Email this article 
Determinants of capital adequacy ratio on banking industry: Evidence in Indonesia Stock Exchange
Abstract
Capital adequacy ratio (CAR) is an important indicator of bank safety sustainability. Banks that can guarantee CAR means the bank has the power to resist the financial crisis, protecting the bank itself and funds from depositors. This study aimed to determine the factors that affect the CAR. The sample used in this study is the banking industry listed on the Indonesia Stock Exchange (IDX) from 2007 until 2018. Independent variables are bank size, leverage, loan loss reserves, net interest margin, loan assets ratio, and liquidity. The dependent variable is CAR. The number of samples is 27 conventional banks by using purposive sampling. By using panel data regression analysis by estimating ordinary General Least Squares (GLS) method. The results of this study indicate that bank size, leverage, loan loss reserve, net interest margin, and loan asset ratio has an effect on CAR significantly while liquidity has no effect on CAR. The results of this study are expected to be used as a reference for bank managers and investors in looking at the factors that affect the CAR in the banking industry.
JEL Classification: C33, G21, G30
Keywords
Full Text:
PDFReferences
Abusharbeh, M. T., Triyuwono, I., Ismail, M., & Rahman, F. A. (2013). Determinants of capital adequacy ratio ( CAR ) in Indonesian islamic commercial banks. Global Review of Accounting, and Finance, 4(1), 159-170.
Ahmad, R., Ariff, M., & Skully, M. J. (2008). The determinants of bank capital ratios in a developing economy. Asia-Pacific Financial Markets, 15(3–4), 255–272. https://doi.org/10.1007/s10690-009-9081-9
Aktas, R., Acikalin, S., Bakin, B., & Celik, G. (2015). The determinants of banks’ capital adequacy ratio: Some evidence from South Eastern European countries. Journal of Economics and Behavioral Studies, 7(1), 79–88.
Al-Sabbagh, N. M. (2004). Determinants of capital adequacy ratio in Jordanian banks. Thesis. Yarmouk University Jordan.
Aspal, P. K., & Nazneen, A. (2014). An empirical analysis of capital adequacy in the Indian private sector banks. American Journal of Research Communication, 2(11), 28–42.
Bateni, L., Vakilifard, H., & Asghari, F. (2014). The influential factors on capital adequacy ratio in Iranian banks. International Journal of Economics and Finance, 6(11), 108–116. https://doi.org/10.5539/ijef.v6n11p108
Blose, L. E. (2001). Information asymmetry, capital adequacy, and market reaction to loan loss provision announcements in the banking industry. Quarterly Review of Economics and Finance, 41(2), 239–258. https://doi.org/10.1016/S1062-9769(00)00069-7
Büyükşalvarci, A., & Adioglu, H. (2011). Determinants of capital adequacy ratio in Turkish Banks: A panel data analysis. African Journal of Business Management, 5(27), 11199–11209. https://doi.org/10.5897/ajbm11.1957
Distinguin, I., Roulet, C., & Tarazi, A. (2013). Bank regulatory capital and liquidity: Evidence from US and European publicly traded banks. Journal of Banking & Finance, 37(9), 3295-3317. https://doi.org/10.1016/j.jbankfin.2013.04.027
Dreca, N. (2013). Determinants of capital adequacy ratio in selected Bosnian banks. Dumlupınar Üniversitesi Sosyal Bilimler Dergisi EYİ, 12(1), 149-162.
Edson, I. W. (2015). The effect of financial leverage on commercial banks’ profitability in Tanzania. Thesis. Master of Business Administration of the Open University of Tanzania
Gropp, R., & Heider, F. (2009). The determinants of bank capital structure. Review of Finance, 14(4), 87-622. https://doi.org/10.1093/rof/rfp030
Ho, S. J., & Hsu, S. C. (2010). Leverage, performance and capital adequacy ratio in Taiwan's banking industry. Japan and the World Economy, 22(4), 264–272. https://doi.org/10.1016/j.japwor.2010.06.007
Iloska, N. (2014). Determinants of Net Interest Margins - the Case of Macedonia. Journal of Applied Economics and Business, 2(2), 17-36.
