Corporate Governance and Bank Stability Through Different Pathways
DOI:
https://doi.org/10.12928/jreksa.v13i2.17135Keywords:
corporate governance, bank stability, profitabilityAbstract
This study analyses the correlation between corporate governance and bank stability by investigating the mediating role of profitability and the moderating effect of the COVID-19 crisis in Indonesian banking firms. To achieve this objective, a sample of 180 firm-year observations from banking businesses listed on the Indonesia Stock Exchange (IDX) from 2019 to 2024 was analysed using panel data regression, bootstrap mediation analysis, and interaction analysis. The results show that board size and board independence have positive and significant effects on bank stability, whereas audit committee size has no significant direct effect. In contrast, audit committee size has a positive and significant effect on profitability, while board size and board independence do not significantly affect profitability. Profitability has a positive and significant effect on bank stability. The interaction term between profitability and COVID-19 crisis has a positive and significant effect, which indicates that the COVID-19 crisis strengthens the positive relationship between profitability and bank stability. The mediation analysis further shows that profitability mediates the relationship between audit committee size and bank stability but does not mediate the relationships between board size and board independence with bank stability. The results emphasize the importance of effective board monitoring, audit committee functions and profitability in enhancing bank stability, especially amidst economic uncertainties. This study is limited by its focus on publicly listed banks in Indonesia and examines only selected governance characteristics and financial variables, which may not fully capture other factors influencing the dependent variable.
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