Abstract
The purpose of this study is to examine the effect of market power and income diversification on the General Bank stability in Indonesia. This research uses a data sample of 20 general banks listed on the Indonesia Stock Exchange for the period of 2011–2014. Data analysis technique used is Multiple Linear Regression. It can be concluded simultaneously that market power and revenue diversification have significant effect on bank stability and, partially, market power has a positive and significant effect on a bank stability. Income diversification has a positive non-significant effect on bank stability.
Highlights
Banking sector is the internal part of financial system
In order to maintain the financial system stability, state security, a conducive climate should be kept so investors feel safe to keep investing and can invite new investors to invest in Indonesia
The population used in this research is all of the general banks which are listed on the Indonesia Stock Exchange during 2007–2014, which consists 40 companies
Summary
Banking sector is the internal part of financial system. In Indonesia, financial system is still focusing on banking sector which has a crucial role in the financing activity of the real sector. The stability of a country’s financial system must be maintained in order to avoid an economic crisis that affects the stability of the country as a whole, as well as its security and welfare. The stability of the country’s financial system is influenced by many factors, including internal factors such as the performance of the banking sector with liquidity risk, credit risk and market risk, non-bank financial institutions, financial markets and financial infrastructure, and influenced by external factors that are world economic factors. Diversification can reduce non-systematic risk, improve profitability and decrease cost inefficiency, but not significantly increase the market value of banks.
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