COULD INDEPENDENT BOARD, BOARD MEETING, AUDIT COMMITTEE, AND RISK COMMITTEE IMPROVE THE ASSET QUALITY AND OPERATIONAL PERFORMANCE? A STUDY OF LISTED BANKS IN INDONESIA

Year 2017, , 247 - 254, 30.09.2017

Te-Kuang Chou Agung Dharmawan Buchdadi

https://doi.org/10.17261/Pressacademia.2017.702

Abstract

Purpose - This study examines the impact of
independent board of directors, board meeting, audit committee, and risk
committee on bank practise in Indonesia.

Methodology
- Asset quality is measured by non-performing loans (NPL), and operational
performance is measured by operational expense ratio (BOPO). While, as
independent variables we used some good corporate governance variables
including independent board (IB), the annual board meeting (BM), the percentage
of annual board of director meeting attendance, the annual board-executive
meeting (BEM), the percentage of annual board-executive meeting attendance,
Audit Committee (AC), Audit Committee Meeting (ACM), the percentage of annual
audit committee meeting attendance, Risk Committee (RC), Risk Committee Meeting
(RCM), and the percentage of annual risk committee meeting attendance. The data
are listed banks in Indonesian Capital Market during 2013-2015 using unbalanced
panel data two stage least square (2SLS) regression.

Findings- The findings
reveal that independent board will improve the prudence principal of the bank.
While the board of directors meeting will enhance the operational performance
of the bank.In addition, the number of the audit committee will make better
operational performance, while the number of meeting will improve the
non-performing loan. 

Keywords

Audit committee, independent board, risk committee, non-performing loan, operational expense ratio

