Does Good Corporate Governance Mediate Risk Management Implementation and Financial Performance of Indonesian Commercial Banks?

Abstract

This study examines the effect of risk management implementation on financial performance mediated by good corporate governance in the banking sector. The research design is quantitative research, which employs a mediating regression analysis in which good corporate governance is a mediating variable between risk management implementation and financial performance. By using a purposive sampling technique, this study includes 21 banks listed on the Indonesian Stock Exchange. The research results are that enterprise risk management implementation has a significant positive effect on good corporate governance. Enterprise risk management implementation has no significant impact on financial performance. Good corporate governance has a significant influence on financial performance. Finally, good corporate governance mediates enterprise risk management on financial performance. The contribution of this research is laid on the usage of content analysis to identify what kinds of banks' risks have a potency to expose banks to particular risks, as well as the examination of the role of good corporate governance as a mediating variable of the effect of risk management on financial performance. Banks should explicitly provide some information about the potential risks, risk appetite, risk measurement, and potential risk mitigation. Information on how the Good Corporate Governance responds to the foreseen potential risks is recommended.