The Influence of Good Corporate Governance on Financial Performance in Banking Companies Registered on the IDX

Oct 13, 2025 by talynt.org 132 views

The Influence of Good Corporate Governance on Financial Performance in Banking Companies Registered on the IDX

Introduction

Good corporate governance is a crucial aspect of any organization, and its impact on financial performance is a topic of great interest in the business world. In the context of banking companies listed on the Indonesia Stock Exchange (IDX), the role of good corporate governance in maximizing financial performance is a critical issue that needs to be explored. This study aims to examine the effect of good corporate governance on the financial performance of banks listed on the IDX during the 2010-2012 period.

Background

The banking sector in Indonesia is a significant contributor to the country's economy, and the performance of banks has a direct impact on the overall economic growth. The IDX is the primary stock exchange in Indonesia, and it provides a platform for banks to raise capital and expand their operations. However, the banking sector in Indonesia has faced several challenges in recent years, including the global financial crisis and the impact of the Asian financial crisis. In this context, good corporate governance has become a critical factor in ensuring the stability and sustainability of banks.

Methodology

This study used a quantitative approach to examine the effect of good corporate governance on the financial performance of banks listed on the IDX. The research population included all banks listed on the IDX during the 2010-2012 period, and a purposive sampling technique was used to select a total sample of 16 banks per year. The data analysis used classical assumptions testing and multiple linear regression statistical analysis to examine the relationship between good corporate governance and financial performance.

Results

The results of this study showed that there was a partial influence of two independent variables on financial performance. The size of the Board of Commissioners of the Independent and the Audit Committee has proven to have a significant effect on Return on Assets (ROA) as the proxy of financial performance. However, the other three variables, namely public ownership and the Board of Directors, did not show a significant effect on financial performance. Simultaneously, the four independent variables together have a significant effect on the dependent variable, namely financial performance.

Discussion

These findings reveal some important things regarding the role of good corporate governance in maximizing bank financial performance. The existence of an independent Board of Commissioners that are larger in size shows a strong commitment to transparency and accountability. Their existence helps minimize conflicts of interest and increase supervision of management, which in turn has a positive impact on ROA. A strong audit committee plays an important role in ensuring the integrity of the audit process and internal control. The active and independent audit committee can improve the quality of financial information and increase investor confidence, so that it has a positive impact on bank financial performance.

Implications and Recommendations

This study has important implications for stakeholders in the banking sector. For banks, this research confirms the importance of the role of the Independent Board of Commissioners and a strong audit committee in improving financial performance. Banks need to focus on building good corporate governance structures, taking into account the size and independence of the Board of Commissioners and the Audit Committee. For regulators, the results of this study can be input for regulators to continue to encourage the application of good corporate governance principles in the banking sector. Regulators can consider issuing tighter rules related to the composition and role of the Independent Board of Commissioners and the Audit Committee. For investors, this research can be a reference for investors in choosing banks that have good financial performance. Investors can prioritize banks that have a strong corporate governance structure, especially in terms of the independence of the Board of Commissioners and the Audit Committee.

Conclusion

This study contributes to the existing body of knowledge on the role of good corporate governance in maximizing bank financial performance. The findings of this study have important implications for stakeholders in the banking sector, including banks, regulators, and investors. The study highlights the importance of building good corporate governance structures, including the size and independence of the Board of Commissioners and the Audit Committee. The study also opens up opportunities for further research by considering other factors that can affect bank financial performance, such as macroeconomic conditions, competition in the banking industry, and other internal factors.

Limitations

This study has several limitations that need to be acknowledged. The study used a quantitative approach, which may not capture the nuances of good corporate governance in the banking sector. The study also focused on a specific period, which may not be representative of the current situation in the banking sector. Future studies can build on this research by using a qualitative approach and examining the role of good corporate governance in the banking sector over a longer period.

Future Research Directions

This study opens up opportunities for further research in several areas. One potential area of research is to examine the impact of good corporate governance on bank financial performance in other countries. Another potential area of research is to examine the role of other factors that can affect bank financial performance, such as macroeconomic conditions, competition in the banking industry, and other internal factors. Future studies can also build on this research by using a qualitative approach and examining the role of good corporate governance in the banking sector over a longer period.

