The Influence of Implementing Rural Bank Governance on Financial Performance (Study on Rural Banks in Central Java and the Special Region of Yogyakarta)

Abstract

The present study analyzed the influence of implementing Rural Bank on the financial performance of Rural Banks in Central Java and the Special Region of Yogyakarta. The increase of Rural Bank's business followed by expansion of services might increase the risk in performing Rural Bank's activities. Thus, the implementation of governance is assumed to be essential to improve the performance of Rural Banks, protect stakeholders, increase compliance with provisions and ethical values ​​that generally apply in banking. The research sample involved 305 Rural Banks in Central Java and Yogyakarta. The data analysis technique employed multiple linear regression. The results of the study included: First, in the 2017-2019 period, as the implementation of Rural Bank, the Board of Directors has a positive influence on Rural Bank's financial performance, but in the 2020-2021 period the Board of Directors has a negative influence on Rural Bank's financial performance. Second, as an implementation of Rural Bank, the composition of the Independent Board of Commissioners has a negative influence on Rural Bank's financial performance in the 2017-2019 period as well as the 2020-2021 period. Research limitations include: First, this study had an adjusted R² value below 35%. Future research should add other Rural Bank implementation variables such as the number of directors. Second, this study involved a limited sample of only Rural Banks in Central Java and the Special Region of Yogyakarta. Future research should expand the scope of Rural Banks outside Central Java and the Special Region of Yogyakarta. Third, this study was still limited to Rural Banks and does not yet cover other financial institutions in the regions. Future research should consider other financial institutions such as commercial banks.