References

• Abdallah, A. A.-N. and Ismail, A. K. (2016) ‘Corporate Governance Practices, Ownership Structure, and Corporate Performance in the GCC Countries’, Journal of International Financial Markets, Institutions and Money. Elsevier B.V., In Press(In Press), p. In Press. doi: 10.1016/j.intfin.2016.08.004.
• Akbar, S., Poletti-Hughes, J., El-Faitouri, R. and Shah, S. Z. A. (2016) ‘More on the relationship between corporate governance and firm performance in the UK: Evidence from the application of generalized method of moments estimation’, Research in International Business and Finance. Elsevier B.V., 38, pp. 417–429. doi: 10.1016/j.ribaf.2016.03.009.
• Al-Najjar, B. (2014) ‘Corporate governance, tourism growth and firm performance: Evidence from publicly listed tourism firms in five Middle Eastern countries’, Tourism Management. Elsevier Ltd, 42, pp. 342–351. doi: 10.1016/j.tourman.2013.09.008.
• Arafat, M. Y., Warokka, A., Buchdadi, A. D. and Suherman (2013) ‘Banking efficiency and performance: a test of banking characteristics in an emerging market’, J. for Global Business Advancement, 6(1), pp. 13–23. doi: 10.1504/JGBA.2013.053475.
• Ararat, M., Black, B. S. and Yurtoglu, B. B. (2016) ‘The Effect of Corporate Governance on Firm Value and Profitability: Time-Series Evidence from Turkey’, Emerging Markets Review. Elsevier B.V., 30(August 2013), pp. 113–132. doi: 10.1016/j.ememar.2016.10.001.
• Balachandran, B. and Faff, R. (2015) ‘Corporate governance, firm value and risk: Past, present, and future’, Pacific-Basin Finance Journal. Elsevier B.V., 35, pp. 1–12. doi: 10.1016/j.pacfin.2015.07.002.
• Cavaco, S., Crifo, P., Rebérioux, A. and Roudaut, G. (2017) ‘Independent directors: Less informed but better selected than affiliated board members?’, Journal of Corporate Finance. Elsevier B.V. doi: 10.1016/j.jcorpfin.2017.01.004.
• Chauhan, Y., Lakshmi, K. R. and Dey, D. K. (2016) ‘Corporate governance practices, self-dealings, and firm performance: evidence from india’, Journal of Contemporary Accounting & Economics. Elsevier Ltd, 12(3), pp. 274–289. doi: 10.1016/j.jcae.2016.10.002.
• Chou, H. I., Chung, H. and Yin, X. (2013) ‘Attendance of board meetings and company performance: Evidence from Taiwan’, Journal of Banking and Finance. Elsevier B.V., 37(11), pp. 4157–4171. doi: 10.1016/j.jbankfin.2013.07.028.
• Chou, T.-K. and Buchdadi, A. D. (2017) ‘Independent Board, Audit Committee, Risk Committee, the Meeting Attendance level and Its Impact on the Performance: A Study of Listed Banks in Indonesia’, International Journal of Business Administration, 8(3), p. 24. doi: 10.5430/ijba.v8n3p24.
• Chou, T. K., and Buchdadi, A. D. (2016) ‘Bank Performance and Its Underlying Factors: A Study of Rural Banks in Indonesia’, Accounting and Finance Research, 5(3), pp. 55–63. doi: 10.5430/afr.v5n3p55.
• Claessens, S. and Yurtoglu, B. B. (2013) ‘Corporate governance in emerging markets: A survey,' Emerging Markets Review. Elsevier B.V., 15, pp. 1–33. doi: 10.1016/j.ememar.2012.03.002.
• Direktorat Kredit, BPR, dan U. (2011) Model Bisnis Bank Perkreditan Rakyat (Referensi mengelolaBPR) (BPR’s business model (reference for managing BPR), Bank Indonesia. Available at: http://www.bi.go.id/id/publikasi/lain/lainnya/Pages/ModelBisnisBPR.aspx (Accessed: 10 April 2017).
• Duru, A., Iyengar, R. J. and Zampelli, E. M. (2015) ‘The dynamic relationship between CEO duality and firm performance: The moderating role of board independence,' Journal of Business Research. Elsevier Inc., 69(10), pp. 4269–4277. doi: 10.1016/j.jbusres.2016.04.001.
• Hamidah, Purwati, E. S. and Mardiyati, U. (2013) ‘Pengaruh Corporate Governance Dan Leverage Terhadap Profitabilitas Bank Yang Go Public Di Indonesia (The impact of corporate goveernance and leverage ratio to bank profitability which listed in Indonesia during 20092012 period)’, Jurnal Riset Manajemen Sains Indonesia (JRMSI), 4(2), pp. 276–296.
• Indonesia, B. (2006) Peraturan Bank Indonesia Nomor 8/4/PBI/2006 Tentang Pelaksanaan Good Corporate Governance Bagi Bank Umum (Bank Indonesia Regulation No. 8/4 / PBI / 2006 on Implementation of Good Corporate Governance for Commercial Bank). Available at: http://www.bi.go.id/id/peraturan/kodifikasi/bank/Documents/GCG Complete.pdf.
• Liang, Q., Xu, P. and Jiraporn, P. (2013) ‘Board characteristics and Chinese bank performance’, Journal of Banking and Finance. Elsevier B.V., 37(8), pp. 2953–2968. doi: 10.1016/j.jbankfin.2013.04.018.
