DETERMINANT OF CAPITAL RATIO: A PANEL DATA ANALYSIS ON STATE-OWNED BANKS IN INDONESIA
Abstract
Capital plays important role to support the operational of the banks and to create a sound banking system in aggregate. For this reason, the banks are required to have a sufficient amount of capital, both to support its business expansion as well as a buffer to prevent and to absorb any unexpected losses. This paper analyzes determinants of capital ratio of the state-owned banks in Indonesia. Using panel data regression model, the result shows that the capital ratio of these state-owned banks is affected by the size of the bank, the bank’s leverage, the quality of management, and the interest rate risk. Contrary to the existing literatures, this paper does not support the effect of management capability to generate income on the bank’s capital ratio.
Keywords: Capital structure, state-owned banks, panel estimation.
JEL Classification: C23, G21, G32Downloads
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References
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Baker, Malcom, and Jeffrey Wurgler. (2002), Market Timing and Capital Structure. Journal of Finance 57, 1-32.
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Cebenoyan S., Cooperman ES., and Register CA. (1999). Ownership Structure, Charter Value, and Risk-taking Behavior of Thrifts. Financial Management. 26, 43-60. doi: 10.2307/3666116
Cornett, M. M. and H. Tehranian. (1992). Changes in Corporate Performance Associated with Bank Acquisitions. Journal of Financial Economics. 31, 211-234.
De Bondt, G.J, and Prast.H.M. (2000). Bank Capital Ratios in the 1990s: Cross-country evidence. Banca Nazionale del Lavoro Quarterly Riview, 53(212):71.
Demerguc-Kunt A., L. Leaven and R. Levine (2003), The Impact of Bank Regulation, Concentration and Institution on Bank Margin, National Bureau of Economic Research. Working Paper 9890.
Diamond and Dybvig (1983). Bank Runs, Deposit Insurance, and Liquidity. The Journal of Political Economy, Vol. 91, No. 3, pp. 401-419.
Donaldson, G. (1961), Corporate Debt Capacity. Harvard University Press, Boston.
Durand, David. (1952), Cost of Debt and Equity Funds for Business: Trends and Problem Measurement. Conference on Research in Business finance. The National Bureau of Economic Research. p. 215-262.
Ediz, T., I. Michael, and W. Perraudin (1998). The impact of capital requirements on U.K. bank behaviour. Federal Reserve Bank of New York Economic Policy Review, October 1998.
Fischer, Edwin O., Robert Heinkel, and Josef Zechner, 1989, Dynamic Capital Structure Choice: Theory and Tests, Journal of Finance 44, 19–40.
Furlong, F. T. and Keeley, M.C. (1989). Capital Regulation and Bank Risk-Taking: A Note. Journal of Banking and Finance 13 (6): 883–91.
Goldstein, Ju and Leland H. (2001). An EBIT-Based Model of Dynamic Capital Structure. Journal of Business, vol. 74, no. 4, pp.483-512.
Gujarati, D. N. (2003). Basic econometrics. New York, USA, McGrawHill.
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Hovikimian, A., E. Kane, and L. Laeven. (2003). How Country and Safety-Net Characteristics Affect Bank Risk-Shifting. Journal of Financial Services Research 23: 177-204.
Jacques, K. and P. Nigro (1997). Risk-based capital, portfolio risk, and bank capital: A simultaneous equations approach. Journal of Economics and Business 49: 533-547.
Jensen, Michael C. and William H. Meckling. 1976. Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics 3: 305-360.
Kane, E.J. (2000). Incentives for banking megamergers: What motives might regulators infer from event study evidence?. Journal of Money, Credit and Banking 32, 671-701.
Kahane, Y. (1977). Capital Adequacy and the Regulation of Financial Intermediaries. Journal of Banking and Finance 1, 207-218.
Kaufman G.G. (1991). Capital in Banking: Past, Present, and Future. Journal of Financial Service Research 5: 385-402.
