THE INFLUENCE OF FINANCING POLICY, ASSET QUALITY, AND CAPITAL STRUCTURE ON EARNINGS RESPONSE AND FINANCIAL RISK MANAGEMENT
DOI:
https://doi.org/10.24252/assets.v16i2.65434Keywords:
Asset Quality, Capital Structure, Earnings Response, Financial Risk Management, Financing PolicyAbstract
Purpose - This study examines the effects of Financing Policy, Asset Quality, and Capital Structure on Financial Risk Management (FRM) in Indonesian commercial banks, with Earnings Response as a mediating variable, and evaluates how market-based earnings reactions transmit these effects to banking risk management.
Methods - Using secondary data from commercial banks listed on the Indonesia Stock Exchange (IDX) during 2010–2024, the study applies Structural Equation Modeling (SEM) and Sobel mediation tests to examine direct and indirect relationships among the study variables.
Findings - Financing Policy has a negative, insignificant effect on Earnings Response, whereas Asset Quality and Capital Structure show positive, significant effects. Financing Policy and Capital Structure negatively and significantly affect FRM, while Asset Quality’s effect is positive but insignificant; Earnings Response positively and significantly affects FRM. Earnings Response significantly mediates the effects of Asset Quality and Capital Structure on FRM, but not of Financing Policy.
Research Implications - Bank managers should prioritize asset quality improvement and prudent capital structure management, while regulators and policymakers can use these insights to strengthen supervisory frameworks that support banking stability and market confidence.
Originality - This study offers empirical evidence on the mediating role of market-based earnings reactions in transmitting internal financial-policy effects to banking risk management, an underexplored mechanism in emerging-market banking research.
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