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The Influence Of The Top Management Team Diversity On Indonesia Regional Bank Development Performance

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Dipresentasikan di 2nd International Conference for Emerging Market ( ICEM 2015 - http://icem.perbanasinstitute.ac.id/ ) pada tanggal 22 - 23 Januari 2015 dan menjadi 3rd Best Paper

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The Influence Of The Top Management Team Diversity On Indonesia Regional Bank Development Performance

  1. 1. THE INFLUENCE OF THE TOP MANAGEMENT TEAM DIVERSITY ON INDONESIA REGIONAL BANK DEVELOPMENT PERFORMANCE Joy Elly Tulung PhDStudentSKEMABusinessSchool LecturerSamRatulangiUniversityManado www.joytia1999.com International Conference for Emerging Markets Business Sustainability and Technology Innovation: Opportunities and Challenges 22 – 23 January 2015
  2. 2. OUTLINE PRESENTATION INTRODUCTION LITERATURE REVIEW METHODOLOGY RESULTS CONCLUSION
  3. 3. Introduction
  4. 4. Introduction   There   are   so   many   issues   in   the   business   sector   in   Indonesia   that   are  interes3ng  to  inves3gate,  one  of   them  is  top  management  team Hambrick  and  Mason  (1984),  Hambrick  (2007  )  Finkelstein  and   Hambrick  (1996).   They  noted  that  between  1984  and  1996,  there  were  more  than   two   hundred   studies   on   upper   echelons   theory   published   in   several  major  journals  all  over  the  world Indonesia   is   a   big   country   –   the   biggest   archipelago   in   the   world   and   the   15th   largest   area   in   the   world,   as   well   as   the   fourth   highest   number   of   popula3on   with   more  than  237  million  people  (BPS,  2010).   U n f o r t u n a t e l y ,   there   have   not   been   numerous   s c i e n 3 fi c   p u b l i c a 3 o n s ,   n e i t h e r   i n   i n t e r n a 3 o n a l   j o u r n a l s   n o r   accredited  journals,   that   discuss   top   management   team   in  Indonesia.  
  5. 5. ResearchQuestion Whether  the  diversity  in  top  management  team  influences  the   comWany  performance,  especially  in  banking,  and  more  specifically  in   Bank  Pembangunan  Daerah  (BPD)  in  Indonesia.  
  6. 6. Two - tier Indonesia  adopts  a  two-­‐?er  system,  which  separates  board  of  directors  and  board   of  commissioners   On  one  hand,  the  board  of  directors  (hereaCer  is  called  top  management  team)  is   in   charge   of   opera?ng   the   company,   and   on   the   other   hand,   board   of   commissioners  is  in  charge  of  monitoring  the  board  of  directors  in  organizing  the   company.     Private Companies In  private  companies,  it  has  been  the  tendency  to  appoint  the  family  member  of   the  company  owner  and  several  professional  people,  as  well  as  the  employees  that   are  considered  brilliant  and  are  appropriate  to  be  included  in  the  top  management   team.   BusinessEliteinIndonesia SOE in  the  State-­‐Owned  Enterprises,  the  appointment  of  the  board  of  directors  and  the   board  of  commissioners  is  influenced  by  the  government,  which  is  represented  by   the   minister   of   State-­‐Owned   Enterprise.   Thus,   the   minister   can   appoint   the   professionals  from  outside  the  company  or  officials  from  within  the  company.  