Kim, D., and A. M. Santomero. (1988). Risk in Banking and Capital Regulation. Journal of Finance 43 (5): 1219–33 Determinant Of Capital Ratio: A Panel Data Analysis On State-Owned Banks In Indonesia 413
Koch TW and Mac Donald SS. (2000), Bank Management. Fourth Edition. Orlando. The Dryden Press. Harcourt Brace College Publishers.
Koehn, M. and A. M. Santomero (1980). Regulation of Bank Capital and Portfolio Risk, Journal of Finance 35, 1235—1244.
Manurung, Adler H. (2011), Metode Penelitian: Keuangan, Investasi, dan Akuntansi Empiris. PT. Adler Manurung Press.
Mishkin, F.S. (2006). How Big A Problem Is Too Big To Fail?. Journal of Economic Literature 44, 988-1004.
Modigliani, F, and Miller, M.H. (1958). The Cost of Capital, Corporation Finance, and the Theory of Investment. American Economic Review Vol.XLVIII, No.3, (June 1958), pp.261-97, reprinted in The Theory of Business Finance (2e), Stephen H. Archer and Charles A. D’Ambrosio, eds., New York, Macmillan, 1976 (page references to reprint).
Modigliani, Franco and Merton Miller (1963). Corporate Income Taxes and the Cost of Capital: A Correction. American Economic Review, vol.53, pp. 433-443
Myers, S. C. (1977). Determinants of Corporate Borrowing. Journal of Financial Economics, 5, 147–175.
Myers, S.C. and Majluf, N.S. (1984). Corporate Financing and Investment Decisions When Firm Have Information That Investors Do Not Have. Journal of Financial Economics 13, pp. 187-221.
Nasser, Etty M. (2003). Perbandingan Kinerja Bank Pemerintah dan Bank Swasta Dengan Rasio CAMEL Serta Pengaruhnya Terhadap Harga Saham. Media Riset Akuntansi, Auditing dan Informasi, Vol. 3, No. 3.
Nachrowi ND, Usman H. (2006). Pendekatan Populer dan Praktis Ekonometrika Untuk Analisis Ekonomi dan Keuangan. Lembaga Penerbit Fakultas Ekonomi Universitas Indonesia.
Rime, B. (2001). Capital Requirements and Bank Behaviour: Empirical evidence for Switzerland. Journal of Banking and Finance 25: 789-805.
Saunders A., and Wilson B. (2001). An Analysis of Bank Charter Value and Its Riskconstraining Incentives. Journal of Financial Sevices Research, 19, 185-195. doi: 10.1023/A:1011163522271
Solomon, Ezra. (1963). The Theory of Financial Management. New York: Columbia University Press.
Stiglitz, J.E. (1969). A Re-Examination of the Modigliani-Miller Theorem. American Economic Review, 59:5, pp. 784-793.
Tumiwa RAF, Sudarma M, Salim U, and Djumahir. 2013. Banking Regulation, Risk Management, and Capital Structure Decisions: A Study on Rural Banks in Indonesia. Research Journal of Finance and Accounting, 4(15): 27-35.
Wooldridge, J.M. (2010). Econometric Analysis of Cross Section and Panel Data. 2nd Edition. MIT Press.
Yu, H. (1995). The Determinants of Interest Rate Margins: Empirical Evidence on the Canadian Banking Industry. International Journal of Finance, 7: 33-45
Yudhistira, D. (2003). The impact of Bank Capital Requirement in Indonesia. Available: http://129.3.20.41/eps/fin/papers/0212/02122002.pdf
Zwiebel, J. (1996). Dynamic Capital Structure under Managerial Entrenchment. American Economic Review 86 (5), 1197–1215
Baker, Malcom, and Jeffrey Wurgler. (2002), Market Timing and Capital Structure. Journal of Finance 57, 1-32.
Baltagi, B. H. (2005). Econometric Analysis of Panel Data, Chichester: John Wiley and Sons.
Baral, Keshar Jung. (1996), Capital Structure and Cost of Capital in Public Sector Enterprises in Nepal. Ph.D thesis. Delhi University.
Barrios, V.E.J. and Blanco, J. (2003). The Effectiveness of Bank Capital Adequacy Regulations: An Empirical Approach. Journal of Banking and Finance, 27, pp.1935-1958.
