Changes in Banking Industry Stock Prices: The Role of Risk, Good Governance, Earnings, and Capital

Abstract

This research, with direct implications for banking professionals and investors, aims to empirically test and analyze the RGEC components, which consist of risk profile, good corporate governance, earnings and capital, and their influence on banking stock prices listed on the Indonesian Stock Exchange (BEI). The sample for this research was determined using a purposive sampling technique, resulting in a total sample of 21 companies over 3 periods, namely 2016-2018. The data analysis technique used is Partial Least Square (PLS). The research results, which have immediate relevance for investment strategies, show that earnings proxied using ROA positively affect stock prices, while risk profile, good corporate governance, and capital do not. This indicates that earnings are still a strong signal for investor investment decisions. Therefore, the company must succeed in maintaining and increasing its earnings to become an investment choice for investors. However, even though good corporate governance and capital do not influence stock prices, it doesn’t mean that banking companies should ignore their governance and capital. These two factors are essential in maintaining good performance.