Financing Moderation in the Relationship of Investing Activities and the Bank Capital Adequacy Ratio

Abstract

This study compares the influence of Cash Flow from Financing Activities (CFF) moderation on the relationship between Cash Flow from Investing Activities (CFI) and Capital Adequacy Ratio (CAR) of the big-five commercial banks in Indonesia and Malaysia. The big-five selections consider the banks' leadership in the countries during the first five years post-crisis 2008. The study uses E-view software to analyze the 2009 to 2013 data, including the stages of the data validity test, simple regression, and multiple regression. Two discrete hierarchical Sobel tests were applied to measure the CFF moderation impact on the CFI and CAR relationship applicable to each group of banks. Finally, the study distinguished the discrete Sobel test outputs using a Chow statistic. The Sobel test shows that in both Indonesian and Malaysian banks, the CFF moderation has positive but insignificant effects on the CFI and CAR relationship. Consistent with the conclusions, the Chow statistic shows a significant difference in the CFF moderation effect on the CFI and CAR relationship. These conclusions bring implications to the interest parties to align their concerns with the two countries' contradictive CFI and CFF funding patterns in shaping the CAR.