<![CDATA[The research investigates the factors that influence investment diversification in conventional banks in Indonesia, with a particular emphasis on liquidity risk, credit risk, profitability, inflation, GDP, bank size, interbank ratios, capitalization, and board governance characteristics. Investment strategies and risk management were examined using data from the Indonesian banking sector and subsequently, the empirical findings based on the application of Ordinary Least Squares (OLS) will be presented. The findings indicated that investment concentration is being driven by liquidity risk, while diversification is being discouraged by credit risk. Diversification is positively influenced by profitability, while inflation has a negative impact on it. Diversified strategies are more effectively implemented by institutions that are larger and more adequately capitalized. The direct impact of board diversity on diversification is limited by the broader governance structures. The findings indicate that liquidity risk drives investment concentration, as banks prioritize liquid assets during periods of heightened risk. Similarly, credit risk discourages diversification, pushing banks to focus on safer, familiar investments. Conversely, profitability positively influences diversification, enabling banks to allocate resources toward balanced and diverse portfolios. Inflation negatively affects diversification by increasing investment concentration, while GDP shows no significant impact, contradicting previous studies. Larger and well-capitalized banks are better equipped to pursue diversified strategies, while interbank ratios exhibit no significant influence. Board diversity, though widely regarded as a factor in decision-making, shows limited direct impact on diversification, likely due to broader governance structures. To enhance financial stability, policymakers should concentrate on the following: managing liquidity and credit risks, maintaining stable inflation, strengthening governance, empowering smaller banks, encouraging innovative financial products, and investigating governance-diversification links]]>
Copyrights © 2024
