[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eee/quaeco/v86y2022icp389-395.html
   My bibliography  Save this article

Do board size, institutional ownership and external auditors matter to market discipline in Indonesian banking?

Author

Listed:
  • Saheruddin, Herman
  • Soedarmono, Wahyoe
Abstract
Using a sample of listed banks in Indonesia during the 2008-2017 period with a limited guarantee system, this paper aims to highlight the interplay of bank governance and market discipline. Our empirical results, using a dynamic panel data model, highlight that higher bank credit risk is associated with lower deposit growth, suggesting the presence of market discipline by depositors in Indonesian banking. However, a deeper analysis documents that market discipline is more pronounced for banks with larger board size and more external auditors, while the degree of institutional ownership does not affect the link between credit risk and deposit growth. Overall, this study advocates the importance of larger board size and more external auditors in banking to enable market discipline.

Suggested Citation

  • Saheruddin, Herman & Soedarmono, Wahyoe, 2022. "Do board size, institutional ownership and external auditors matter to market discipline in Indonesian banking?," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 389-395.
    • Handle: RePEc:eee:quaeco:v:86:y:2022:i:c:p:389-395
    DOI: 10.1016/j.qref.2022.08.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062976922000989
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.qref.2022.08.010?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Trinugroho, Irwan & Pamungkas, Putra & Ariefianto, Mochammad Doddy & Tarazi, Amine, 2020. "Deposit structure, market discipline, and ownership type: Evidence from Indonesia," Economic Systems, Elsevier, vol. 44(2).
    2. Wahyoe Soedarmono & Amine Tarazi, 2016. "Competition, Financial Intermediation, and Riskiness of Banks: Evidence from the Asia-Pacific Region," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(4), pages 961-974, April.
    3. Safiullah, Md & Hassan, M. Kabir & Kabir, Md Nurul, 2022. "Corporate governance and liquidity creation nexus in Islamic banks—Is managerial ability a channel?," Global Finance Journal, Elsevier, vol. 51(C).
    4. Hett, Florian & Schmidt, Alexander, 2017. "Bank rescues and bailout expectations: The erosion of market discipline during the financial crisis," Journal of Financial Economics, Elsevier, vol. 126(3), pages 635-651.
    5. Pathan, Shams, 2009. "Strong boards, CEO power and bank risk-taking," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1340-1350, July.
    6. Hasan, Iftekhar & Jackowicz, Krzysztof & Kowalewski, Oskar & Kozłowski, Łukasz, 2013. "Market discipline during crisis: Evidence from bank depositors in transition countries," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5436-5451.
    7. Llewellyn, David T. & Mayes, David G., 2003. "The role of market discipline in handling problem banks," Bank of Finland Research Discussion Papers 21/2003, Bank of Finland.
    8. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, February.
    9. Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
    10. repec:bla:jfinan:v:43:y:1988:i:5:p:1219-33 is not listed on IDEAS
    11. repec:zbw:bofrdp:2003_021 is not listed on IDEAS
    12. Díaz, Violeta & Huang, Ying, 2017. "The role of governance on bank liquidity creation," Journal of Banking & Finance, Elsevier, vol. 77(C), pages 137-156.
    13. Hadad, Muliaman D. & Agusman, Agusman & Monroe, Gary S. & Gasbarro, Dominic & Zumwalt, James Kenton, 2011. "Market discipline, financial crisis and regulatory changes: Evidence from Indonesian banks," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1552-1562, June.
    14. repec:zbw:bofitp:2013_021 is not listed on IDEAS
    15. Francis, Bill & Hasan, Iftekhar & Liu, LiuLing & Wang, Haizhi, 2019. "Senior debt and market discipline: Evidence from bank-to-bank loans," Journal of Banking & Finance, Elsevier, vol. 98(C), pages 170-182.
    16. Mr. Fabian Valencia & Mr. Luc Laeven, 2012. "Systemic Banking Crises Database: An Update," IMF Working Papers 2012/163, International Monetary Fund.
    17. Hamada, Miki & Konishi, Masaru, 2010. "Related Lending and Bank Performance: Evidence from Indonesia," IDE Discussion Papers 229, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    18. Arnold, Eva A. & Größl, Ingrid & Koziol, Philipp, 2016. "Market discipline across bank governance models: Empirical evidence from German depositors," The Quarterly Review of Economics and Finance, Elsevier, vol. 61(C), pages 126-138.
    19. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    20. María Soledad Martínez-Peria & Sergio Schmukler, 2002. "Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 5, pages 143-174, Central Bank of Chile.
    21. Godspower-Akpomiemie, Euphemia & Ojah, Kalu, 2021. "Market discipline, regulation and banking effectiveness: Do measures matter?," Journal of Banking & Finance, Elsevier, vol. 133(C).
