BOARD GOVERNANCE AND BANKING EFFICIENCY INDONESIA EVIDENCE

Purpose: This paper discusses empirical research investigating the effect of board governance on the bank efficiency.

Design/Methodology/Approach: This research uses a sample of 29 publicly listed banks on the Indonesian Stock Exchange for the fiscal year that ended on December 31, 2006 through 2011. Board governance was proxy by several elements, namely proportion of independent board member, background accounting and finance of board member, independent board president, number of board, number of board meeting, number of board attendance in board meeting, board special meeting, disclosure of board's share ownership, and disclosure of board remuneration. Efficiency was proxy by net interest margin and operational expense ratio.

Findings: This study finds evidence of a positive impact of board governance on bank efficiency measured by net interest margin and no impact if bank efficiency is measured by operational expense ratio.

Originality/Value: This study provides further evidence on the impact of board governance on bank efficiency. Comparing to previous research, this study has different features. Unlike previous research which only uses four or five proxies, this research uses ten proxies of board governance. Moreover, there is little (if any) and limited research related to effect of board governance on the Indonesian bank efficiency.