THE EFFECT OF RISK GOVERNANCE ON BANK PERFORMANCE: EVIDENCE FROM INDONESIAN BANKS
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Selty Tan(1*)
Department of Management, Faculty of Economics and Business, University International Batam
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Hesniati Hesniati(2)
Department of Management, Faculty of Economics and Business, University International Batam
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Serly Serly(3)
Department of Accounting, Faculty of Economics and Business, University International Batam
(*) Corresponding Author
Keywords:
Risk Governance Index, Bank Performance, Agency Theory
Abstract
This study investigates the impact of risk governance on banking performance in Indonesia using a quantitative approach. Panel data regression is applied to 235 bank-year observations from 47 commercial banks over the 2018–2022 period, with the sample selected through purposive sampling based on data availability and governance disclosures. Bank performance is measured using Return on Assets (ROA) and Return on Equity (ROE), while risk governance is proxied by the Risk Governance Index (RGOV), constructed from risk governance disclosures in annual reports. The empirical findings demonstrate that risk governance has a positive and statistically significant effect on both ROA and ROE, thereby supporting the proposed hypotheses. These results indicate that banks with stronger risk governance frameworks tend to achieve more efficient asset utilization and generate higher returns for shareholders, even after controlling for bank-specific characteristics and time effects. This evidence underscores the importance of robust risk oversight mechanisms in enhancing managerial discipline and operational effectiveness. The study contributes to the corporate governance literature by providing empirical evidence from an emerging market context, particularly within the Indonesian banking sector. From a practical standpoint, the findings suggest that bank management and regulators such as Otoritas Jasa Keuangan and Bank Indonesia should prioritize the strengthening of risk governance structures to promote sustainable performance, financial stability, and long-term resilience in banking institutions.
Keywords: Risk Governance Index; Bank Performance; Agency Theory
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References
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Nahar, S., Azim, M., & Jubb, C. A. (2016). Risk disclosure, cost of capital and bank performance. International Journal of Accounting and Information Management, 24(4), 476–494. https://doi.org/10.1108/IJAIM, 02, 2016, 0016
Nahar, S., Jubb, C., & Azim, M. I. (2016). Risk governance and performance: a developing country perspective. Managerial Auditing Journal, 31(3), 250–268. https://doi.org/10.1108/MAJ, 02, 2015, 1158
Nguyen, Q. K., & Dang, V. C. (2022). The impact of risk governance structure on bank risk management effectiveness: evidence from ASEAN countries. Heliyon, 8(10). https://doi.org/10.1016/j.heliyon.2022.e11192
Suprapto, Y., & Candy. (2018). Peranan Manajemen Risiko Kredit Terhadap Kinerja Perusahaan Bpr Di Riau. In Seminar Nasional Cendekiawan ke (Vol. 4).
Tania, K. S., & Hesniati, H. (2022). The effect of gender diversity on firm performance in Indonesia. Jurnal Manajemen Strategi Dan Aplikasi Bisnis, 5(2), 267–284. https://doi.org/10.36407/jmsab.v5i2.667
Wijaya, M., Hesnaiti, H., Robin, R., & Nainggolan, F. (2022). COVID, 19 Outbreak Impact on Stock Return in Indonesia and Malaysia. Jurnal Keuangan Dan Perbankan, 26(2), 436–447. https://doi.org/10.26905/jkdp.v26i2.7618
Zhang, X., Li, F., & Ortiz, J. (2021). Internal risk governance and external capital regulation affecting bank risk, taking and performance: Evidence from P.R. China. International Review of Economics and Finance, 74, 276–292. https://doi.org/10.1016/j.iref.2021.03.008
https://doi.org/10.1016/j.intfin.2021.101466
Ari, K. F., & Hanggraeni, D. (2024). The Moderation Effect of Risk Governance Structure On Risk Management And Its Impact On Financial And Social Performance Of Islamic Banks In Indonesia. 7(1), 2622–4798.
https://doi.org/10.12928/ijiefb.v7i1.10478
Babakatun, M., & Mustapha, N. (2023). Operational Risk and Performance of Listed Deposit Money Banks In Nigeria: Moderating Effect Of Risk Management Committee Structure. In Nigerian Journal of Management Sciences (Vol. 24).
Boadi, L. A., Isshaq, Z., & Adu, asare idun, A. (2023). Board expertise and the relationship between bank risk governance and performance. Cogent Business and Management, 10(3). https://doi.org/10.1080/23311975.2023.2283233
Candy. (2021). Best Practice Of Enterprise Risk Management: The Impact On Rurals’ Bank Performance. Business and Accounting Research (IJEBAR) Peer Reviewed, International Journal, 5(2). https://jurnal.stie, aas.ac.id/index.php/IJEBAR
Eklemet, I., MacCarthy, J., & Gyamera, E. (2024). Moderating Role of Risk Management between Risk Exposure and Bank Performance: Application of GMM Model. Theoretical Economics Letters, 14(02), 363–389.
https://doi.org/10.4236/tel.2024.142020
Gull, A. A., Abid, A., Hussainey, K., Ahsan, T., & Haque, A. (2023). Corporate governance reforms and risk disclosure quality: evidence from an emerging economy. Journal of Accounting in Emerging Economies, 13(2), 331–354.
https://doi.org/10.1108/JAEE, 11, 2021, 0378
Haddad, A. E., & Alali, H. (2021). Risk disclosure and financial performance: the case of Islamic and conventional banks in the GCC. Journal of Islamic Accounting and Business Research, 13(1), 54–72. https://doi.org/10.1108/JIABR, 11, 2020, 0343
Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2022). Multivariate data analysis (8th ed.). Cengage Learning.
