The effects of Tier-1 capital to risk management, and profitability on performance using multiple fixed effect panel data model

BACKGROUND: The development of the banking industry, especially the increasingly complex and diverse products and services, will increase the risk exposure of banks. OBJECTIVE: This research aimed to examine the effects of Tier-1 capital in terms of Risk Management and Profitability on the performance of Indonesian commercial banks. METHODS: The research population consisted of all commercial banks listed in the Indonesian Stock Exchange. The data are presented in the form of financial statements of commercial banks for the periods of 2012 to 2016 with a total of 42 banks. 28 of these met the criteria and were included in the study. RESULTS: (a) Tier-1 capital has a direct positive effect on Risk Management, (b) Tier-1 capital has a positive indirect effect on Profitability with Risk Management as Mediation Variable, (c) Risk Management has a positive direct effect on Profitability, (d) Tier-1 Capital has a positive indirect effect on Performance with Risk Management and Profitability as Mediation Variables, (e) Risk Management has a positive indirect effect on Performance with a Mediation Variable, and (f) Profitability has a positive impact on Performance. CONCLUSIONS: The originality of this research can be deducted from the causal relationship between the effects of Tier-1 capital, risk management, and profitability on performance of commercial banks in the context of stock performance among Indonesian commercial banks. Also, the analysis tools that use the Multiple Fixed Effect Panel Data Model in this research are a novelty. In addition, previous research findings remain inconsistent and vary between one another. By conducting this research, it is expected that more consistent research findings can be generated.