Risk Management, Capital Budgeting and Capital Structure Policy for Insurers and Reinsurers

The banking sector plays an important role in the country's economic growth. International experience shows that a weak banking sector not only threatens the long-term stability of a country's economy. It can also cause a financial crisis which can lead to economic crisis. Therefore, it is important to identify and investigate the factors on which the financial performance of banks depends. The purpose of this study is to analyze the influence of risk management, third-party funds and capital structure on banking sector financial performance in Indonesia and Thailand with corporate governance as moderating variable. The authors use return on assets (ROA) as the key indicator of bank efficiency. The data used in this study are secondary data, including nonperforming loan (NPL), loan-to-deposit ratio (LDR), operating expenses to operating income (BOPO), net interest margin (NIM), third party funds (TPF), debt-to-equity ratio (DER), return on assets (ROA), corporate governance. The data was obtained from the official website of the Indonesia Stock Exchange (www.idx.co.id) and the Thai Stock Exchange (www.set.or.th). The sample used in this study is 20 conventional banks listed on the Indonesia and Thailand Stock Exchange from 2015-2019. The methodological basis of this study is the use of the Structural Equation Model (SEM) with Partial Least Square (PLS). Data processing was performed in the WarpPLS 7.0 software. The study results show that NPL and LDR have a negative and significant influence on the financial performance of banks. At the same time, the BOPO and DER do not affect the financial performance of banks. The NIM and TPF have a significant and positive influence on the bank's financial performance. In addition, corporate governance does not moderate risk management relationship to the bank's financial performance. The results of this study can benefit bank shareholders and customers, and bank management.

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An analysis of cost of capital, capital structure and capital budgeting practices: a survey of South African listed companies

Meditari Accountancy Research ◽

10.1108/10222529200800011 ◽

2008 ◽

Vol 16 (2) ◽

pp. 31-52 ◽

Cited By ~ 17

Author(s):

C. Correia ◽

P. Cramer

Keyword(s):

Capital Structure ◽

South African ◽

Cost Of Capital ◽

Emerging Market ◽

Capital Budgeting ◽

Listed Companies ◽

Sample Survey ◽

The South ◽

Equity Ratio ◽

Finance Theory

This study employs a sample survey to determine and analyse the corporate finance practices of South African listed companies in relation to cost of capital, capital structure and capital budgeting decisions.The results of the survey are mostly in line with financial theory and are generally consistent with a number of other studies. This study finds that companies always or almost always employ DCF methods such as NPV and IRR to evaluate projects. Companies almost always use CAPM to determine the cost of equity and most companies employ either a strict or flexible target debt‐equity ratio. Furthermore, most practices of the South African corporate sector are in line with practices employed by US companies. This reflects the relatively highly developed state of the South African economy which belies its status as an emerging market. However, the survey has also brought to the fore a number of puzzling results which may indicate some gaps in the application of finance theory. There is limited use of relatively new developments such as real options, APV, EVA and Monte Carlo simulation. Furthermore, the low target debt‐equity ratios reflected the exceptionally low use of debt by South African companies.

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