Corporate Governance in Banking Industry: An Explanatory Study

Abstract

The purpose of this study is to examine the current practices of corporate governance in banking industry, especially in Indonesia. Good corporate governance is critical for banking Industry because with good corporate governance, the bank could preventive the banks from financial fraud that could lead to financial distress and bankruptcy Yeoh (2007). Furthermore, through corporate governance statement, the banks   ensure public that they follow the all Bank Indonesia’s rules and regulations. Bank Indonesia as banks’ regulator in Indonesia requires a corporate governance statement of each bank to be reported and published, together with audited annual report. The research question of this study focuses on: ‘Is it true, that foreign management involvement in banking industry lead to better corporate governance?’ In order to answer the research question, then, this study focuses on an examination governance structure and governance mechanism of 10 out of 39 public listed banks in Indonesia. Research methodology of this study is literature study from corporate governance statement and audited annual report. The finding is the maturity of good corporate governance among 10 public listed banks in Indonesia is not in the same stage, even though mostly all of them are following the regulation of Bank Indonesia as reserved bank in Indonesia. So, this study shows evidence that the implementation of corporate governance in Indonesian banking industry does not depend on the ownership, as Williams and Nguyen (2005) mention that foreign ownership had better corporate governance compared with local banks.

Keywords: corporate governance, banking industry, Indonesia