Muliaman D. Hadad

Productivity changes and risk management in Indonesian banking: a Malmquist analysis

In this study, we utilize a nonparametric efficiency measurement approach which combines the Semi-Oriented Radial Measure–Data Envelopment Analysis (SORM–DEA) approach for dealing with negative data (Emrouznejad et al., 2010) with the Slacks-Based Efficiency Measures (SBM) of Tone (2001, 2002) to analyse productivity changes for Indonesian banks over the period Q1 2003 to Q2 2007. The first part of the analysis showed that average productivity changes for the Indonesian banking industry tended to be driven by technological progress rather than by frontier shift, although a relatively stable pattern was exhibited for most of the period. With respect to the risk management analysis, most of the balance sheet variables were shown to have had the expected impact on Risk Management Efficiency (RME), with the state-owned grouping exhibiting the highest degree of RME and the listed and Islamic banks outperforming their nonlisted and conventional bank counterparts, respectively. A strategy based on the gradual adoption of newer technology, with a particular focus on internal risk management enhancement, seems to offer the highest potential for boosting the productivity of the financial intermediary operations of Indonesian banks.

The accuracy of management profit forecasts in IPO prospectuses

Purpose – The purpose of this paper is to measure the accuracy of management profit forecast in initial public offerings (IPO) prospectuses and investigate the determinants of any observed forecast error in Indonesia. Design/methodology/approach – A sample of 105 Indonesian IPO firms over a ten-year period, 1999-2008, is used in the present study. The accuracy of management profit forecasts, or forecast errors, in IPO prospectuses is calculated, following Lee et al. (2006), over the ten-year sample period. Then, a multivariate model, following the extant literature, is used to identify the determinants of any observed forecast error in Indonesia. Findings – A mean (median) forecast error of 19 percent (9 percent) is reported over the entire sample period. Multivariate analysis shows that, among the explanatory variables used in the present study, forecast horizon and management optimism seem to be the most significant determinants of forecast error in Indonesia. Research limitations/implications – The ord...

Do Small Capital Markets Recognize Differentiated Corporate GovernanceStructure? Evidence from the Indonesian IPOs

The Capital Market Supervisory Agency in Indonesia and subsequently, the Indonesian Stock Exchange introduced the requirement of appointing at least 30% commissioners as independent, in the Board of Commissioners, in all public companies by December 31, 2001. The present study documents the extent of compliance of this new requirement and investigates whether the capital market can recognize the IPO firms that are in compliance from those that are not, using a sample of 72 IPO firms in Indonesia over the period 2002 through 2007. Results from the multivariate analysis indicate that IPO firms that are in compliance do experience significant less underpricing compared to those that are not. Furthermore, a positive, but insignificant, relationship between compliance and post- IPO firm valuation is reported in the present study. The results documented in this study should be comforting to the policy makers in Indonesia, as well as other developing countries, in that governance reform measures do work without necessarily having a pre-existing strong legal system.