Title: THE IMPACT OF SIZE AND CAPITALIZATION ON BANK PERFORMANCE: EMPIRICAL EVIDENCE FROM SMALL BANKS IN INDONESIA
Authors:
Ahmad Roy, Felisitas Defung and Wirasmi Wardhani
Abstract:
This study examines the influence of capital adequacy (CAR) and bank size (SIZE) on the profitability of small banks in Indonesia, using Return on Assets (ROA) as the performance indicator. The research employs panel data regression with 405 observations from small banks and applies model selection tests, including the Chow and Hausman tests, to determine the most appropriate model. The Random Effect Model (REM) is identified as the best fit for the data. The findings reveal that both CAR and SIZE have a positive and statistically significant effect on bank profitability. These results suggest that adequate capitalization and optimal bank scale are essential factors in enhancing the financial performance of small banks. The study provides empirical insights to support policy formulation and strategic management aimed at improving the resilience and competitiveness of small banks in Indonesia.
Keywords: Bank Profitability, Capital Adequacy, Bank Size, Small Banks.
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