Determinants of banking firm value: Financial performance and audit quality
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Published:
Sep 30, 2026
Keywords:
Audit Quality, Financial Performance, Firm Value, Moderating Effect, Indonesian Banking.
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Articles
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Abstract
This study examines whether audit quality conditions the association between banking financial performance and firm value in Indonesia. Using an 11-year panel of 20 commercial banks listed on the Indonesia Stock Exchange (2013–2023; 220 firm-year observations), the study estimates a random-effects moderated regression with heteroskedasticity-robust standard errors. Firm value is proxied by Price-to-Book Value (PBV), while financial performance is represented by Return on Assets (ROA), Capital Adequacy Ratio (CAR), Loan to Deposit Ratio (LDR), and Net Interest Margin (NIM); audit quality equals one for Big Four auditors. CAR has a positive significant association with PBV (β = 0.0690; p = 0.001), whereas ROA has a significant negative coefficient (β = −0.8626; p < 0.001). LDR (p = 0.064) and NIM (p = 0.084) are not significant at the 5% level. Audit quality attenuates the CAR effect (CAR×AQ: β = −0.0651; p = 0.007) and offsets the negative ROA association (ROA×AQ: β = 0.9171; p < 0.001). LDR×AQ is positive at the reported 5% boundary (β = 0.0349; p = 0.050), while NIM×AQ is not significant. The evidence therefore positions audit quality as a selective credibility mechanism rather than a uniform amplifier of financial signals, extending agency and signaling perspectives in emerging-market banking
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How to Cite
Jibrail, A., Chandrarin, G., & Assih, P. (2026). Determinants of banking firm value: Financial performance and audit quality. Indonesia Accounting Research Journal, 14(1), 102–109. Retrieved from https://journals.iarn.or.id/index.php/Accounting/article/view/680
References
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Adhim, C., & Mulyati, M. (2024). The influence of Capital Adequacy Ratio (CAR), Non-Performing Loan (NPL), Loan to Deposit Ratio (LDR), and operational costs to operating income (BOPO) on Return on Asset (ROA) in banks listed on the Indonesia Stock Exchange. International Journal of Science, Technology & Management, 5(5), 1067–1075. https://doi.org/10.46729/ijstm.v5i5.1122
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Mahmood, A., Mehmood, A., Terzani, S., De Luca, F., & Djajadikerta, H. G. (2025). The effect of ESG disclosure on firm value in the European context. Management Decision. https://doi.org/10.1108/MD-10-2024-2480
Nhleko, R., & Adelowotan, M. (2025). Bank-specific credit risk factors and long-term financial sustainability: Evidence from a panel error correction model. Sustainability, 17(14), 6442. https://doi.org/10.3390/su17146442
Raweh, N. A. M., Abdullah, A. A. H., Kamardin, H., & Malek, M. (2021). Industry expertise on audit committee and audit report timeliness. Cogent Business & Management, 8(1), 1920113. https://doi.org/10.1080/23311975.2021.1920113
Rodríguez Valencia, L. (2025). Financial performance and corporate governance on firm value: Evidence from Spain. International Journal of Financial Studies, 13(3), 123. https://doi.org/10.3390/ijfs13030123
Sampurnaningsih, S. R., Irani, C., Sahroni, S., Zulfitra, Z., & Sunarsi, D. (2021). The effect of Capital Adequacy Ratio (CAR), Loan to Deposit Ratio (LDR) and Net Profit Margin (NPM) on financial performance of Bank DKI. Jurnal Ilmiah Ilmu Administrasi Publik, 11(2), 497–506. https://doi.org/10.26858/jiap.v11i2.30216
Sharma, A. K., & Chauhan, R. (2023). Impact of Basel III liquidity and capital regulations on bank lending and financial stability: Evidence from emerging countries. Journal of Corporate Accounting & Finance, 34(4), 28–45. https://doi.org/10.1002/jcaf.22630
Spence, M. (1973). Job market signaling. The Quarterly Journal of Economics, 87(3), 355–374. https://doi.org/10.2307/1882010
Vijayagopal, P., Jain, B., & Ayinippully Viswanathan, S. (2024). Regulations and fintech: A comparative study of developed and developing countries. Journal of Risk and Financial Management, 17(8), 324. https://doi.org/10.3390/jrfm17080324
Zang, Z., Kabir, H., & Scott, T. (2026). Insights from academic research on IFRS 9: A review of the literature. Australian Accounting Review. https://doi.org/10.1111/auar.70020
Abraham, R., El-Chaarani, H., & Deari, F. (2024). Does audit oversight quality reduce bankruptcy risk, systematic risk, and ROA volatility? The role of institutional ownership. Journal of Risk and Financial Management, 17(8), 335. https://doi.org/10.3390/jrfm17080335
Acharya, V. V., & Rajan, R. (2024). Liquidity, liquidity everywhere, not a drop to use: Why flooding banks with central bank reserves may not expand liquidity. The Journal of Finance, 79(5), 2943–2991. https://doi.org/10.1111/jofi.13370
