Corporate governance, bank size, and board education on Indonesian bank performance: the mediating role of capital structure during economic uncertainty

Abstract

This study looks at how corporate governance mechanisms, bank size, and board education affect the financial performance of Indonesian banks during a period of economic uncertainty, with capital structure included as a mediating variable. The study is based on panel data from 40 conventional commercial banks listed on the Indonesia Stock Exchange for 2020–2022, giving a total of 120 bank-year observations. Bank performance is measured by return on assets (ROA), and capital structure is measured by total debt to total assets (DTTA). The study applies Partial Least Squares Structural Equation Modeling (PLS-SEM) to examine both direct and indirect relationships in a relatively small sample and under financial data conditions that may not be normally distributed. The results show that bank size has a positive and significant effect on both bank performance and capital structure. Capital structure has a negative but insignificant effect on bank performance. Board education has a positive effect on capital structure but a negative effect on bank performance, suggesting that highly educated boards may adopt more conservative financing and strategic choices during crisis periods. Independent commissioners also show negative effects on capital structure and bank performance. This may mean that stronger monitoring reduces managerial discretion under conditions of high uncertainty. The indirect effects through capital structure are not significant, and the VAF results also show that capital structure does not meaningfully carry the effects of governance and organizational characteristics to performance. This study contributes to the literature on banking governance in emerging markets by showing that during periods of economic disruption, governance mechanisms do not always operate in the direction predicted by conventional agency-based arguments. The findings imply that Indonesian banks may require governance arrangements that balance oversight, expertise, and strategic flexibility, especially during crisis periods.