THE IMPACT OF EARNING ASSET QUALITIES AND BANK-SPECIFIC VARIABLES TO MARKET DISCIPLINE IN INDONESIAN BANKING (CASE STUDY ON 15 LISTED COMMERCIAL BANKS IN INDONESIA PERIOD 2010- 2014)
Bank has an obligation to disclose its financial information to the public as regulated in Basel III. The financial information published mainly refers to the profitability level of a bank reflected in detailed information regarding bank’s assets, liabilities, and other general financial information...
Saved in:
Main Author: | |
---|---|
Format: | Final Project |
Language: | Indonesia |
Online Access: | https://digilib.itb.ac.id/gdl/view/72451 |
Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
Institution: | Institut Teknologi Bandung |
Language: | Indonesia |
Summary: | Bank has an obligation to disclose its financial information to the public as regulated in Basel III. The financial information published mainly refers to the profitability level of a bank reflected in detailed information regarding bank’s assets, liabilities, and other general financial information. Market discipline occurs as the market get to fully understand the bank’s profitability and risk exposures. The central issue surrounding the market discipline is the behavior of the market that can expose the bank to the risk of bank run. In a large scale, bank run can cause economic recession in a country. This research aims to investigate the impact of earning asset qualities and other bank-specific variables on market discipline in Indonesia within the period of 2010 – 2014. The market discipline studied is from the perspective of depositors and investors. The sample is the 15 listed commercial banks in Indonesia with minimum core capital of 5 trillion rupiah classified as BACB 3 & 4 to best represent the condition of market discipline in Indonesia. The earning asset qualities consist of Current (CRTEA), Special Mention (SMTEA), Substandard (SSTEA), Doubtful (DTEA), and Loss (LTEA) while the bank-specific variables are Bank Size (SIZE), Capital Adequacy Ratio (CAR), and Non-Interest Expense to Total Asset Ratio (NIETA). The method used is Ordinary Least Squares (OLS) through EViews Software to examine the effect of those variables to market discipline. The depositor perspective of market discipline is represented by the variable of first difference of the log of total deposits held by bank i at time t and it is used as the dependent variable of the first regression model. Meanwhile, the investor perspective is represented by the stock return and it is used as the dependent variable of the second model. The result of the first regression model is that with the R2 value of 13.04%, CRTEA, SSTEA, LTEA, and CAR have positive impact while SMTEA, DTEA, and SIZE have negative impact. Among these results, SSTEA, LTEA, SMTEA, and SIZE have contradictory results compared to the hypothesis. The result of the second regression model is that with the R2 value of 50.03%, SSTEA, DTEA, and SIZE have positive impact while CRTEA, LTEA, and CAR have negative impact. Among these results, SSTEA, DTEA, CRTEA, and CAR have contradictory results compared to the hypothesis. After seeing the results, for future research, it is recommended to involve more variables to improve the regression model, e.g. macroeconomic variables. For practical recommendations, first, it is important for banks to pay more attention in the management of Earning Asset to attract more depositors and investors. Second, the banks must ensure that their capital adequacy is in accordance with the regulation, in order to attract more depositors. However, for the case of investor, the banks are recommended to attract the investors through other means other than capital adequacy, to encounter the perception that higher capital translates into lower return on equity. Third, the banks must be careful in undertaking risky decisions to gain more trust from the depositors. For the case of investor, it is recommended that the bank maintain the stability that the investors expect from the larger size. |
---|