  7. 7. RegionalBankDevelopment(BPD) There  are  26  BPDs  in   34   provinces   in   Indonesia At  the  end  of  2011,  the   assets  of  all  BPDs  in   Indonesia  reached  305   trillion  rupiahs,  or  in  the   fourth  place  in  Indonesia   aCer  Mandiri  Bank  (493   trillion),  BRI  (456  trillion),   and  BCA  (378  trillion)   (www.infobanknews.com)   There  has  been  very  liYle   aYen?on   given   to   this   bank.   More   research   on   banking   conducted   in   Indonesia   was   mainly   about   other   issues   in   other   banks,   such   as   private   banks   and   State-­‐ Owned  Enterprises  bank   The   issue   on   the   top   management   team   is   seen   to   be   interes?ng   from  the  poli?cal  point   of   view.   That   is,   it   has   been   a   public   secret   that   to   enter   the   top   management   team   in   BPD,   the   applicant   has   t o   h a v e   c l o s e   connec?on   with   the   local  government
  8. 8. Literature Review
  9. 9. The  Age  of  Top  Management  Team  Pegels  and   Yang  (2000:  697)  stated  that  a  senior  manager   tends  to  avoid  any  risk  (Vroom  and  Pahl,  1971),   while   a   young   manager   tends   to   run   aCer   something   risky,   and   takes   an   innova?ve   strategy.     Level  of  Educa3on  Dahlin  et  al  (2005)  found  that  the  diversity  in  educa?on  on   TMT   posi?vely   influences   the   range   and   the   depth   of   the   informa?on   used;   meanwhile,  this  may  influence  the  informa?on  combina?on  nega?vely.     LITERATURE REVIEW Defini3on  of  Top  Management  Team  TMT  is  defined  as  those  who  are  in  the   upper  ?er  in  an  organiza?on  (Hambrick  and  Mason  1984).  The  poten?al   members  of  TMT  are  CEO  or  chief  execu?ve,  president  of  the  commissioner,   financial  director,  opera?onal  director,  and  so  on.  These  individuals  are  the   major  execu?ves  in  an  organiza?on,  each  of  which  provides  instruc?ons  and   direc?ves  on  an  important  decision      
  10. 10. Hypothesis H1:  average  age  in  the  top  management   team  has  posi2ve  effect  towards  the   performance  of  BPD.     H2:  The  diversity  of  level  of  educa2on  at   top  management  team  will  posi2vely   influence  the  performance  of  BPD.    
  11. 11. Methodology
  12. 12. METHODOLOGY In  this  research,  the  researcher  used  deduc3ve  method  as  the  methodological  approach.  A   deduc3ve  approach  needs  conceptual  development  and  previous  theore3cal  structure,  and   is  examined  using  empirical  observa3on     (Gill  and  Johnson,  2002).   Samples   • 24  out  of  26  BPDs  in  Indonesia  were  used  as  samples  and  data  were  taken  from   2007  to  2011.  They  were  obtained  from  the  annual  report  provided  by  each  website   of  each  BPD.     • 184  members  of  TMT.  The  members  consisted  of  the  board  of  commissioners  and   the  board  of  directors   Performance   • CAR   • ROA   • ROE  
  13. 13. Bialas   and   Solek   (2010),   CAR   was   first   legalized   as   the   measuring   instrument   of   banking  health  in  July  1988  by   Basel   CommiYee   on   Banking   S u p e r v i s i o n   u n d e r   t h e   guidance   of   Peter   Cook,   thus   making  it  named  Cook  Ra?o.  A   bank   is   considered   in   good   condi?on   if   the   CAR   value   is   above  8%.     ROA   is   chosen   because   it   shows   the   ability   of   the   bank   performance   and   it   also   measures   the   effec?veness   of   the   company   in   geeng   the   income   from   the   asset   management.   The   higher   the   ROA,   the   beYer   performance   the  bank  has.  This  is  due  to  the   bigger   reimbursement   and   thereby   the   company   assets   may   develop   (Dendawijaya,   2001:  120)   ROE  is  employed  because  it  is   a   ra?o   between   net   income   and  equity  (Bodie  et  al,  2002).   In   other   words,   if   the   ROE   value   of   a   company   is   high,   there  will  be  more  profits  and   may   have   posi?ve   influence   towards   stock   price.   ROE   has   commonly   used   to   measure   the   performance   of   the   company’s   financial   condi?on   (Certo  et  al,  2006).  
