The role of good corporate governance through investment decision support and its impact on banking performance with efficiency-based credit quality as intermediation

Abstract

Conventional commercial banks in Indonesia are experiencing a decline in lending despite overall banking system improvement, highlighting challenges in governance and loan supervision. Inefficient credit regulations struggle to prevent banking crises, and rapid credit expansion can compromise loan quality, leading to higher levels of bad loans. This study aims to provide input on the existence of a gap between the influence of corporate governance as a proxy for institutional ownership, independent commissioners, number of meetings and audit committees on banking performance with Efficiency-Based Credit Quality as a mediating variable, developed by synthesizing monetary theory with production theory. This research was conducted at banking companies on the Indonesia Stock Exchange from 2014 to 2020 with a population of 46 banks. Purposive sampling was used and obtained a sample of 40 banks with 280 observations. Data analysis in this study used path analysis using the WarpPLS analysis tool. The results of this study found that independent commissioners, number of meetings, investment decisions, and liquidity have a direct effect on banking performance with a positive coefficient, institutional ownership has no direct effect on banking performance and audit committees have no direct effect on banking performance with a negative coefficient. Second, efficiency-based credit quality can mediate the effect of institutional ownership, independent commissioners, number of meetings, audit committees, investment decisions, and liquidity on banking performance. The three efficiency-based credit qualities have a significant positive effect on banking performance.