Corporate Governance and Financial Performance in Rural Banks: Evidence from Indonesia
How to cite (SHIRKAH) :
Rural banks face increasing financial and digital risks, yet limited evidence exists on how fintech adoption, risk management, and corporate governance affect their financial performance. This study aims to fill the gap in the existing literature by examining the role of corporate governance in rural banks as one of the organizational mechanisms that can convert the banks’ internal capacities to financial performances. A cross-sectional quantitative survey was conducted among 129 rural banks in Bali, Indonesia, by purposively adopting a saturated sampling technique. Each bank was requested to provide one director and one commissioner. Based on the sampling frame of 129 banks, 258 surveys were distributed. Of those, 242 surveys were file completed. Using PLS-SEM, the data received were analyzed. The results revealed that needs-based risk management positively impacts financial performance. On the contrary, fintech adoption did not exhibit a significant impact on financial performance. Corporate governance systems positively impact the relationships between risk management and financial performance, but do not moderate fintech adoption. This study contributes to the existing literature by adopting the Resource-Based View to demonstrate the asymmetric impact of corporate governance on rural banks' risk-management systems to financial performances, but not positively impact fintech adoption. From a practical viewpoint, rural banks should perceive risk oversight from a governance-based perspective and embrace a combination of adequate digital infrastructure, workforce, integrated systems, and digital-risk governance.
Adiguzel, Z., Sonmez Cakir, F., & Karaaslan, N. (2026). How innovation behavior and technology innovation strategy mediate the effect of competitor orientation on financial and market performance. foresight, 28(2), 241–275. https://doi.org/10.1108/FS-01-2025-0002
Al Hammadi, T., & Nobanee, H. (2019). FinTech and sustainability: a mini-review. Available at SSRN 3500873. https://doi.org/10.2139/ssrn.3500873
Alabdullah, T.T.Y. (2023). The impact of financial technology and risk management practices on corporate financial system profitability: evidence from Kuwait. SocioEconomic Challenges, 7(3), 141–151. https://doi.org/10.61093/sec.7(3).141-151.2023
Andryushchenko, G. İ., Savina, M. V., Stepanov, İ. A., Zaritova, K. G., & Tanatova, D. K. (2015). Risk management problems of microfinance institutions. International Journal of Economics and Financial Issues, 5(3), 151–158. https://izlik.org/JA22HH43UP
Baker, H., Kaddumi, T. A., Nassar, M. D., & Muqattash, R. S. (2023). Impact of financial technology on improvement of banks’ financial performance. Journal of Risk and Financial Management, 16(4), 230. https://doi.org/10.3390/jrfm16040230
Barney, J. B. (1991). Firm Resources and Sustained Competitive Advantage. Journal Of Management, 17(1), 99–120. https://doi.org/10.1177/014920639101700108
Cadbury, A. (1992). Report of the Committee on the Financial Aspects of Corporate Governance. London: Gee & Co. Ltd
Cardillo, G., Cavallo, A., & Torluccio, G. (2026). Corporate governance in microfinance institutions: A systematic review of theoretical perspectives, methodological approaches, and empirical evidence. World Development, 206, 107455. https://doi.org/10.1016/j.worlddev.2026.107455
Das, S., & Pati, A. P. (2026). Moderating effect of fintech adoption on market power and bank stability Nexus: Indian evidence. Managerial Finance, 52(7), 1158–1174. https://doi.org/10.1108/MF-05-2025-0320
Farooq, S., Ahmad, A., Liaqat, F., & Ali, F. H. (2026). Understanding relevance of business environment for financial performance: The case of Asian non-banking microfinance institutions. Vision, 30(1), 42–52. https://doi.org/10.1177/09722629221081915
Fatima, M., Audi, M., & Ali, A. (2026). Nexus Among Financial Risks and Financial Performance: A Moderating Role of Corporate Governance. Policy Journal of Social Science Review, 4(1), 295–322. https://www.policyjssr.com/index.php/PJSSR/article/view/903
Fisseha, F. L. (2025). The effect of institutional quality and financial development on the performance of microfinance institutions: evidence from selected African countries. Cogent Business & Management, 12(1), 2446707. https://doi.org/10.1080/23311975.2024.2446707
Ghozali, I. (2021). Partial least squares: Konsep, teknik, dan aplikasi menggunakan program SmartPLS 3.2.9 untuk penelitian empiris (Edisi 3). Badan Penerbit Universitas Diponegoro.
