IDEAS home Printed from https://ideas.repec.org/a/ers/ijfirm/v6y2016i2p1135.html
   My bibliography  Save this article

The Impact of Financial Conglomeration on Risk and Return Performance in Indonesia Banking Industry

Author

Listed:
  • Taufiq Hidayat

Abstract

There is a tendency in financial market that occurs in many countries, in which some financial institutions are formed to be a financial conglomeration. The financial conglomeration is driven by the trend of globalization of trade, the development of technology and deregulation that led to the consolidation of cross-sector businesses. Conglomeration of financial institutions also occurred in Indonesia with the holding, usually the bank holding company (BHC). According to Financial Services Authority (FSA), currently there are 31 financial institutions conglomerate operating in the Indonesian and control 77% of the financial institutions’ total assets. The Indonesian financial conglomeration’s performance will be examined by using the TOPSIS method (Technique For Order Preference By Similarity To An Ideal Solution), by looking at the differences in term of the TOPSIS Score between financial conglomerate (C) and focus bank companies (F). Based on the TOPSIS models, the analysis performance of 29 financial conglomerate and 29 focus bank in Indonesia as emerging financial market will be conducted. The models suggest that financial conglomerates have a better financial performance than the focus bank.

Suggested Citation

  • Taufiq Hidayat, 2016. "The Impact of Financial Conglomeration on Risk and Return Performance in Indonesia Banking Industry," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 6(2), pages 1135-1135.
    • Handle: RePEc:ers:ijfirm:v:6:y:2016:i:2:p:1135
    as

