Foreign Shareholdings Impact on Banks Efficiency and Moderating Role of Corporate Governance
Aswin Rivai1, Rina Indiastuti2, Nury Effendi3, Kemal Hidayat4, Maman Setiawan5
1Aswin Rivai, Doctorate Candidate, Department of Economics, Faculty of Economics and Business, Padjadjaran University, Bandung, Jawa Barat, Indonesia.
2Rina Indiastuti, Professor, Department of Economics, Faculty of Economics and Business, Padjadjaran University, Bandung, Jawa Barat, Indonesia.
3Nury Effendi, Professor, Department of Economics, Faculty of Economics and Business, Padjadjaran University, Bandung, Jawa Barat, Indonesia.
4Kemal Hidayat, Senior Lecturer, Department of Economics, Faculty of Economics and Business, Padjadjaran University, Bandung, Jawa Barat, Indonesia.
5Maman Setiawan, Lecturer, Department of Economics, Faculty of Economics and Business, Padjadjaran University, Bandung, Jawa Barat, Indonesia.
Manuscript received on 16 October 2019 | Revised Manuscript received on 22 October 2019 | Manuscript Published on 02 November 2019 | PP: 414-425 | Volume-8 Issue-2S9 September 2019 | Retrieval Number: B10950982S919/2019©BEIESP | DOI: 10.35940/ijrte.B1095.0982S919
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© The Authors. Blue Eyes Intelligence Engineering and Sciences Publication (BEIESP). This is an open access article under the CC-BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
Abstract: The research investigate the impact of foreign shareholding originated from developed and developing countries on the efficiency of acquired local banks in Indonesia during 2007-2017 by including Corporate Governance as a moderating variable. Methodology: Using the secondary aggregate data of 29 commercial banks acquired by foreign shareholders, a panel regression model using econometrics methods of GLS, and DEA were applied to examine the effects of percentage of foreign shareholdings on efficiency of the acquired local banks. The main findings; First, percentage of foreign shareholdings positively affecting efficiency of acquired local banks only if the foreign shareholders is originated from developed countries. Second, the level of economic advancement of the country of origin of foreign shareholders has significant effects on the efficiency of the acquired local banks. Third, the increase in the size of the Board of Directors tends to decrease the efficiency of the acquired local banks and fourth, the presence of Foreign Director has a positive moderating effect on strengthening the effect of percentage of foreign shareholdings on the efficiency of the acquired local banks. Overall, the originality of this studies is that the percentage of foreign shareholdings and its country of origin are two combined factors that cannot be separated in affecting the level of efficiency of its acquired local bank and the fact of significant positive moderating effect of Foreign Director. As policy consideration, monetary authority need to perform strict due diligence on prospective foreign shareholders specifically originated from developing countries, advise banks to maintain the existence of Foreign Director and to encourage small local banks to be merged prior to the acquisition by foreign shareholders.
Keywords: Efficiency, Foreign Shareholdings, Corporate Governance, Agency Theory, Resource-Based Theory.
Scope of the Article: e-governance, e-Commerce, e-business, e-Learning