Ingves, S. (2014). Banking on Leverage. The 10th Asia-Pacific High-Level Meeting on Banking Supervision. February 25–27. Auckland, New Zealand.
Irawan, K., & Anggono, H. A. (2015). A study of capital adequacy ratio and its determinants in Indonesian banks: A panel data analysis. International Journal of Management and Applied Science, 1(9), 1–4.
Isa, M. Y. M., Choong, Y. V., Fie, D. Y. G., & Rashid, M. Z. H. A. (2015). Loan loss reserves (LLR), expected loss (EL), and value at risk (VaR). Journal of Modern Accounting and Auditing, 11(4), 218-222. https://doi.org/10.17265/1548-6583/2015.04.004
Jaber, J. J., & Al-khawaldeh, A. A. (2014). The impact of internal and external factors on commercial bank profitability in Jordan. International Journal of Business and Management, 9(4), 22-30. https://doi.org/10.5539/ijbm.v9n4p22
Jucá, M. C., Sousa, A. F. D., & Fishlow, A. (2012). Capital Structure determinant’s of North American banks and the compensation executive program: An empirical study on the actual systemic crisis. International Journal of Business and Management, 7(17), 3-26. https://doi.org/10.5539/ijbm.v7n17p13
King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. The Quarterly Journal of Economics, 108(3), 717–737. https://doi.org/10.2307/2118406
Kleff, V., & Weber, M. (2008). How do banks determine capital ? Evidence from Germany how do banks determine capital? Evidence from Germany. German Economic Review, 9(3), 354-372. https://doi.org/10.1111/j.1468-0475.2008.00437.x
Mekonnen, Y. (2015). Determinants of capital adequacy of Ethiopia commercial banks. European Scientific Journal, 11(25), 315–331.
Mili, M., Sahut, J.-M., Trimeche, H., & Teulond, F. (2017). Determinants of the capital adequacy ratio of foreign banks’ subsidiaries: The role of interbank market and regulation. Research in International Business and Finance, 42, 442-453. https://doi.org/10.1016/j.ribaf.2016.02.002
Nuviyanti, & Anggono, A. H. (2014). Determinants of capital adequacy ratio (CAR) in 19 commercial banks (Case study: Period 2008–2013). Journal of Business and Management, 3(7), 752–764.
Ongore, V. O., & Kusa, G. B. (2013). Determinants of financial performance of commercial banks in Kenya. International Journal of Economics and Financial Issues, 3(1), 237-252.
Reynolds, S. E., Ratanakomut, S., & Gander, J. (2000). Bank financial structure in pre-crisis East and Southeast Asia. Journal of Asian Economics, 11(3), 319-331. https://doi.org/10.1016/s1049-0078(00)00062-2
Santos, J. A. C. (2001). Bank capital regulation in contemporary banking theory: A review of the literature. Financial Markets, Institutions, and Instruments, 10(2), 41-84. https://doi.org/10.1111/1468-0416.00042
Sidabalok, L. R., & Viverita. (2011). The determinants of net interest margin in the Indonesian banking sector. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1917367
Thoa, P. T. X., & Anh, N. N. (2017). The determinants of capital adequacy ratio: The case of the Vietnamese banking system in the period 2011-2015. VNU Journal of Science: Economics and Business, 33(2), 49–58. https://doi.org/10.25073/2588-1108/vnueab.4070
Workneh, B. (2014). Determinants of capital adequacy ratio of commercial banks in Ethiopia. Addis Ababa University.
Yu, M.-T. (1996). Measuring fair capital adequacy holdings for banks: The case of Taiwan. Global Finance Journal, 7(2), 239–252. https://doi.org/10.1016/s1044-0283(96)90007-1
Yuanjuan, L., & Shishun, X. (2012). Effectiveness of China’s commercial banks’ capital adequacy ratio regulation a case study of the listed banks. Interdisciplinary Journal of Contemporary Research in Busines, 4(1), 58–68.
DOI: https://doi.org/10.26905/jkdp.v23i3.2981
Refbacks
- There are currently no refbacks.
Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)
Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang
Published by University of Merdeka Malang
Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: +62 813-3180-1534
Email: jkp@unmer.ac.id
This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0