Corporate Governance and Bank Performance: Global Financial Crisis 2008

Zaitul Zaitul,Desi Ilona,Zerni Melmusi

doi:10.6000/1929-7092.2019.08.54

Abstract

Abstract: This research examine the role of Corporate Governance on bank performance; pre and during global financial crisis 2008. Using 2006 to 2009 data of 27 banks listed in Indonesia Stock Exchange is as research sample. Board, Family and Foreign Ownership as an internal Corporate Governance mechanism and Audit Quality is a proxy for external mechanism. Moderated Regression Analysis is applied. The result shows that there is no role of Corporate Governance in pre-global financial crisis. In addition, this study documented that the role of Corporate Governance practices is poor during global financial crisis 2008, especially 2009. Research limitations: Internal Corporate Governance mechanism does not use board or audit committee characteristics, such as board independent and audit committee financial expertise. Bank should strengthen Corporate Governance system while financial crisis come and uniqueness of Indonesia Corporate Governance system enrich Corporate Governance literature. This research is a significant addition to Corporate Governance literature because of using data from unique business environment and Corporate Governance system as well as in global financial crisis. Keywords: Corporate Governance, bank performance and Global Financial Crisis.

Highlights

Until now, the term of Corporate Governance has been a critical topic around the worlds, including Indonesia (Jung, 2013; Aldamen and Duncan, 2016; and Darmadi, 2016)
Bank performance as dependent variabel is measured by Return on Asset (ROA), whereas the Corporate Governance as internal mechanism are measured by board ownership, family and foreign ownership
Premise is that if there is a role of Corporate Governance in global financial crisis so that bank would survive during the crisis

Summary

Introduction

The term of Corporate Governance has been a critical topic around the worlds, including Indonesia (Jung, 2013; Aldamen and Duncan, 2016; and Darmadi, 2016). How to build the better relationship between agent and principal in order to enhance a better company performance is an objective of Corporate Governance. This goal cannot be achieved when financial crisis happen (Chia et al, 2007). Weak of Corporate Governance is believed as major contribution for financial enterprises downfall in crisis 2008 (Haspeslagh, 2010 and Kowalewski, 2016) This is supported by researches, such as Srivastava (2015) and Orazalin et al (2016).

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Conclusion