P I C E E B A, 1ST PICEEBA 2018

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GOOD CORPORATE GOVERNANCE MECHANISM AND ITS EFFECT ON THE FINANCIAL PERFORMANCE OF BANKING SECTOR IN INDONESIA
Abel Tasman, Fifka Amelia Susanti

Last modified: 2018-06-29

Abstract


The purpose of this study is to analyze the impact of GCG mechanism on the financial performance of go public banks in Indonesia. 235 observations were conducted based on purposive sampling in the period of 2005-2014. The exogenous variable is GCG mechanism with indicators in the form of the number of commissioners, the number of independent commissioners, the number of directors, the number of the audit committee, managerial ownership, and institutional ownership. The endogenous variable is the banks’ financial performance with indicators in the form of Return on Assets (ROA) and Return on Equity (ROE). This research uses data analysis technique of Structural Equation Modeling (SEM).

The results of this study conclude that: (1) The measurement model can meet the assumption of convergent validity, which means that the model can reflect the latent variables; (2) The measurement model also shows that the two latent variables (GCG mechanism and financial performance ) are different constructs because the correlation between the constructs is smaller than 0.9; (3) The  measurement model also meets the fit model because its goodness of fit index (GOF) qualifies the cut off value. (4) Good Corporate Governance mechanism has a positive and significant effect on the financial performance of go public banks in Indonesia.

Keywords: GCG, financial performance, Structural Equation Modelling


Keywords


GCG, financial performance, Structural Equation Modelling