Adhim, C., & Mulyati, M. (2024). The influence of Capital Adequacy Ratio (CAR), Non-Performing Loan (NPL), Loan to Deposit Ratio (LDR), and operational costs to operating income (BOPO) on Return on Asset (ROA) in banks listed on the Indonesia Stock Exchange. International Journal of Science, Technology & Management, 5(5), 1067–1075. https://doi.org/10.46729/ijstm.v5i5.1122
Agoraki, M. E. K., & Kouretas, G. P. (2019). The determinants of net interest margin during transition. Review of Quantitative Finance and Accounting, 53(4), 1005–1029. https://doi.org/10.1007/s11156-018-0773-y
Aguilera, R. V., Desender, K., Bednar, M. K., & Lee, J. H. (2015). Connecting the dots: Bringing external corporate governance into the corporate governance puzzle. Academy of Management Annals, 9(1), 483–573. https://doi.org/10.1080/19416520.2015.1024503
Astami, E., Pramono, A. J., Rusmin, R., Cahaya, F. R., & Soobaroyen, T. (2024). Do family ownership and supervisory board characteristics influence audit report lag? A view from a two-tier board context. Journal of International Accounting, Auditing and Taxation, 56, 100638. https://doi.org/10.1016/j.intaccaudtax.2024.100638
Barra, C., & Zotti, R. (2020). Market power and stability of financial institutions: Evidence from the Italian banking sector. Journal of Financial Regulation and Compliance, 28(2), 235–265. https://doi.org/10.1108/JFRC-05-2019-0055
DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183–199. https://doi.org/10.1016/0165-4101(81)90002-1
Eltweri, A., Sawan, N., Al-Hajaya, K., & Badri, Z. (2024). The influence of liquidity risk on financial performance: A study of the UK’s largest commercial banks. Journal of Risk and Financial Management, 17(12), 580. https://doi.org/10.3390/jrfm17120580
Fadli, J. A., Sakti, I. M., & Jumono, S. (2021). Market power and bank liquidity risk: Implementations of Basel III using Net Stable Funding Ratio approach. Jurnal Keuangan dan Perbankan, 25(2), 434–449. https://doi.org/10.26905/jkdp.v25i2.5525
Francis, J. R. (2004). What do we know about audit quality?. The British Accounting Review, 36(4), 345–368. https://doi.org/10.1016/j.bar.2004.09.003
Handajani, L., Husnan, L. H., & Pituringsih, E. (2022). Impacts of sustainability performance and firm characteristics on risk and corporate value. Jurnal Economia, 18(2), 221–239. https://doi.org/10.21831/economia.v18i2.42883
Jagirani, T. S., Chee, L. C., & Kosim, Z. (2023). Board characteristics and firm value: The moderating role of capital adequacy. Investment Management and Financial Innovations, 20(2), 205–214. https://doi.org/10.21511/imfi.20(2).2023.18
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Junge, G., & Kugler, P. (2018). Optimal equity capital requirements for large Swiss banks. Swiss Journal of Economics and Statistics, 154, Article 21. https://doi.org/10.1186/s41937-018-0025-z
Linggadjaya, R. I. T., Atahau, A. D. R., Ugut, G. S. S., & Suk, K. S. (2025). The moderating role of capital adequacy on bank specific characteristics to sustainable growth: Evidence from commercial banks in Indonesia. SAGE Open, 15(3). https://doi.org/10.1177/21582440251353042
Mahmood, A., Mehmood, A., Terzani, S., De Luca, F., & Djajadikerta, H. G. (2025). The effect of ESG disclosure on firm value in the European context. Management Decision. https://doi.org/10.1108/MD-10-2024-2480
Nhleko, R., & Adelowotan, M. (2025). Bank-specific credit risk factors and long-term financial sustainability: Evidence from a panel error correction model. Sustainability, 17(14), 6442. https://doi.org/10.3390/su17146442
Raweh, N. A. M., Abdullah, A. A. H., Kamardin, H., & Malek, M. (2021). Industry expertise on audit committee and audit report timeliness. Cogent Business & Management, 8(1), 1920113. https://doi.org/10.1080/23311975.2021.1920113
Rodríguez Valencia, L. (2025). Financial performance and corporate governance on firm value: Evidence from Spain. International Journal of Financial Studies, 13(3), 123. https://doi.org/10.3390/ijfs13030123
Sampurnaningsih, S. R., Irani, C., Sahroni, S., Zulfitra, Z., & Sunarsi, D. (2021). The effect of Capital Adequacy Ratio (CAR), Loan to Deposit Ratio (LDR) and Net Profit Margin (NPM) on financial performance of Bank DKI. Jurnal Ilmiah Ilmu Administrasi Publik, 11(2), 497–506. https://doi.org/10.26858/jiap.v11i2.30216
Sharma, A. K., & Chauhan, R. (2023). Impact of Basel III liquidity and capital regulations on bank lending and financial stability: Evidence from emerging countries. Journal of Corporate Accounting & Finance, 34(4), 28–45. https://doi.org/10.1002/jcaf.22630
Spence, M. (1973). Job market signaling. The Quarterly Journal of Economics, 87(3), 355–374. https://doi.org/10.2307/1882010
Vijayagopal, P., Jain, B., & Ayinippully Viswanathan, S. (2024). Regulations and fintech: A comparative study of developed and developing countries. Journal of Risk and Financial Management, 17(8), 324. https://doi.org/10.3390/jrfm17080324
Zang, Z., Kabir, H., & Scott, T. (2026). Insights from academic research on IFRS 9: A review of the literature. Australian Accounting Review. https://doi.org/10.1111/auar.70020
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