    Download full text from publisher

    File URL: https://journalfirm.com/journal/144/download
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Denis, David J & Denis, Diane K & Sarin, Atulya, 1997. "Agency Problems, Equity Ownership, and Corporate Diversification," Journal of Finance, American Finance Association, vol. 52(1), pages 135-160, March.
    2. Lewellen, Wilbur G, 1971. "A Pure Financial Rationale for the Conglomerate Merger," Journal of Finance, American Finance Association, vol. 26(2), pages 521-537, May.
    3. Halim Kazan & Omer Ozdemir, 2014. "Financial Performance Assessment of Large Scale Conglomerates Via Topsis and Critic Methods," International Journal of Management and Sustainability, Conscientia Beam, vol. 3(4), pages 203-224.
    4. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    5. Halim Kazan & Ömer Özdemir, 2014. "Financial Performance Assessment of Large Scale Conglomerates Via Topsis and Critic Methods," International Journal of Management and Sustainability, Conscientia Beam, vol. 3(4), pages 203-224.
    6. repec:zbw:bofrdp:2004_017 is not listed on IDEAS
    7. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    8. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
    9. Hyun-Han Shin & René M. Stulz, 1998. "Are Internal capital Markets Efficient?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(2), pages 531-552.
    10. Servaes, Henri, 1996. "The Value of Diversification during the Conglomerate Merger Wave," Journal of Finance, American Finance Association, vol. 51(4), pages 1201-1225, September.
    11. Cynthia A. Montgomery, 1994. "Corporate Diversificaton," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 163-178, Summer.
    12. Boyd, John H. & Graham, Stanley L. & Hewitt, R. Shawn, 1993. "Bank holding company mergers with nonbank financial firms: Effects on the risk of failure," Journal of Banking & Finance, Elsevier, vol. 17(1), pages 43-63, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Martin, John D. & Sayrak, Akin, 2003. "Corporate diversification and shareholder value: a survey of recent literature," Journal of Corporate Finance, Elsevier, vol. 9(1), pages 37-57, January.
    2. Hovakimian, Gayané, 2016. "Excess value and restructurings by diversified firms," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 1-19.
    3. Yasser Alhenawi & Martha Stilwell, 2017. "Value creation and the probability of success in merger and acquisition transactions," Review of Quantitative Finance and Accounting, Springer, vol. 49(4), pages 1041-1085, November.
    4. Hanazaki, Masaharu & 花崎, 正晴 & ハナザキ, マサハル & Liu, Qun & 劉, 群, 2003. "The Asian Crisis and Corporate Governance: Ownership Structure, Debt Financing, and Corporate Diversification," CEI Working Paper Series 2003-18, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    5. Aivazian, Varouj A. & Qiu, Jiaping & Rahaman, Mohammad M., 2015. "Bank loan contracting and corporate diversification: Does organizational structure matter to lenders?," Journal of Financial Intermediation, Elsevier, vol. 24(2), pages 252-282.
    6. Ferris, Stephen P. & Sen, Nilanjan & Lim, Chee Yeow & Yeo, Gillian H. H., 2002. "Corporate focus versus diversification: the role of growth opportunities and cashflow," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 12(3), pages 231-252, July.
    7. Stefan Erdorf & Thomas Hartmann-Wendels & Nicolas Heinrichs & Michael Matz, 2013. "Corporate diversification and firm value: a survey of recent literature," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(2), pages 187-215, June.
    8. Zinnia Mitra Bose & Indrani Chakraborty, 2022. "Effects of diversification on firm performance: an analysis of Indian firms," Indian Economic Review, Springer, vol. 57(2), pages 469-511, December.
    9. Joshua D. Shackman, 2007. "Corporate diversification, vertical integration, and internal capital markets: A cross-country study," Management International Review, Springer, vol. 47(4), pages 479-504, October.
    10. Elif AKBEN SELCUK, 2014. "Corporate Diversification, Group Affiliation and Firm Value: Evidence From Turkey," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 8(2), pages 151-174.
    11. van Lelyveld, Iman & Knot, Klaas, 2009. "Do financial conglomerates create or destroy value? Evidence for the EU," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2312-2321, December.
    12. Villalonga, Belen, 2000. "Does Diversification Cause the “Diversification Discount”?," University of California at Los Angeles, Anderson Graduate School of Management qt40v212gm, Anderson Graduate School of Management, UCLA.
    13. Brahmana, Rayenda Khresna & Setiawan, Doddy & Hooy, Chee Wooi, 2014. "Diversification strategy, Ownership Structure, and Firm Value: a study of public‐listed firms in Indonesia," MPRA Paper 64607, University Library of Munich, Germany.
    14. Haykel Zouaoui & Faten Zoghlami, 2023. "What do we know about the impact of income diversification on bank performance? A systematic literature review," Journal of Banking Regulation, Palgrave Macmillan, vol. 24(3), pages 286-309, September.
    15. Siraj, Ibrahim & Hassan, M. Kabir & Maroney, Neal, 2020. "Product demand sensitivity and the corporate diversification discount," Journal of Financial Stability, Elsevier, vol. 48(C).
    16. Doukas, John A. & McKnight, Phillip J. & Pantzalis, Christos, 2005. "Security analysis, agency costs, and UK firm characteristics," International Review of Financial Analysis, Elsevier, vol. 14(5), pages 493-507.
    17. Matsusaka, John G. & Nanda, Vikram, 2002. "Internal Capital Markets and Corporate Refocusing," Journal of Financial Intermediation, Elsevier, vol. 11(2), pages 176-211, April.
    18. Angélica María Sánchez-Riofrío & Luis Ángel Guerras-Martín & Francisco Javier Forcadell, 2015. "Business portfolio restructuring: a comprehensive bibliometric review," Scientometrics, Springer;Akadémiai Kiadó, vol. 102(3), pages 1921-1950, March.
    19. David J. Denis & Diane K. Denis & Keven Yost, 2002. "Global Diversification, Industrial Diversification, and Firm Value," Journal of Finance, American Finance Association, vol. 57(5), pages 1951-1979, October.
    20. Chou, Shu-Ching & Shih, Chia-Jung, 2020. "Like father, like son? Diversification decision and related performance of family firm successors – Evidence from Taiwan," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 209-220.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ers:ijfirm:v:6:y:2016:i:2:p:1135. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marios Agiomavritis (email available below). General contact details of provider: https://journalfirm.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.