Corporate governance and non-performing loans: The mediating role of financial performance

Indriastuti M., Kartika I., Septiawan B., Sulistyowati S.

Abstract

Non-performing loans (NPL) for banking are a necessity but a frightening specter. A high NPL indicates a bank’s failure to manage its business. The increasingly uncontrollable NPL with a net position of above 5% will make the bank a patient regulator in the category of banks under intensive or special supervision. Therefore, corporate governance (audit committee, CEO duality, and independent commissioners) is needed to stabilize and even minimize non-performing loans in banks’ 440 annual financial statements of emerging markets sourced from Bloomberg during 2016–2020. All research data will be processed by structural equation modeling based on partial least squares. The results of this study indicate that the audit committee, CEO duality, and independent commissioners do not affect non-performing loans. At the same time, financial performance positively affects non-performing loans. In other words, the financial performance variable cannot mediate the effect of good corporate governance on non-performing loans. Therefore, this research implies that the banking industry is expected to minimize the ratio of non-performing loans to create a healthy financial performance.

Journal
Cogent Business and Management
Page Range
Publication date
2022
Total citations
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