    22. Bley, Jorg & Saad, Mohsen & Samet, Anis, 2019. "Auditor choice and bank risk taking," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 37-52.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rihab Grassa & Nejia Moumen & M. Kabir Hassan & Khaled Hussainey, 2022. "Market discipline and capital buffers in Islamic and conventional banks in the MENA region," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(1), pages 139-167, March.
    2. Kaposty, Florian & Pfingsten, Andreas & Domikowsky, Christian, 2017. "Market Discipline, Deposit Insurance, and Competitive Advantages: Evidence from the Financial Crisis," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168146, Verein für Socialpolitik / German Economic Association.
    3. Chiang, Chia-Chun & Niehaus, Greg, 2024. "Market discipline and policy loans," Journal of Banking & Finance, Elsevier, vol. 159(C).
    4. Zhao, Jing & Gao, Yaqin & Zhao, Lijuan, 2024. "How does deposit insurance affect household's risk sensitivity？Evidence from China," Research in International Business and Finance, Elsevier, vol. 67(PB).
    5. Trinugroho, Irwan & Pamungkas, Putra & Ariefianto, Mochammad Doddy & Tarazi, Amine, 2020. "Deposit structure, market discipline, and ownership type: Evidence from Indonesia," Economic Systems, Elsevier, vol. 44(2).
    6. Matteo Accornero & Mirko Moscatelli, 2018. "Listening to the buzz: social media sentiment and retail depositors' trust," Temi di discussione (Economic working papers) 1165, Bank of Italy, Economic Research and International Relations Area.
    7. Molyneux, Philip & Upreti, Vineet & Zhou, Tim, 2023. "Depositor market discipline: New evidence from selling failed banks," International Review of Financial Analysis, Elsevier, vol. 89(C).
    8. Philip Molyneux & Vineet Upreti & Tim Zhou, 2022. "Depositor Market Discipline: New Evidence from Selling Failed Banks," Working Papers 2022-03, Swansea University, School of Management.
    9. Marília Pinheiro Ohlson & Gerlando Augusto Sampaio Franco de Lima & Tony Takeda, 2021. "Deposit insurance and brokerage firms: impacts on the market discipline of the Brazilian banking industry," Working Papers Series 542, Central Bank of Brazil, Research Department.
    10. Valeriya Dinger & Francesco Vallascas, 2014. "Are Banks Less Likely to Issue Equity When They Are Less Capitalized?," IEER Working Papers 100, Institute of Empirical Economic Research, Osnabrueck University.
    11. Aldy Fariz Achsanta & Tastaftiyan Risfandy & Putra Pamungkas & Irwan Trinugroho & Herman Saheruddin, 2021. "Related bank deposits: Good or bad for stability?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 11(4), pages 735-751, December.
    12. Hasan, Iftekhar & Jackowicz, Krzysztof & Kowalewski, Oskar & Kozłowski, Łukasz, 2013. "Market discipline during crisis: Evidence from bank depositors in transition countries," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5436-5451.
    13. repec:zbw:bofitp:2013_021 is not listed on IDEAS
    14. Chen, Ting-Hsuan & Shen, Chung-Hua & Wu, Meng-Wen & Huang, Kuo-Jui, 2021. "Effect of shadow banking on the relation between capital and liquidity creation," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 166-184.
    15. Chau H. A. Le, 2016. "Macro-financial linkages and bank behaviour: evidence from the second-round effects of the global financial crisis on East Asia," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 6(3), pages 365-387, December.
    16. Giang Phung & Michael Troege, 2024. "Making depositors greedy and careless: Government safety nets and the degradation of depositor discipline," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(3), pages 921-947, July.
    17. Jean-Pierre Allegret & Sana Azzabi, 2014. "Intégration financière internationale et croissance économique dans les pays émergents et en développement : le canal du développement financier," Revue d’économie du développement, De Boeck Université, vol. 22(3), pages 27-68.
    18. Allen N. Berger & Martien Lamers & Raluca A. Roman & Koen Schoors, 2023. "Supply and Demand Effects of Bank Bailouts: Depositors Need Not Apply and Need Not Run," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(6), pages 1397-1442, September.
    19. Ayesha Afzal & Nawazish Mirza & Fatima Arshad, 2021. "Market discipline in South Asia: Evidence from commercial banking sector," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2251-2262, April.
    20. Malgorzata Olszak & Mateusz Pipien & Sylwia Roszkowska, 2016. "The Impact Of Capital Ratio On Lending Of Eu Banks – The Role Of Bank Specialization And Capitalization," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 11(1), pages 43-59, March.
    21. Richard P.C. Brown & Fabrizio Carmignani, 2015. "Revisiting the Effects of Remittances on Bank Credit: A Macro Perspective," Scottish Journal of Political Economy, Scottish Economic Society, vol. 62(5), pages 454-485, November.

    More about this item

    Keywords

    Credit risk; deposit growth; board size; institutional ownership; audit committee;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:86:y:2022:i:c:p:389-395. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620167 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.