Berger, A., DeYoung, R., Flannery, R., Lee, D., and Oztekin, O. (2008). How Do Large Banking Organizations Manage Their Capital Ratios?. The Federal Reserve Bank of Kansas City, Research Working Paper 08-01.
Berger, A.N, Herring, H.J., and Szego G.P. (1995). The Role of Capital in Financial Institutions.Wharton School Center for Financial Institutions,Working Paper 95-01.
Besanko, D. and Kanatas, G. (1996). The Regulation of Bank Capital: Do Capital Standards PromoteBank Safety?. Journal of Financial Intermediation. 5, 160-183.
Buser, Stephen A., Andrew H. Chen, and Edward J. Kane. (1981). Federal Deposit Insurance, Regulatory Policy, and Optimal Bank Capital. The journal of Finance, 36 (1), 51-60.
Cebenoyan S., Cooperman ES., and Register CA. (1999). Ownership Structure, Charter Value, and Risk-taking Behavior of Thrifts. Financial Management. 26, 43-60. doi: 10.2307/3666116
Cornett, M. M. and H. Tehranian. (1992). Changes in Corporate Performance Associated with Bank Acquisitions. Journal of Financial Economics. 31, 211-234.
De Bondt, G.J, and Prast.H.M. (2000). Bank Capital Ratios in the 1990s: Cross-country evidence. Banca Nazionale del Lavoro Quarterly Riview, 53(212):71.
Demerguc-Kunt A., L. Leaven and R. Levine (2003), The Impact of Bank Regulation, Concentration and Institution on Bank Margin, National Bureau of Economic Research. Working Paper 9890.
Diamond and Dybvig (1983). Bank Runs, Deposit Insurance, and Liquidity. The Journal of Political Economy, Vol. 91, No. 3, pp. 401-419.
Donaldson, G. (1961), Corporate Debt Capacity. Harvard University Press, Boston.
Durand, David. (1952), Cost of Debt and Equity Funds for Business: Trends and Problem Measurement. Conference on Research in Business finance. The National Bureau of Economic Research. p. 215-262.
Ediz, T., I. Michael, and W. Perraudin (1998). The impact of capital requirements on U.K. bank behaviour. Federal Reserve Bank of New York Economic Policy Review, October 1998.
Fischer, Edwin O., Robert Heinkel, and Josef Zechner, 1989, Dynamic Capital Structure Choice: Theory and Tests, Journal of Finance 44, 19–40.
Furlong, F. T. and Keeley, M.C. (1989). Capital Regulation and Bank Risk-Taking: A Note. Journal of Banking and Finance 13 (6): 883–91.
Goldstein, Ju and Leland H. (2001). An EBIT-Based Model of Dynamic Capital Structure. Journal of Business, vol. 74, no. 4, pp.483-512.
Gujarati, D. N. (2003). Basic econometrics. New York, USA, McGrawHill.
Hanan, T.H. and Hanweck, G.A. (1998). Bank Insolvency Risk and the Market for Large Certificates of Deposit. Journal of Money Credit and Banking, Vol.20, No.20.
Hovikimian, A., and E. Kane. (2000). Effectiveness of Capital Regulation at U.S. Commercial Banks, 1985 to 1994. Journal of Finance 55: 451-469.
Hovikimian, A., E. Kane, and L. Laeven. (2003). How Country and Safety-Net Characteristics Affect Bank Risk-Shifting. Journal of Financial Services Research 23: 177-204.
Jacques, K. and P. Nigro (1997). Risk-based capital, portfolio risk, and bank capital: A simultaneous equations approach. Journal of Economics and Business 49: 533-547.
Jensen, Michael C. and William H. Meckling. 1976. Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics 3: 305-360.
Kane, E.J. (2000). Incentives for banking megamergers: What motives might regulators infer from event study evidence?. Journal of Money, Credit and Banking 32, 671-701.
Kahane, Y. (1977). Capital Adequacy and the Regulation of Financial Intermediaries. Journal of Banking and Finance 1, 207-218.
Kaufman G.G. (1991). Capital in Banking: Past, Present, and Future. Journal of Financial Service Research 5: 385-402.