Harb, E., El Khoury, R., Mansour, N., & Daou, R. (2023). Risk management and bank performance: evidence from the MENA region. Journal of Financial Reporting and Accounting, 21(5), 974–998. https://doi.org/10.1108/JFRA, 07, 2021, 0189
Jain, S., & Raithatha, M. (2022). Risk disclosures and firm value: the role of governance in an emerging market. International Journal of Productivity and Performance Management, 71(8), 3205–3227. https://doi.org/10.1108/IJPPM, 09, 2020, 0476
Jallali, S., & Zoghlami, F. (2022). Does risk governance mediate the impact of governance and risk management on banks’ performance? Evidence from a selected sample of Islamic banks. Journal of Financial Regulation and Compliance, 30(4), 439–464. https://doi.org/10.1108/JFRC, 04, 2021, 0037
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304, 405X(76)90026, X
Julia, R. A., Candy, C., & Yuwono, W. (2024). Apakah Manajemen Risiko Berpengaruh Terhadap Kinerja Bank? Distribusi , Journal of Management and Business, 12(2), 309–322. https://doi.org/10.29303/distribusi.v12i2.509
Kacem, O., & El Harbi, S. (2023). Risk governance, ethics codes and bank performance: evidence from large banks worldwide. Managerial Finance, 49(2), 205–226. https://doi.org/10.1108/MF, 09, 2020, 0474
Karyani, E., Dewo, S. A., Santoso, W., & Frensidy, B. (2020). Risk governance and bank profitability in ASEAN, 5: a comparative and empirical study. International Journal of Emerging Markets, 15(5), 949–969. https://doi.org/10.1108/IJOEM, 03, 2018, 0132
Montgomery, D. C., Peck, E. A., & Vining, G. G. (2021). Introduction to Linear Regression Analysis (6th ed.). Wiley.
Muqorobin, M. M., Rani, U., & Simamora, A. J. (2024). The role of risk management committee between risk, taking behavior and companies’ performance. International Journal of Productivity and Performance Management, 73(3), 817–836. https://doi.org/10.1108/IJPPM, 07, 2022, 0347
Nahar, S., Azim, M. I., & Hossain, M. M. (2020). Risk disclosure and risk governance characteristics: evidence from a developing economy. International Journal of Accounting and Information Management, 28(4), 577–605. https://doi.org/10.1108/IJAIM, 07, 2019, 0083
Nahar, S., Azim, M., & Jubb, C. A. (2016). Risk disclosure, cost of capital and bank performance. International Journal of Accounting and Information Management, 24(4), 476–494. https://doi.org/10.1108/IJAIM, 02, 2016, 0016
Nahar, S., Jubb, C., & Azim, M. I. (2016). Risk governance and performance: a developing country perspective. Managerial Auditing Journal, 31(3), 250–268. https://doi.org/10.1108/MAJ, 02, 2015, 1158
Nguyen, Q. K., & Dang, V. C. (2022). The impact of risk governance structure on bank risk management effectiveness: evidence from ASEAN countries. Heliyon, 8(10). https://doi.org/10.1016/j.heliyon.2022.e11192
Suprapto, Y., & Candy. (2018). Peranan Manajemen Risiko Kredit Terhadap Kinerja Perusahaan Bpr Di Riau. In Seminar Nasional Cendekiawan ke (Vol. 4).
Tania, K. S., & Hesniati, H. (2022). The effect of gender diversity on firm performance in Indonesia. Jurnal Manajemen Strategi Dan Aplikasi Bisnis, 5(2), 267–284. https://doi.org/10.36407/jmsab.v5i2.667
Wijaya, M., Hesnaiti, H., Robin, R., & Nainggolan, F. (2022). COVID, 19 Outbreak Impact on Stock Return in Indonesia and Malaysia. Jurnal Keuangan Dan Perbankan, 26(2), 436–447. https://doi.org/10.26905/jkdp.v26i2.7618
Zhang, X., Li, F., & Ortiz, J. (2021). Internal risk governance and external capital regulation affecting bank risk, taking and performance: Evidence from P.R. China. International Review of Economics and Finance, 74, 276–292. https://doi.org/10.1016/j.iref.2021.03.008
Published
2026-03-10
How to Cite
Tan, S., Hesniati, H., & Serly, S. (2026). THE EFFECT OF RISK GOVERNANCE ON BANK PERFORMANCE: EVIDENCE FROM INDONESIAN BANKS. Journal of Management : Small and Medium Enterprises (SMEs), 19(1), 629-644. https://doi.org/10.35508/jom.v19i1.26957
Section
Articles
