Examining the Indonesian dual banking system: an exploration of market discipline indicators
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 19 September 2024
Abstract
Purpose
This research aims to investigate the disciplinary functions of depositors and subordinated debt holders within Indonesia's dual banking system, examining the impact of regulatory changes on market discipline.
Design/methodology/approach
The study employs a comprehensive analysis of the dual banking system in Indonesia over 15 years. Utilizing a non-public dataset from the Financial Services Authority and the Indonesia Deposit Insurance Corporation, the study employs propensity score matching and difference-in-differences analysis.
Findings
The findings reveal distinct patterns in the exercise of market discipline by depositors over different regulatory regimes. During the blanket guarantee regime (2002–2005), depositors lacked the incentive to monitor banks but resumed their disciplinary role under the limited guarantee regime (2005–2017). Islamic banks faced simultaneous market and regulatory discipline, with market discipline prevailing.
Originality/value
This study contributes to the literature by providing novel insights into the interplay between regulatory changes, market discipline and depositor behavior within Indonesia's dual banking system. The utilization of a comprehensive non-public dataset from regulatory authorities adds to the originality of the research.
Keywords
Acknowledgements
We would like to express gratitude to Bapak Wirandika Harizki dan Bapak Geotemi Adibisma from the FSA for providing the data. We also thank Bapak Didik Madiono and Bapak Eka Bramantya as Director of Indonesia Deposit Insurance Corporation for providing access to the data. In addition, we also appreciate the valuable feedback from Agusman, PhD as Director of Bank Indonesia and Associate Professor Rifki Ismal from Bank of Indonesia for the valuable feedback. This paper was presented at the 32nd Australasian Finance and Banking Conference in Sydney.
The authors would like to thank the reviewers for taking the necessary time and effort to review the manuscript. We sincerely appreciate all your valuable comments and suggestions, which helped us in improving the quality of the manuscript.
Citation
Wardhani, N.K., Faff, R., Liu, L. and Abdul Halim, Z. (2024), "Examining the Indonesian dual banking system: an exploration of market discipline indicators", International Journal of Managerial Finance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJMF-01-2024-0004
Publisher
:Emerald Publishing Limited
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