• Liu, Y., Miletkov, M. K., Wei, Z. and Yang, T. (2015) ‘Board independence and firm performance in China’, Journal of Corporate Finance. Elsevier B.V., 30, pp. 223–244. doi: 10.1016/j.jcorpfin.2014.12.004.
• Mangunyi, E. E. (2011) ‘Ownership Structure and Corporate Governance and Its Effects on Performance: A Case of Selected Banks in Kenya’, International Journal of Business Administration, 2(3), pp. 2–18. doi: 10.5430/ijba.v2n3p2.
• Markonah, Cahaya, Y. F. and Riwayati, H. E. (2016) ‘The Effect of Banking Company Performance toward Good Corporate Governance Listed in Indonesia Stock Exchange’, Procedia - Social and Behavioral Sciences, 219, pp. 486–492. doi: 10.1016/j.sbspro.2016.05.024.
• Mashayekhi, B. and Bazaz, M. S. (2008) ‘Corporate Governance and Firm Performance in Iran’, Journal of Contemporary Accounting & Economics. Elsevier Ltd, 4(2), pp. 156–172. doi: 10.1016/S1815-5669(10)70033-3.
• Mulili, B. M. and Wong, P. (2011) ‘Corporate Governance Practices in Developing Countries: The Case for Kenya’, International Journal of Business Administration, 2(1), p. 14. doi: 10.5430/ijba.v2n1p14.
• Müller, V.-O. (2014) ‘The Impact of Board Composition on the Financial Performance of FTSE100 Constituents’, Procedia - Social and Behavioral Sciences. Elsevier B.V., 109, pp. 969–975. doi: 10.1016/j.sbspro.2013.12.573.
• Munisi, G. and Randoy, T. (2013) ‘Corporate Governance and Company Performance across Sub-Saharan African Countries’, Journal of Economics and Business. Elsevier Inc., 70, pp. 92–110. doi: 10.1016/j.jeconbus.2013.08.003.
• Pradhan, R. P., Arvin, M. B., Hall, J. H. and Bahmani, S. (2014) ‘Causal nexus between economic growth, banking sector development, stock market development, and other macroeconomic variables: The case of ASEAN countries’, Review of Financial Economics. Elsevier Inc., 23(4), pp. 155–173. doi: 10.1016/j.rfe.2014.07.002.
• Prommin, P., Jumreornvong, S., Jiraporn, P. and Tong, S. (2016) ‘Liquidity, ownership concentration, corporate governance, and firm value: Evidence from Thailand’, Global Finance Journal. Elsevier Inc., 31, pp. 73–87. doi: 10.1016/j.gfj.2016.06.006.
• Salama, F. M. and Putnam, K. (2013) ‘The impact of corporate governance on the financial outcomes of global diversification’, International Journal of Accounting. University of Illinois, 48(3), pp. 364–389. doi: 10.1016/j.intacc.2013.07.003.
• Salim, R., Arjomandi, A. and Seufert, J. H. (2016) ‘Does corporate governance affect Australian banks’ performance?’, Journal of International Financial Markets, Institutions and Money. Elsevier B.V., 43, pp. 113–125. doi: 10.1016/j.intfin.2016.04.006.
• Schultz, E. L., Tan, D. T. and Walsh, K. D. (2010) ‘Endogeneity and the corporate governance - performance relation’, Australian Journal of Management, 35(2), pp. 145–163. doi: 10.1177/0312896210370079.
• Sentral, P. R. dan E. B. (2013) Manajemen (Good Corporate Governance), Bank Indonesia. Available at: http://www.bi.go.id/web/id/Peraturan/Search (Accessed: 19 December 2016).
• Staikouras, C., Mamatzakis, E. and Koutsomanoli-Filippaki, A. (2008) ‘An empirical investigation of operating performance in the new European banking landscape’, Global Finance Journal, 19(1), pp. 32–45. doi: 10.1016/j.gfj.2008.01.001.
• Subramanian, S. (2015) ‘Corporate Governance, Institutional Ownership and Firm Performance in Indian State-owned Enterprises’, AsiaPacific Journal of Management Research and Innovation , 11(2), pp. 117–127. doi: 10.1177/2319510X15576273.
• Tan, Y. (2014) ‘Corporate governance in the banking sector’, in Performance, Risk and Competition in the Chinese Banking Industry. Elsevier, pp. 39–64. doi: 10.1533/9781780634463.39.
• Tao, N. B. and Hutchinson, M. (2013) ‘Corporate governance and risk management: The role of risk management and compensation committees’, Journal of Contemporary Accounting & Economics. Elsevier Ltd, 9(1), pp. 83–99. doi: 10.1016/j.jcae.2013.03.003.
• Zagorchev, A. and Gao, L. (2015) ‘Corporate governance and performance of financial institutions’, Journal of Economics and Business, 82, pp. 17–41. doi: 10.1016/j.jeconbus.2015.04.004.
• Zhu, J., Ye, K., Tucker, J. W. and Chan, K. (Johnny) C. (2016) ‘Board hierarchy, independent directors, and firm value: Evidence from China’, Journal of Corporate Finance. Elsevier B.V., 41, pp. 262–279. doi: 10.1016/j.jcorpfin.2016.09.009.