Abstract This research investigates the impact of governance mechanisms, bank performance and macroeconomic variables on the financial stability of Indonesia and Malaysia listed banks. The sample consists of 39 Indonesia and 16 Malaysia banks in 2019 untill 2023. Results suggest that governance mechanisms and performance indicators have more influence on stability than macroeconomic conditions. Board independence has significantly improved stability which emphasizes against the role effective external monitoring plays in emerging markets. By contrast, the board size is not significant while audit committee size has a negative impact on stability reflecting inefficiency in large committees. In the bank performance, operational efficiency consistently strengthens the bank’s stability. Surprisingly, this study also indicates that capital adequacy ratio negatively correlate with stability. This indicates that increased capital reserves may occasionally indicate hidden weaknesses in-stead of simply reflecting strength. Notably, factors like liquidity, inflation, and exchange rates show no statistically significant effect on stability, suggesting that banking institutions have adjusted to macroeconomic fluctuations and reduced their possible effects. Moreover, this study also found that board independence has a stronger stabilizing effect in Malaysia, while capital adequacy and liquidity are more critical for enhancing stability in Indonesia, and profitability supports stability only in Malaysia but is associated with higher risk-taking in Indonesia.
Saiful et al. (Wed,) studied this question.