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The Influence of Banking Profitability on Share Price and the Moderating Role of Capital Adequacy Ratio and Foreign Exchange Transaction: Comparative Study of Government and Private Banks in Indonesia

Meliza Zafrizal and Rasidah Mohd Said

Pertanika Journal of Tropical Agricultural Science, Volume 27, Issue S2, December 2019

Keywords: Bank share price, bank profitability, capital adequacy ratio, foreign exchange transaction

Published on: 11 November 2019

Bank share prices in Indonesia have the tendency to fluctuate in the last ten years. Reducing Net Interest Margin issue results in some investors’ hesitation to invest their funds in bank’s shares. Up until now, ten biggest banks in Indonesia like MANDIRI, BNI, BRI, BTN, BCA, DANAMON, PERMATA, PANIN, CIMB NIAGA, and MAYBANK INDONESIA [formerly BII]) have been playing a dominant roles in the banking sector share market. Therefore, this research analyzed and compared the influence of bank’s profitability to the share price of these ten biggest government and private banks in Indonesia. There are many previous studies on banking profitability and share price but only a few studies analyze banking profitability and share price using bank’s capital adequacy ratio and foreign exchange transaction as moderators. Random Effect model was applied to measure the influence of bank profitability on share price using capital adequacy ratio and foreign exchange transaction as moderators. Results indicated that the profitability of both government and private banks had an influence on the share price. Capital adequacy ratio can moderate the influence of government bank profitability on share price but it cannot moderate the influence of private bank profitability on share price. Foreign exchange transactions can enhance the influence of government bank profitability on share price. Nevertheless, it cannot moderate the influence of private banks’ profitability on share price.

ISSN 1511-3701

e-ISSN 2231-8542

Article ID

JSSH(S)-1080-20

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