The Determinants of Financial Performance in Indonesian Banking Industry : Testing Interaction Effect of Size

This research was made to examine the determinants of financial performance of banking companies in Indonesia. There are four independent variables (board of diversity, net interest margin, operational efficiency, and liquidity risk) and a moderating variable (firm size) have been analyzed in this research. Testing the interaction effect of firm size in explaining the influence of these four independent variables on banking financial performance is still very limited. This quantitative research was analyzed by using secondary data from audited annual reports of the company. The purposive sampling technique was used to choose the research’s samples during the observation periods (2018-2022) and obtained 200 observations (40 samples over 5 years of research). Panel data regression with the EViews program was used to test the eight hypotheses which was developed in this research. The results of the Chow test and Hausman test confirm the use of the Random Effect Model in the analysis. The findings from testing the interaction model show that firm size does not moderate the influence of board of diversity and net interest margin on financial performance, while for operational efficiency and liquidity risk variables, the firm size shows a pure moderating role for the both.