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Deposit structure, market discipline, and ownership type: Evidence from Indonesia

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  • Trinugroho, Irwan
  • Pamungkas, Putra
  • Ariefianto, Mochammad Doddy
  • Tarazi, Amine

Abstract

In this paper, we extend the literature on the discipline imposed by depositors on banks by disentangling the impact of macro risk and micro risk. We also take advantage of a unique dataset in which depositors are split into different categories of deposit size in different types of banks (bank ownership structure). We consider the Banking Stability Index, which is used by the Indonesia Deposit Insurance Corporation as a dashboard to monitor banking stability at the country level as well as individual stability measures such as the Z-score. Using monthly data from 2005 to 2013, our findings show that both macro and micro levels of risk are considered by depositors to discipline banks. Large uninsured depositors are more effective at disciplining banks, highlighting the credibility of the insurance system that is in place. Bank ownership type also matters in explaining the difference in market discipline by depositors.

Suggested Citation

  • Trinugroho, Irwan & Pamungkas, Putra & Ariefianto, Mochammad Doddy & Tarazi, Amine, 2020. "Deposit structure, market discipline, and ownership type: Evidence from Indonesia," Economic Systems, Elsevier, vol. 44(2).
    • Handle: RePEc:eee:ecosys:v:44:y:2020:i:2:s0939362518304692
    DOI: 10.1016/j.ecosys.2020.100758
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    Cited by:

    1. Rihab Grassa & Nejia Moumen & M. Kabir Hassan & Khaled Hussainey, 2022. "Market discipline and capital buffers in Islamic and conventional banks in the MENA region," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(1), pages 139-167, March.
    2. Alamsyah, Halim & Ariefianto, Moch. Doddy & Saheruddin, Herman & Wardono, Seto & Trinugroho, Irwan, 2020. "Depositors’ trust: Some empirical evidence from Indonesia," Research in International Business and Finance, Elsevier, vol. 54(C).
    3. Aldy Fariz Achsanta & Tastaftiyan Risfandy & Putra Pamungkas & Irwan Trinugroho & Herman Saheruddin, 2021. "Related bank deposits: Good or bad for stability?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 11(4), pages 735-751, December.
    4. Saheruddin, Herman & Soedarmono, Wahyoe, 2022. "Do board size, institutional ownership and external auditors matter to market discipline in Indonesian banking?," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 389-395.

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