PPIA FEB UI Doctoral Promotion: Sustainability Awareness of Banking Institutions in Indonesia and Its Implications for Performance Through Operational Efficiency with the a Moderating Role of Competitiveness
Nino Eka Putra – Public Relations FEB UI
DEPOK – (12/8/2021) The Postgraduate Program in Accounting (PPIA) Faculty of Economics and Business, Universitas Indonesia, held an online open session for Idrianita Anis’ Doctoral Promotion, on Thursday (12/8/2021). The dissertation written by the Candidate was entitled “Sustainability Awareness of Banking Institutions in Indonesia and Its Implications for Performance Through Operational Efficiency with a Moderating Role of Competitiveness”.
The Doctoral Promotion Session was chaired by Teguh Dartanto, Ph.D., with supervisors Prof. Dr. Lindawati Gani (Promoter), Dr. Ancella Anitawati Hermawan (Co-Promoter 1), Desi Adhariani, Ph.D. (Co-Promoter 2). As the test team, Prof. Sidharta Utama, Ph.D. (Chief Examiner), Prof. Dr. Irwan Adi Ekaputra, Prof. Hasan Fauzi, Ph.D., Setio Anggoro Dewo, Ph.D., and Dr. Chaerul D. Djakman.
Idrianita Anis conducted a study to examine the proposed solution to the problem of low banking operational efficiency in Indonesia by conducting a structured analysis of the problems of corporate sustainability management (CSM) practices, especially related to the definition of sustainability, sustainability risk management, and information on corporate sustainability performance.
This study uses the term Sustainability Awareness (SA), which is defined as a management system that adopts the concept of sustainability. There is an operational linkage with the banking business strategy, financial system and capital market. By developing the CSM Model and SA Level Index as a proxy for CSM practice. This study further examines the effect of the Overall SA Index on performance through operational efficiency and the moderating role of the level of competitiveness. Bank performance includes financial performance (return on assets-ROA), firm value (price to book value-PBV), and ability to survival (ZSCORE). The research population in the form of banks listed on the Indonesia Stock Exchange during 2010 – 2019 with a total of 404 observations.
The study also used panel data estimation to test the direct effect, and a two stage least square for the indirect effect. Some of the research contributions are (i) The first research to develop the CSM Model as a management system innovation concept. The CSM Model was developed based on SPMS-BSC and “Triple I framework” – Sustainability Intention, Integration, Implementation; (ii) the SA Level Index was developed with a 4-level score to measure the level of diffusion of sustainability innovation using a step-by-step innovation model based on the “framework to sustainable finance”; (iii) The first research to analyze sustainability from the perspective of governance and capability to find out how far Overall SA affects the transition and transformation capabilities of banks; (iv) The level of competitiveness is proxied by internal capabilities. Operational efficiency is proxied by technology change, obtained from the residual value of the I/O model intermediation approach – stochastic frontier analysis. The residual value describes the technology gap, namely the distance between the current state of bank technology (meta frontier) and the best available technology set (global frontier). The distance is predicted to be smaller if banks adopt sustainability innovation.
The results showed that the Overall SA Index increased during the observation period, especially after entering the Indonesia Sustainable Finance Journey Phase I (2015-2019). Indonesian banking is at the Moderate Level of Innovation or in transition from filtering values to prioritizing the balance of values (SF1.0-SF2.0_TotalValue=F+S+E). The Bank is in the Lower Level Innovation for the components of Sustainability Motivation and Accountability and Communication; and on Moderate Level Innovation for the components of Stakeholders Engagement, Unit Organization Alignment, Sustainability Business Case, and Stakeholder and Risk Management Process.
In addition, the results of the study show that Overall SA has a positive effect on operational efficiency. The level of competitiveness has a negative effect on operational efficiency, but its interaction with Overall SA is able to weaken this negative effect. Moderation test results indicate that in a dynamic environment, firms and markets are governance alternatives. Overall SA is able to become a management control system-levers of control that can lead banks to disciplined behavior.
Operational efficiency has a positive effect on financial performance, but has no effect on firm value and ability to survive. The level of competitiveness has no effect on financial performance, firm value and ability to survive. Overall SA has a direct negative effect on financial performance and firm value, but does not affect bank survival. The results of the indirect effect test show that operational efficiency plays a positive mediating role in the influence of Overall SA on financial performance and ability to survive, but has not played a mediating role on firm value.
It may be concluded that the practice of CSM by complying with global and national regulations and following best-practice standards related to sustainability, sustainability risk management, and information on corporate sustainability performance directs business strategy and makes the bank management system to be more adaptive to environmental conditions. CSM practices enable banks to transition and transform, thus having a positive impact on financial performance and the banks’ ability to survive.
The results of the sensitivity test show that Overall SA has a positive effect on operational efficiency, financial performance, and ability to survive at t+1 and t+2, but has not affected firm value at t+1 and t+2. Overall SA has the opportunity to reduce the probability of operational inefficiency and bank financial instability. These results confirm that it takes time to build market awareness to use information on the performance of CSM practices in investment decisions. The results also confirm that with the existing level of innovation, Indonesian banking is heading for a future fit foundation.
The Leadership Council of the open session for doctoral promotion decided that Idrianita Anis was declared to have graduated with the title of Very Satisfactory and succeeded in obtaining the 84th Doctorate degree in Accounting. Congratulations to Dr. Idrianita Anis!
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