References

[List of references cited in the study]

Appendix

[Appendix materials, including additional tables and figures]

Conclusion

In conclusion, this study has contributed to the existing body of knowledge on the role of good corporate governance in maximizing bank financial performance. The findings of this study have important implications for stakeholders in the banking sector, including banks, regulators, and investors. The study highlights the importance of building good corporate governance structures, including the size and independence of the Board of Commissioners and the Audit Committee. The study also opens up opportunities for further research by considering other factors that can affect bank financial performance, such as macroeconomic conditions, competition in the banking industry, and other internal factors.
Frequently Asked Questions (FAQs) on the Influence of Good Corporate Governance on Financial Performance in Banking Companies Registered on the IDX

Q: What is good corporate governance, and why is it important for banking companies?

A: Good corporate governance refers to the practices and processes that ensure the effective management of a company, including its financial performance, risk management, and compliance with laws and regulations. It is essential for banking companies because it helps to build trust with stakeholders, including investors, customers, and regulators.

Q: What are the key components of good corporate governance in banking companies?

A: The key components of good corporate governance in banking companies include:

Independent Board of Commissioners: A board that is free from conflicts of interest and has the authority to make decisions on behalf of the company.
Audit Committee: A committee that is responsible for ensuring the integrity of the audit process and internal control.
Board of Directors: A board that is responsible for overseeing the management of the company and making strategic decisions.
Public Ownership: The level of ownership by public shareholders, which can influence the company's decision-making process.

Q: How does good corporate governance impact financial performance in banking companies?

A: Good corporate governance can have a positive impact on financial performance in banking companies by:

Improving transparency and accountability
Reducing the risk of conflicts of interest
Enhancing the quality of financial information
Increasing investor confidence
Improving the company's reputation and brand value

Q: What are the benefits of good corporate governance for banking companies?

A: The benefits of good corporate governance for banking companies include:

Improved financial performance
Increased investor confidence
Enhanced reputation and brand value
Better risk management
Improved compliance with laws and regulations

Q: How can banking companies implement good corporate governance practices?

A: Banking companies can implement good corporate governance practices by:

Establishing an independent Board of Commissioners
Creating an effective Audit Committee
Developing a clear and transparent decision-making process
Ensuring public ownership and transparency
Implementing robust risk management and compliance systems

Q: What are the challenges of implementing good corporate governance in banking companies?

A: The challenges of implementing good corporate governance in banking companies include:

Resistance to change from existing management and employees
Limited resources and expertise
Complexity of regulatory requirements
Difficulty in balancing the interests of different stakeholders

Q: How can regulators support the implementation of good corporate governance in banking companies?

A: Regulators can support the implementation of good corporate governance in banking companies by:

Issuing clear and effective regulations and guidelines
Providing training and capacity-building programs for banking companies
Conducting regular inspections and audits to ensure compliance
Encouraging transparency and disclosure

Q: What are the implications of good corporate governance for banking companies in Indonesia?

A: The implications of good corporate governance for banking companies in Indonesia include:

Improved financial performance and stability
Increased investor confidence and market access
Enhanced reputation and brand value
Better risk management and compliance with laws and regulations
Improved access to capital and funding

Q: How can investors benefit from good corporate governance in banking companies?

A: Investors can benefit from good corporate governance in banking companies by:

Improved financial performance and returns on investment
Increased transparency and accountability
Enhanced reputation and brand value
Better risk management and compliance with laws and regulations
Improved access to capital and funding

Q: What are the next steps for banking companies in Indonesia to improve their corporate governance practices?

A: The next steps for banking companies in Indonesia to improve their corporate governance practices include:

Conducting a comprehensive review of their corporate governance practices
Developing a clear and effective corporate governance framework
Implementing robust risk management and compliance systems
Ensuring transparency and disclosure
Providing training and capacity-building programs for employees and management.