Title:
DOES GCG INCREASE FINANCIAL PERFORMANCE? A STUDY IN INDONESIAN SHARIA BANKS.

Authors:
Devi Novianti, Tri Gunarsih*, Ralina Transistari, Indonesia

Abstract:

This study aimed to analyze the impact of Good Corporate Governance (GCG) on the financial performance of Sharia Banks in Indonesia. The sharia banking in Indonesia comprises of Sharia Commercial Bank and Sharia Rural Bank (BUS) and Sharia Business Unit (UUS) as seen to in Act Number 21 of 2008 concerning Sharia Banking.  The population in this study are BUS and UUS  in Indonesia, which registered in the Financial Services Authority (FSA) in the period 2010-2017. The samples are 240 BUS and UUS, which are selected based on purposive sampling method. This study implements a regression analysis to test the hypotheses. The proxy of GCG is GCG index as referred to Bank Indonesia Regulation Number 11/33/PBI/2009 Concerning The Implementation of Good Corporate Governance by Islamic Commercial Banks and Islamic Business Units. The GCG  index ranges from 1 to 5, meaning the best to the worst; the smaller the index number, the better the GCG index.  The Return on Assets (ROA) measures financial performance. Other independent variables instead of GCG are sharia bank type (BUS/UUS) and income. The regression results show that there is a negative impact of GCG  on ROA. The negative sign of GCG means that the better the GCG index, the higher the ROA. This result suggests that GCG increases financial performance as expected.