Analysis of Corporate Governance, Market Concentration, And Diversification on Financial Stability In The Indonesian Banking Sector

This research explores the relationships between corporate governance, market concentration, and diversification strategies in shaping financial stability within Indonesia’s banking sector, with a particular focus on the impact of the COVID-19 pandemic. Utilizing COVID-19 as a dummy variable, the study analyzes data from 2015 to 2022 across 62 Indonesian listed and non-listed commercial banks. A panel data regression model, with the Z score as the measure of financial stability, was employed to assess the effects of corporate governance metrics (such as independent commissioner participation, gender diversity, ownership concentration, and managerial ownership), market concentration, and diversification. Findings suggest that while independent commissioner participation, gender diversity, and ownership concentration demonstrate negative and insignificant effects on financial stability, managerial ownership and market concentration exhibit significant negative impacts. Conversely, diversification into non-traditional activities shows a positive and significant correlation with stability. Recommendations include enhancing the role of independent commissioners, promoting gender diversity, diversifying ownership, and encouraging market competition. Regulators should enforce governance policies, monitor ownership concentration, and promote income diversification.