Banking Regulation, Risk Management and Capital Structure Decisions: A Study on Rural Banks in Indonesia

Abstract

The purpose of this study are: (1) examining effect the banking regulations on capital structure decisions, (2) examining effect of risk management on capital structure decisions, (3) examining the role of banking regulations to moderate effect of risk management on capital structure decisions. Research was conducted in rural banks on North Sulawesi and Gorontalo, Indonesia in 2011. There are 20 banks analyzed which are appointed based on population criteria. Generalized Structural Component Analysis (GSCA) method is used in this study. The findings of this study discover that the banking regulations determines capital structure decisions. The practice of risk management determines the capital structure decisions. The findings of this study show that the banking regulations has no role in strengthening risk management in determining capital structure decisions.

Keywords: Banking Regulation, Risk Management, Capital Structure Decisions