Kim, D., and A. M. Santomero. (1988). Risk in Banking and Capital Regulation. Journal of Finance 43 (5): 1219–33 Determinant Of Capital Ratio: A Panel Data Analysis On State-Owned Banks In Indonesia 413
Koch TW and Mac Donald SS. (2000), Bank Management. Fourth Edition. Orlando. The Dryden Press. Harcourt Brace College Publishers.
Koehn, M. and A. M. Santomero (1980). Regulation of Bank Capital and Portfolio Risk, Journal of Finance 35, 1235—1244.
Manurung, Adler H. (2011), Metode Penelitian: Keuangan, Investasi, dan Akuntansi Empiris. PT. Adler Manurung Press.
Mishkin, F.S. (2006). How Big A Problem Is Too Big To Fail?. Journal of Economic Literature 44, 988-1004.
Modigliani, F, and Miller, M.H. (1958). The Cost of Capital, Corporation Finance, and the Theory of Investment. American Economic Review Vol.XLVIII, No.3, (June 1958), pp.261-97, reprinted in The Theory of Business Finance (2e), Stephen H. Archer and Charles A. D’Ambrosio, eds., New York, Macmillan, 1976 (page references to reprint).
Modigliani, Franco and Merton Miller (1963). Corporate Income Taxes and the Cost of Capital: A Correction. American Economic Review, vol.53, pp. 433-443
Myers, S. C. (1977). Determinants of Corporate Borrowing. Journal of Financial Economics, 5, 147–175.
Myers, S.C. and Majluf, N.S. (1984). Corporate Financing and Investment Decisions When Firm Have Information That Investors Do Not Have. Journal of Financial Economics 13, pp. 187-221.
Nasser, Etty M. (2003). Perbandingan Kinerja Bank Pemerintah dan Bank Swasta Dengan Rasio CAMEL Serta Pengaruhnya Terhadap Harga Saham. Media Riset Akuntansi, Auditing dan Informasi, Vol. 3, No. 3.
Nachrowi ND, Usman H. (2006). Pendekatan Populer dan Praktis Ekonometrika Untuk Analisis Ekonomi dan Keuangan. Lembaga Penerbit Fakultas Ekonomi Universitas Indonesia.
Rime, B. (2001). Capital Requirements and Bank Behaviour: Empirical evidence for Switzerland. Journal of Banking and Finance 25: 789-805.
Saunders A., and Wilson B. (2001). An Analysis of Bank Charter Value and Its Riskconstraining Incentives. Journal of Financial Sevices Research, 19, 185-195. doi: 10.1023/A:1011163522271
Solomon, Ezra. (1963). The Theory of Financial Management. New York: Columbia University Press.
Stiglitz, J.E. (1969). A Re-Examination of the Modigliani-Miller Theorem. American Economic Review, 59:5, pp. 784-793.
Tumiwa RAF, Sudarma M, Salim U, and Djumahir. 2013. Banking Regulation, Risk Management, and Capital Structure Decisions: A Study on Rural Banks in Indonesia. Research Journal of Finance and Accounting, 4(15): 27-35.
Wooldridge, J.M. (2010). Econometric Analysis of Cross Section and Panel Data. 2nd Edition. MIT Press.
Yu, H. (1995). The Determinants of Interest Rate Margins: Empirical Evidence on the Canadian Banking Industry. International Journal of Finance, 7: 33-45
Yudhistira, D. (2003). The impact of Bank Capital Requirement in Indonesia. Available: http://129.3.20.41/eps/fin/papers/0212/02122002.pdf
Zwiebel, J. (1996). Dynamic Capital Structure under Managerial Entrenchment. American Economic Review 86 (5), 1197–1215
Published
2014-10-27
How to Cite
Raharjo, P., Hakim, D. B., Manurung, A. H., & Maulana, T. (2014). DETERMINANT OF CAPITAL RATIO: A PANEL DATA ANALYSIS ON STATE-OWNED BANKS IN INDONESIA. Buletin Ekonomi Moneter Dan Perbankan, 16(4), 369-386. https://doi.org/10.21098/bemp.v16i4.451
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
