Effect of Market Structure and Financial Characteristics on Bank Performance in Indonesia

Abstract

Purpose of this study is to obtain empirical evidence of the influence of market structure as measured by the Herfindahl-Hirschman Index (HHI) and Lerner Index, financial characteristics measured by capital, bank size on bank performance. The research sample is a Conventional Commercial Bank that has a minimum core capital of Rp. 5,000,000,000,000 and publishes financial statements in full during 2011-2018. Data analysis techniques in this study are panel data regression. The results showed that the Herfindahl-Hirschman Index proved to have a negative and significant influence on bank performance. The higher the Herfindahl-Hirschman Index shows the market structure that leads to a monopoly structure so that in general it will have an impact on decreasing bank performance. The Lerner Index proved to have a positive and significant influence on bank performance. It shows that when the monopoly power of individual banks increases, it will have an impact on the mastery of sources and assets owned by banks, which in turn will have an impact on increasing bank performance. Bank size and Capital proved to have a positive and significant influence on Bank performance.