THE MEDIATING ROLE OF GOVERNANCE, RISK MANAGEMENT, AND COMPLIANCE IN THE RELATIONSHIP BETWEEN ACQUISITION AND FINANCIAL PERFORMANCE: EVIDENCE FROM KB BANK INDONESIA
DOI:
https://doi.org/10.22437/jiituj.v10i2.54791Keywords:
Acquisition, Compliance, Financial Performance, Governance, Risk ManagementAbstract
Acquisitions are an important bank restructuring strategy for overcoming financial distress; however, their direct contribution to financial recovery remains unclear. This study examines the acquisition of Bank Bukopin by KB Kookmin Bank in 2020 and its effect on the financial performance of both institutions. The research also investigates governance, risk management, and compliance (GRC) as mediating variables in the relationship between acquisition and financial performance. A mixed-method approach was employed using secondary financial data from the periods before the acquisition (2018–2020) and after the acquisition (2021–2024), analyzed through paired t-tests, alongside primary survey data collected from 65 bank employees and analyzed using SEM-PLS. The findings reveal that the acquisition did not have a direct significant effect on profitability indicators, particularly Return on Assets (ROA) and Operating Expenses to Operating Income (BOPO). However, mediation analysis demonstrates that compliance significantly mediates the relationship between acquisition and financial performance, whereas governance and risk management do not show significant mediating effects. These results indicate that immediate post-acquisition financial improvement depends more on the implementation of strong compliance mechanisms than on governance structures alone. The novelty of this study lies in decomposing the GRC framework and identifying compliance as the primary driver enabling acquisitions to achieve financial turnaround. While compliance functions as an immediate operational mechanism for financial recovery, governance and risk management appear to contribute more gradually over time. Therefore, post-merger integration strategies should prioritize strengthening compliance systems to accelerate financial performance improvement.
Downloads
References
Aebi, V., Sabato, G., & Schmid, M. (2012). Risk management, corporate governance, and bank performance in the financial crisis. Journal of Banking & Finance, 36(12), 3213–3226. https://doi.org/10.1016/j.jbankfin.2011.10.020
Al-Homaidi, E. A., Tabash, M. I., Farhan, N. H., & Almaqtari, F. A. (2018). Bank-specific and macroeconomic determinants of profitability of Indian commercial banks. Cogent Economics & Finance, 6(1), 1548072. https://doi.org/10.1080/23322039.2018.1548072
Ali, M., Puah, C. H., & Ayob, N. (2022). Risk management and compliance post-COVID-19. Journal of Financial Regulation and Compliance, 30(4), 456–474. https://doi.org/10.1108/JFRC-11-2021-0098
Alshubiri, F. N. (2017). Financial sustainability indicators of banking sector. International Journal of Economics and Financial Issues, 7(1), 164–173. https://doi.org/10.32479/ijefi.4658
Anginer, D., Demirguc-Kunt, A., Huizinga, H., & Ma, K. (2018). Corporate governance of banks and financial stability. Journal of Financial Economics, 130(2), 327–346. https://doi.org/10.1016/j.jfineco.2018.06.011
Arifin, Z. (2019). Corporate governance and compliance on bank performance. Journal of Finance and Banking, 23(1), 12–25. https://doi.org/10.26905/jkdp.v23i1.2678
Ashraf, B. N., Arshad, S., & Hu, Y. (2016). Capital regulation and bank risk-taking behavior. International Journal of Financial Studies, 4(3), 16. https://doi.org/10.3390/ijfs4030016
Avgouleas, E., & Cullen, J. (2018). Bank resolution and bail-in in the EU. Journal of Financial Regulation, 4(1), 1–17. https://doi.org/10.1093/jfr/fjx011
Bace, E. (2016). Bank liquidity risk management and performance. Journal of Risk Management in Financial Institutions, 9(3), 272–284.
Basel Committee on Banking Supervision. (2019). Guidelines on corporate governance principles for banks. https://www.bis.org/bcbs/publ/d328.pdf
Berger, A. N., Imbierowicz, B., & Rauch, C. (2016). Corporate governance in bank failures. Journal of Money, Credit and Banking, 48(4), 729–770. https://doi.org/10.1111/jmcb.12316
Bhattarai, Y. (2016). Non-performing loans and profitability. International Journal of Business & Management, 4(6), 1–10.
Bitar, M., Pukthuanthong, K., & Walker, T. (2018). Capital ratios and bank performance. Journal of International Financial Markets, Institutions and Money, 53, 227–262. https://doi.org/10.1016/j.intfin.2017.12.002
Cohen, J. (1988). Statistical power analysis for the behavioral sciences (2nd ed.). Lawrence Erlbaum.
DeYoung, R., Evanoff, D., & Molyneux, P. (2009). Mergers and acquisitions of financial institutions. Journal of Financial Services Research, 36(2), 87–110. https://doi.org/10.1007/s10693-009-0059-8
Elnahass, M., Izzeldin, M., & Abdelsalam, O. (2020). Loan loss provisions and bank valuation. Journal of Economic Behavior & Organization, 172, 164–186. https://doi.org/10.1016/j.jebo.2020.02.015
Gani, L., & Jermias, J. (2019). Governance mechanisms on bank performance. Journal of Asian Finance, Economics and Business, 6(4), 131–142. https://doi.org/10.13106/jafeb.2019.vol6.no4.131
Hagendorff, J., Collins, M., & Keasey, K. (2008). Bank governance and acquisition performance. Corporate Governance: An International Review, 16(3), 220–236. https://doi.org/10.1111/j.1467-8683.2008.00681.x
Hair, J. F., Hult, G. T. M., Ringle, C. M., & Sarstedt, M. (2022). A primer on PLS-SEM (3rd ed.). Sage.