  14. 14. Results
  15. 15. Results
  16. 16. Level of Education High School 1 (0.5%) Bachelor 67 (36.4%) Master 92 (50%) Doctor 20 (10.9 %) Background Banking 126 (68.5%) Non Banking 50 (27.2%) Government 37 (20.1%) Non Government 140 (76.1%) Age 40 – 49 = 32 ( 17.4% ) 50 – 59 = 109 ( 59.2 % ) 60 < = 38 ( 20.7 % ) Gender Male 180 (97.8%) Female 4 (2.2 %) . Characteristics of TMT in BPD  
  17. 17. The Development of CAR value of BPD in 2007-2011 23.29   19.99   19.64   17.74   16.66   0   5   10   15   20   25   2007   2008   2009   2010   2011  
  18. 18. The development of ROA in BPD in 2007 – 2011. 3.06   3.56   3.32   4.15   3.44   0   0.5   1   1.5   2   2.5   3   3.5   4   4.5   2007   2008   2009   2010   2011  
  19. 19. The development of ROE of BPD in 2007-2011     25.7   27.39   27.13   31.83   28.05   0   5   10   15   20   25   30   35   2007   2008   2009   2010   2011  
  20. 20. the  rela?on  between  the  level  of   educa?on  with  the  company   performance  shows  an  insignificant   value  of  CAR  (0.53)  and  ROA  (0.24),   but  the  rela?on  of  the  level  of   educa?on  and  the  company   performance  reaches  a  significant   value  of  ROE,  that  is  0.04.  Therefore,   since  one  of  the  two  variables  which   are  used  to  measure  the  performance   of  BPD,  those  are  CAR  and  ROA,  are   not  significant,  H2  is  rejected.  .     the   average   age   does   not   influence   the   performance   of   TMT  in  BPD  in  Indonesia.  This  can   be   seen   from   the   value   of   CAR   (0.59),   ROA   (0.77),   and   ROE   (0.92).  This  is  not  significant  since   the   significant   value   is   0>0.05.   Given   this   result,   the   H1   is   rejected    
  21. 21. Conclusion
  22. 22. The Age of Top Management Team (Vroom   and   Pahl,   1971),   while   a   young   manager   t e n d s   t o   r u n   a ] e r   something  risky,  and  takes   an  innova3ve  strategy.     average   age   in   the   top   management   team   has   posi3ve  effect  towards  the   performance  of  BPD   Pegels   and   Yang   (2000:   697)   stated   that   a   senior   manager   tends   to   avoid   any  risk This   research   shows   that   the   average   age  of  TMT  members  and  the  diversity   of   the   level   of   educa?on   of   TMT   members   do   not   influence   the   performance  of  BPD.  It  is  contradictory   to   the   research   conducted   by   Mayr   (2011)   and   HiY   and   Tyler   (1991)   who   found   that   the   average   age   of   TMT   significantly   influenced   the   company   performance.     The  present  research  supports   other  findings  from  other   researchers  such  as  Tihanyl  et  al   (2000),  Wiersma  and  Bantel   (1992),  and  Child  (1974),  sta?ng   that  the  average  age  of  TMT  does   not  influence  the  company   performance    
  23. 23. Bachelor 67 TMTs 10.9% Master 92 TMTs 50% Doctor 20 TMTs 36.4% The   rela?onship   between   the   level   of   educa?on   of   TMT   members   and   the   performance   of   BPD   is   not   insignificant.   This   is   different   with   the   research   conducted  by  Bantel  and  Jackson  (1992)  who  found  that  the  level  of  educa?on   influenced   the   company   performance.   However,   this   present   research   supports   the  research  conducted  by  Tulung  (2009)  who  found  that  the  level  of  educa?on  of   TMT  does  not  significantly  influence  the  company  performance.   LevelofEducation
  24. 24. Limitation data  validity  and  reliability.  Because  of  the   limited  ?me,  the  researcher  did  not  conduct   construct  validity  and  reliability.   The   independent   variables   of   this   research,   those   are   age   and   the   level   of   educa?on,   are   insufficient  to  see  the  variety  of  TMT  and  the   rela?onship  with  the  performance  of  BPD.   Data Secondary   data   collected   were   not   enough   to   measure   the   performance   of  BPD.  Again,  due  to  the  limited  ?me   and   place,   the   researcher   did   not   conduct   any   observa?on,   survey,   ques?onnaire,  or  interview.  . Those  methods  may  help  to  find  more  variety  of  TMT   in   BPD   and   also   to   see   the   strategy   of   making   appropriate  decision  for  BPD.  . Limitation
  25. 25. Managerial Effect These   results   become   significant   input   for   TMT   of   BPD   that   even   though   the   diversity   of   level   of   educa?on   and   the   average   age   do   not   influence   the   performance   of   BPD,   they   cannot   be   avoided,   and   that   there   may   be   other   characteris?cs   that   were   not   analyzed   in   the   present   research   that   may   have   posi?ve  effects  towards  the  company  performance,  such  as  gender,  background  of   educa?on,  background  of  occupa?on,  or  the  rela?on  with  the  company.  
  26. 26. Suggestion for the Next Research other  characteris?cs  such  as  gender,  background  of  occupa?on,  or  the  rela?onship   with  the  government.     Since  the  secondary  data  collected  were  not  enough  to  measure  the  variety  and  the   performance  of  BPD,  it  is  suggested  that  the  next  research  employ  several  methods   such  as  observa?on,  survey,  ques?onnaire,  or  interview.     It  is  also  interes?ng  to  relate  the  poli?cal  connec?on  of  the  TMT  members  with  the   government.     Such  research  can  support  the  present  researcher  and  the  next  researchers  to  find   more  gaps  within  the  strategy  and  especially  on  the  topic  of  top  management  team.    
  27. 27. Thanks Discussion

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