bank as a control variable, includes: bank size, bank leverage, and loan to deposit ratio LDR.
Ownership structure is an important component that determines the success of an institution. Therefore, the ownership structure becomes an
important topic for academic explorations and policy making. Several previous studies that support this research is conducted by Alejandro Micco
2007 concerning Bank Ownership and Performance, which focused observations on profitability at state banks and private banks, where the
ownership of private banks is divided into two categories : foreign-owned banks and local investors-owned banks. Furthermore, other literature that
supports this research was conducted by Boubakri et al. 2005 about Privatization and Bank Performance in Developing Country, which focuses
observation on profitability, efficiency, credit risk, and capital adequacy at the bank with the ownership structure divided into four categories: The
Government, Foreign, Industrial Groups, and Individual. Based on this background, the researcher took the research titled:
“OWNERSHIP
STRUCTURE, BANK
PERF ORMANCE, AND
RISK: SOME
INDONESIAN EVIDENCE”
B. Introduction to Problem Definition
The banking sector, which is a major player in economic sector, is one of the most vital sectors that form the economic structure of a country. The
banking industry is growing rapidly in a country with the characteristics of an
emerging economy, like Indonesia. There are a large number of banks in Indonesia, particularly as a result of post-crisis monetary policies in 1997-
1998 which bring a profound impact on the banking conditions in Indonesia. Based on the data stated above, there are major changes in banks ownership
structure as a result of those policies. Privatization has minimized the number of banks owned by the government and encouraged the growing of private
banks, both owned by local and foreign institutions. Besides, foreign and joint venture banks are also growing rapidly in Indonesia.
Boubakri 2005 stated that privatization of the banking sector, particularly in countries characterized by emerging economies, are often
accompanied by a process called Financial Liberalization that fundamentally change the way financial sector managed. Those process can
affect the value of the bank, the growth opportunities, risk exposure of banks, and hence the performance of banks. If the privatization process is
unsuccessful, it can result in a loss to many parties, especially the depositor, which eventually will lead to financial crisis. As already known, bank is an
intermediary institution, which in its operations use more funds from the public compared to their own capital or capital raised from shareholders.
These conditions encourage related parties involved in the banking sector conduct an assessment of the health of banks.
Ownership structure in banking sector becomes an interesting and important topic for academic explorations and policy making, especially when
it is associated with performance and risk taking differences across many
kinds of ownership structures. Several previous studies with various results have concerned about ownership structures. First, previous research
conducted by Linqiang Huang and Sheng Xiao 2012, explained about how government ownership affects firm performance. This study concluded that
the profitability of the firm, as measured by Return on Sales ROS is negatively affected by the government ownership. This research stated that
privatization, which lower the government ownership can improve firm’s performance as a result.
This study result is supported by another prior study conducted by Alejandro Micco 2007 concerning Bank Ownership and Performance, which
focused observations on profitability at the government-owned banks and private banks, which the ownership of private banks is divided into two
categories: foreign-owned banks and local investors-owned bank. This study concluded several results: First, State-Owned Bank located in developing
countries tend to have profitability measured by Return on Asset much lower 0.9 lower than domestic privately owned bank. Second, foreign
bank located in developed countries tend to be more profitable 0.37 higher than private domestic bank.
Previous study conducted by Boubakri 2005 provides a contrast view for this topic. This study is about Privatization and Bank Performance in
Developing Country, which focuses observation on profitability, efficiency, credit risk, and capital adequacy at the bank with the ownership structure
divided into four categories: The Government, Foreign, Industrial Groups,
and Individual. Several results are concluded: First, privatization is not significantly improved bank performance, because when the government
relinquishes control, profitability gains are lower. Second, foreign control in ownership is not significantly affected profitability, and the result associated
with bank risk-taking, the credit risk measured by Non-Performing Loans Ratio in foreign-owned banks is lower than domestic private banks.
A wide range of variations of the previous study results about this issue make it more interesting to analyze, particularly in the context of the
banking sector in Indonesia. This study provides better insight for the development of topics related to ownership structure of the bank. In addition
to comprehensively divided bank ownership structure into five main categories state-owned banks, regional development banks, foreign and joint
venture banks, domestic banks owned by foreign institutions, and domestic banks owned by local institutions, this study focuses not only on the
profitability differences across the ownership structure as measured by ROA and ROE, but also focuses on the risk taking of each ownership structure,
which measured by the value of Z-Score, as proposed by Boyd and Graham 1986, which indicates the probability of failure of a given bank. This study
also concern bank characteristics as a control variable include: bank size, bank leverage, and loan to deposit ratio LDR.
C. Problem Definition and Research Question