Hakimi, A., & Boussaada, R. (2020). Risk management and bank performance. Journal of Financial Economic Policy, 12(3), 393–415. https://doi.org/10.1108/JFEP-10-2019-0205
Hassan, M. K., Aliyu, S., & Hussein, M. (2020). Governance in banking literature. Pacific-Basin Finance Journal, 62, 101370. https://doi.org/10.1016/j.pacfin.2020.101370
Henseler, J., Hubona, G., & Ray, P. (2016). Using PLS path modeling. Industrial Management & Data Systems, 116(1), 2–20. https://doi.org/10.1108/IMDS-09-2015-0382
Joash, G., & Ngalawa, H. (2017). Financial performance post-acquisition. Banks and Bank Systems, 12(4), 108–117. https://doi.org/10.21511/bbs.12(4).2017.10
Kumar, S., & Bansal, L. (2008). Impact of M&A on performance. Management Decision, 46(10), 1531–1543. https://doi.org/10.1108/00251740810920029
Le, T. D. (2019). Cross-border M&A and bank performance. Pacific-Basin Finance Journal, 57, 101185. https://doi.org/10.1016/j.pacfin.2019.101185
Macey, J. R., & O’Hara, M. (2003). Corporate governance of banks. Economic Policy Review, 9(1), 91–107.
Mamatzakis, E., & Bermpei, T. (2016). Bank performance and monetary policy. Journal of International Money and Finance, 67, 239–263. https://doi.org/10.1016/j.jimonfin.2016.05.005
Mezhoud, M., & Ghazouani, S. (2018). Banking stability and risk. Journal of Financial Regulation and Compliance, 26(3), 421–438. https://doi.org/10.1108/JFRC-06-2017-0056
Nguyen, Q. K. (2020). Ownership structure and bank risk-taking. Cogent Economics & Finance, 8(1), 1809789. https://doi.org/10.1080/23322039.2020.1809789
Nugroho, M. (2021). M&A in Indonesian banking. Asian Journal of Business and Accounting, 14(2), 205–231. https://doi.org/10.1111/ajba.12056
OECD. (2015). G20/OECD principles of corporate governance. https://doi.org/10.1787/9789264236882-en
Othman, J., & Ameer, R. (2020). Risk management in emerging markets. Emerging Markets Review, 44, 100713. https://doi.org/10.1016/j.ememar.2020.100713
Peni, E., & Vähämaa, S. (2018). Board of directors and performance. Journal of Financial Intermediation, 34, 1–15. https://doi.org/10.1016/j.jfi.2018.05.001
Permatasari, I., & Novitasari, N. (2021). Governance and compliance. Bulletin of Monetary Economics and Banking, 24(1), 111–134. https://doi.org/10.21098/bemp.v24i1.1356
Ramayah, T., Cheah, J., Chuah, F., Ting, H., & Memon, M. (2018). PLS-SEM using SmartPLS. Pearson.
Rao-Nicholson, R., Salaber, J., & Cao, T. (2016). M&A performance in ASEAN. Research in International Business and Finance, 36, 373–387. https://doi.org/10.1016/j.ribaf.2015.09.024
Sarstedt, M., Ringle, C. M., & Hair, J. F. (2017). PLS-SEM. Handbook of Market Research, 1–40. https://doi.org/10.1007/978-3-319-05542-8_15-1
Shmueli, G., Sarstedt, M., Hair, J. F., et al. (2019). Predictive model assessment. European Journal of Marketing, 53(11), 2322–2347. https://doi.org/10.1108/EJM-02-2019-0189
Sufian, F., & Kamarudin, F. (2016). M&A efficiency in banking. International Journal of Economics and Management, 10(1), 1–20.
Trinugroho, I., Risfandy, T., & Ariefianto, M. (2018). Banking competition. Borsa Istanbul Review, 18(4), 349–358. https://doi.org/10.1016/j.bir.2018.06.006
Wasiuzzaman, S., & Gunasegavan, U. (2020). Liquidity risk in banking. Journal of Applied Finance & Banking, 10(2), 1–22.
Wibowo, B. (2017). Systemic risk in Indonesian banking. Journal of Asian Economics, 49, 1–15. https://doi.org/10.1016/j.asieco.2017.02.001
Yildirim, C., & Efthyvoulou, G. (2018). Bank value and diversification. Journal of Financial Stability, 36, 225–245. https://doi.org/10.1016/j.jfs.2018.04.003
Zhang, Y., & Zheng, X. (2020). Governance and liquidity risk. Emerging Markets Finance and Trade, 56(6), 1313–1335. https://doi.org/10.1080/1540496X.2019.1607212
Zheng, C., & Zhang, J. (2021). M&A and bank performance. Journal of Emerging Market Finance, 20(2), 150–182. https://doi.org/10.1177/09726527211003460
Zhou, V., & Liu, Y. (2021). Compliance and bank efficiency. International Review of Financial Analysis, 74, 101665. https://doi.org/10.1016/j.irfa.2021.101665
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2026 Nelly Evalyna Rumapea, Wita Juwita Ermawati, Gendut Suprayitno
This work is licensed under a Creative Commons Attribution 4.0 International License.
