Abstract
This paper addresses the impact of foreign ownership, government ownership, efficiency and income diversification on the risk-taking behavior of banks in Indonesia. This research uses Z-Score to measure bank risk-taking behavior. Z-score proxies probability bank’s loss that is greater than its equity. Despite their profit, bank may suffer financial insolvency when taking too much risk. This study used a sample of 44 banks in Indonesia over the 2011–2016 period with purposive sampling method. Based on the result of the research, it can be concluded that foreign ownership can increase bank risk-taking behavior due to the barrier to entry in the form of deficiency of quality information of the borrower so that it has an impact on the increase of non-performing loan ratio. While government ownership can also increase risk-taking behavior, because banks are used by politicians to pursue political goals that cause banks to take high-risk projects with low profits. In addition, the results of this study also show that banks with low efficiency tend to increase the risk-taking behavior.
Highlights
The banking industry plays an important role in the economy as a financial intermediary institution and payment system
This study aims to determine the effect of bank ownership and characteristics on bank risk-taking behavior in Indonesia
The research concluded that foreign ownership can increase bank risk-taking behavior due to the barrier to entry of banking industry
Summary
The banking industry plays an important role in the economy as a financial intermediary institution and payment system. Banks are still a major sector in driving the Indonesian economy; bank risk-taking behavior should be noted well by the banking regulator. Large banks with risk-taking behavior can increase systemic risk, causing disruption of the entire economic system. Bank risk-taking behavior can be measured using z-score. The z-score shows the probability of bank loss greater than the equity. Banks may experience insolvency when taking too much risk to make a profit. If the economy is in good condition, high risk-taking behavior will provide high returns as well. The bad economic condition can cause insolvency (Fang et al, 2014)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
