on increasing EPS, but also pays attention to more comprehensive risk management.

Conclusion

Overall, this research provides a clear picture of how financial risk factors affect the stock returns of banking company shares in Indonesia. By understanding this dynamics, investors can make more informed investment decisions, while companies can strengthen their risk management strategies in order to increase attractiveness in the eyes of investors. Further research may be needed to explore other factors that have the potential to influence the relationship in the future.

Recommendations

Based on the findings of this study, the following recommendations are made:

Banking companies should pay attention to good risk management in dealing with changes in interest rates.
Investors should consider the impact of interest rate risk on stock returns when making investment decisions.
Further research is needed to explore other factors that have the potential to influence the relationship between financial risks and stock returns.

Limitations

This study has several limitations that should be noted. The study only focused on banking companies listed on the IDX during the period 2006 to 2010, which may not be representative of the entire banking industry in Indonesia. Additionally, the study only used a multiple linear regression analysis, which may not capture the complexity of the relationship between financial risks and stock returns. Further research is needed to explore other methods and data sets to confirm the findings of this study.

Future Research Directions

This study provides a foundation for further research in the area of financial risk management and stock returns. Some potential future research directions include:

Exploring the impact of other risk factors, such as operational risk and reputational risk, on stock returns.
Analyzing the relationship between financial risks and stock returns in other industries, such as manufacturing and services.
Developing more comprehensive risk management strategies that take into account the complexity of the relationship between financial risks and stock returns.
Q&A: Analysis of Financial Risk Factors Affecting Stock Returns with Earning Per Share as Variable Moderating (Empirical Study of Banking Companies Listed on the Indonesia Stock Exchange)

Frequently Asked Questions

Q1: What is the main objective of this study?

A1: The main objective of this study is to analyze the financial risk factors affecting stock returns in banking companies listed on the Indonesia Stock Exchange (IDX), with a focus on the role of earnings per share (EPS) as a moderating variable.

Q2: What are the financial risk factors considered in this study?

A2: The financial risk factors considered in this study include credit risk, interest rate risk, liquidity risk, and solvency risk.

Q3: How was the sample selected for this study?

A3: The sample was selected using the purposive sampling method, and it consisted of 17 banking companies listed on the IDX during the period 2006 to 2010.

Q4: What is the analysis method used in this study?

A4: The analysis method used in this study is multiple linear regression analysis, equipped with a residual test to ensure the validity of the model.

Q5: What are the findings of this study?

A5: The findings of this study show that interest rate risk has a significant effect on stock returns, while credit risk, liquidity risk, and solvency risk do not show a significant effect. Additionally, earnings per share (EPS) does not function as a moderating variable.

Q6: What are the implications of this study?

A6: The implications of this study are that banking companies should pay attention to good risk management in dealing with changes in interest rates, and investors should consider the impact of interest rate risk on stock returns when making investment decisions.

Q7: What are the limitations of this study?

A7: The limitations of this study are that it only focused on banking companies listed on the IDX during the period 2006 to 2010, and it only used a multiple linear regression analysis.

Q8: What are the future research directions?

A8: Some potential future research directions include exploring the impact of other risk factors, such as operational risk and reputational risk, on stock returns, analyzing the relationship between financial risks and stock returns in other industries, and developing more comprehensive risk management strategies.

Q9: What are the recommendations of this study?

A9: The recommendations of this study are that banking companies should pay attention to good risk management in dealing with changes in interest rates, investors should consider the impact of interest rate risk on stock returns when making investment decisions, and further research is needed to explore other factors that have the potential to influence the relationship between financial risks and stock returns.

Q10: What is the significance of this study?

A10: The significance of this study is that it provides a clear picture of how financial risk factors affect the stock returns of banking company shares in Indonesia, and it highlights the importance of good risk management in dealing with changes in interest rates.

Conclusion

This Q&A article provides answers to some of the most frequently asked questions related to the analysis of financial risk factors affecting stock returns with earning per share as variable moderating. The study provides a clear picture of how financial risk factors affect the stock returns of banking company shares in Indonesia, and it highlights the importance of good risk management in dealing with changes in interest rates.