The Influence of Banking Regulation and Board Remuneration on Cost Efficiency of Indonesian Banks

DOI

10.2991/978-94-6463-585-0_9How to use a DOI?

Keywords

Bank regulation; CAR; income diversification; auditor; remuneration; efficiency

Abstract

This study examines the relationship between bank capital regulation, income diversification, market discipline, and board remuneration on cost efficiency of Indonesia banks during the 2013–2022 period. The sample consists of 77 Indonesian banks registered in Indonesian Financial Service Authority (OJK) as of February 2023. The Stochastic Frontier Analysis (SFA) was employed to estimate bank cost efficiency scores, and panel data regression was used to analyze the effects of independent variables on banks cost efficiency. The results showed that bank capital regulation, as measured by Capital Adequacy Ratio (CAR), lowered cost efficiency. Bank income diversification and market discipline, as measured by the use of a Big 4 auditor, have a negative but insignificant impact on bank efficiency. Finally, the Board's remuneration mechanism was proven to increase cost efficiency. The findings implies that Indonesia's banking industry should improve their policy regarding management’s risk-taking behavior related to the use of bank capital for their interest. Additionally, this study suggests the Indonesian banking sector should reconsider income diversification strategy and, instead, start to focus on funding diversification to boost performance. Lastly, the Indonesian banking industry does not need to use a Big 4 auditor for assessing their information quality since they just give a lower bank cost efficiency compared to non-Big 4.

Copyright

© 2024 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Daffaa Dewa Al-Ghiffari
AU  - V. Viverita
PY  - 2024
DA  - 2024/12/11
TI  - The Influence of Banking Regulation and Board Remuneration on Cost Efficiency of Indonesian Banks
BT  - Proceedings of the 5th International Conference on Global Innovation and Trends in Economy 2024 (INCOGITE 2024)
PB  - Atlantis Press
SP  - 109
EP  - 131
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-585-0_9
DO  - 10.2991/978-94-6463-585-0_9
ID  - Al-Ghiffari2024
ER  -