The Effects of Ownership Structure on Bank Profitability

Abstract

This study aims to examine the effects of ownership structure on the profitability of banks in Indonesia. The structure of bank ownership is divided into three categories, namely government, private domestic, and foreign ownership. Bank profitability is measured by Return on Assets (ROA) and Return on Equity (ROE). This research uses bank size as a control variable. We use explanatory survey for this study. The sampling technique used is the purposive sampling method. We use secondary data obtained from the Indonesian Financial Services Authority and annual reports from each bank. We then analyze the data using panel regression testing with common effect modeling. The results show that private domestic and foreign ownership have statistically significant positive effects on bank profitability, while government ownership has a statistically significant negative effect on bank profitability.

State ownership and bank performance: conventional vs Islamic banks

“…The means test differentiates between two different periods, before and after the world financial crisis period during 2008 -2009. Generally speaking, the results in Table 2 show an almost consistent pattern concerning the superiority of state banks compared to private banks, which supports the conclusions of Rosalina and Nugraha (2019) and Fathi and Elbannan (2017), although there seem to be conspicuous changes in the magnitude of the performance measures before and after the financial crises period, as well as in the magnitude of the significance level. For example, for the conventional banks' ROA,…”

“…The results in Table 4 also show that the influence of the control variables is as predicted. For example, for the conventional GCC banks, the results illustrate that there is a positive effect of bank size on bank profitability, which is in line with the findings of Fathi and Elbannan (2017) and Rosalina and Nugraha (2019). Also, the higher a bank loan portfolio and base of deposits, the higher a bank's profitability.…”

“…Replacing the ownership variable with the type of ownership (a dummy variable that equals 1 if state ownership is greater than 20%) also yields a similar significant result with respect to the influence of state ownership on the profitability of conventional banks. This finding is in line with those of Fathi and Elbannan (2017) and Rosalina and Nugraha (2019) but contradicts those of Barth et al (2001), Kobeissi and Sun (2020), and partially those of Shawtari (2018) and Haddad et al (2020).…”

“…The study highlights the implications of state ownership and its effect on bank performance. Rosalina and Nugraha (2019) examined the influence of ownership structure on bank profitability for Indonesian banks. They concluded that state ownership has a significant effect on bank profitability in the sense that the higher the level of state ownership, the lower the ROA and ROE of Indonesian banks.…”

How multiple large shareholders affect bank profitability under the dispersion and the coalition hypotheses? An insight from the MENA region

“…More recently, Rosalina and Nugraha (2019) studied the impact of ownership structure on bank profitability in Indonesia. They used a sample of 101 banks over the period 2013-2017.…”