Could independent board, board meeting, audit committee, and risk committee improve the asset quality and operational performance a study of listed banks in Indonesia

Abstract

Purpose -This study examines the impact of independent board of directors, board meeting, audit committee, and risk committee on bank practise in Indonesia. Methodology -Asset quality is measured by non-performing loans (NPL), and operational performance is measured by operational expense ratio (BOPO). While, as independent variables we used some good corporate governance variables including independent board (IB), the annual board meeting (BM), the percentage of annual board of director meeting attendance, the annual board-executive meeting (BEM), the percentage of annual board-executive meeting attendance, Audit Committee (AC), Audit Committee Meeting (ACM), the percentage of annual audit committee meeting attendance, Risk Committee (RC), Risk Committee Meeting (RCM), and the percentage of annual risk committee meeting attendance. The data are listed banks in Indonesian Capital Market during 2013-2015 using unbalanced panel data two stage least square (2SLS) regression. Findings-The findings reveal that independent board will improve the prudence principal of the bank. While the board of directors meeting will enhance the operational performance of the bank.In addition, the number of the audit committee will make better operational performance, while the number of meeting will improve the non-performing loan. Conclusion-Regarding these results the central bank and also the other stakeholders could maintain the role of the independent board of directors as well as the number of high quality annual meeting of the board. In addition, this study also reveals the role of the audit committee in banking business. This study supports the agency theory that monitoring activity will make the firm better performance.