Determinants of performance in Indonesian banking: a cross-sectional and dynamic panel data analysis
This paper examines determinants of bank performance in Indonesia for the period of 1994-1999. It was pooled cross-sectional time series and dynamic panel data models. This research incorporates the traditional Structure-Conduct- Performance (SCP) and Relative Efficiency (RE) hypotheses. The esti...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Social Sciences Research Society
2012
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/26791/1/International_Journal_of_E_%26_F_Studies%5B1%5D.pdf http://irep.iium.edu.my/26791/ http://www.sobiad.org/eJOURNALS/journal_IJEF/archieves/2012_2/buyung_sarita.pdf |
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| Institution: | Universiti Islam Antarabangsa Malaysia |
| Language: | English |
| Summary: | This paper examines determinants of bank performance in Indonesia for the
period of 1994-1999. It was pooled cross-sectional time series and dynamic panel
data models. This research incorporates the traditional Structure-Conduct-
Performance (SCP) and Relative Efficiency (RE) hypotheses. The estimation
results show that bank performance industry is competitive, and implies that
market structure in Indonesian banking sector is nearly perfect competition.
However, no evidence has been found in this study in support of the traditional
SCP, while RE is otherwise. The negative relationship between loans to business
groups and bank performance, which is likely due to the high loans provided to
them, thus supporting the moral hazard hypothesis. The negative relationship
between market share loan and return on assets, the negative relationship between
debt-to-total assets and bank performance is likely because of the high level of
debt. The negative relationship between debt-to-total assets and bank performance
in a scenario of high interest rates indicates that banks acted responsibly by paying
high interest charges prevailing at that time. This also results in the negative
relationship between capital adequacy ratio and bank performance. |
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