Gohar, R., & Batool, A. (2015). Effect of corporate governance on performance of microfinance institutions: A case from Pakistan. Emerging Markets Finance and Trade, 51(sup6), S94-S106. https://doi.org/10.1080/1540496X.2015.1080559
Hoai, T. T. T., Thu, H. N. T., & Anh, T. D. (2026). The Impact of Corporate Governance on Financial Performance: The Mediating Role of Real Earnings Management. Journal of Risk and Financial Management, 19(6), 451. https://doi.org/10.3390/jrfm19060451
Jananuraga, I. G., Wiagustini, N. L. P., Darmayanti, N. P. A., & Sudirman, I. M. S. N. (2026). The role of risk management and technology adoption in enhancing the effect of human capital on financial performance: Evidence from village credit institutions in Bali, Indonesia. International Journal of Economic Perspectives, 20(6), 705–739. https://ijeponline.org/index.php/journal/article/view/1353
Judijanto, L., Dewi, Y., Dewi, A. P., Barus, I., & Firdaus, A. (2025). The Mediating Role of Risk Management in the Relationship Between Financial Technology Adoption and Business Growth in Indonesian MSMEs. West Science Journal Economic and Entrepreneurship, 3(01), 33–41. https://doi.org/10.58812/wsjee.v3i01.1667
Khanchel, I., Lassoued, N., & Khiari, C. (2025). Untangling the skein: The impact of FinTech on social and financial performance in microfinance institutions. Regional Science Policy & Practice, 17(8), 100208. https://doi.org/10.1016/j.rspp.2025.100208
Lestari, F., Karina, R., & Ivone. (2023). The effect of enterprise risk management on financial performance and firm value: The role of environmental, social and governance performance. Global Financial Accounting Journal, 7(2), 213–229. https://doi.org/10.37253/gfa.v7i2.8706
Liu, Y., Tong, A., & Nourani, P. (2026). FinTech adoption and credit risk dynamics: evidence from China's A-share banking sector. Journal of Banking Regulation, 27(2), 25. https://doi.org/10.1057/s41261-026-00327-z
Marcella, A., & Zulfikar, Z. (2024). Pengaruh Financial technology Terhadap Kinerja Keuangan Perbankan Syariah Dengan Online Service Information Sebagai Variabel Moderasi. Jurnal Akuntansi Stie Muhammadiyah Palopo, 10 (2), 202–213. https://doi.org/10.35906/jurakun.v10i2.2068
Mardiana, M., & Dianata, A. W. M. (2018). The effect of risk management on financial performance with good corporate governance as a moderation variable. Management and Economic Journal (MEC-J), 2(3), 257–268. https://doi.org/10.18860/mec-j.v0i0.5223
Maulana, A., Dwita, M., Fitriyani, M., Sunaryo, D., & Adiyanto, Y. (2024). Risk Management as A Determinant of Indonesian Banking Financial Performance: A Systematic Literature Approach. Indo-Fintech Intellectuals Journal of Economics and Business, 4(5), 2523–2537. https://doi.org/10.54373/ifijeb.v4i5.2120
Mohammad, A. A. S., Salinas, L., Muzrapova, S., Baxriddinov, N., Ahrorov, Z., & Boronov, B. (2025). The impact of online accounting through the expansion of financial technologies on improving the performance of financial institutions and banks. Economic Annals-XXI, 215(5–6), 16–21. https://doi.org/10.21003/ea.V215-03
Mutamimah, M., Zaenudin, Z., & Bin Mislan Cokrohadisumarto, W. (2022). Risk management practices of Islamic microfinance institutions to improve their financial performance and sustainability: a study on Baitut Tamwil Muhammadiyah, Indonesia. Qualitative Research in Financial Markets, 14(5), 679–696. https://doi.org/10.1108/QRFM-06-2021-0099
Muttaqin, I. (2023). The effect of digital innovation, fintech and sustainability report on the financial performance of Tegal City SMEs. Jurnal Ekonomi, 12(3), 561–573. https://ejournal.seaninstitute.or.id/index.php/Ekonomi/article/view/2103
Nazariyah, S., Roni, M., & Kusrini, N. A. R. (2021). Pengaruh Manajemen Risiko Dengan Good Corporate Governance Sebagai Variabel Moderating Terhadap Kinerja Keuangan BRI Syariah Periode 2015–2019. Journal of Islamic Banking, 2(1), 24–54. https://journal.uaindonesia.ac.id/JIB/article/view/204
Nocco, B. W., & Stulz, R. M. (2022). Enterprise Risk Management: Theory and Practice. Journal Of Applied Corporate Finance, 34(1), 81–94. https://doi.org/10.1111/jacf.12490
Omidiji, A., Ehalaiye, D., Gyapong, E., & Botica Redmayne, N. (2025). Internal audit, loan losses, and financial performance in microfinance institutions: a global evidence. China Accounting and Finance Review, 27(3), 364–396. https://doi.org/10.1108/CAFR-05-2024-0063
Oppong, C., Atchulo, A. S., Dargaud Fofack, A., & Afonope, D. E. (2024). Internal control mechanisms and financial performance of Ghanaian banks: the moderating role of corporate governance. African Journal of Economic and Management Studies, 15(1), 88–103. https://doi.org/10.1108/AJEMS-03-2023-0101
Otoritas Jasa Keuangan. (2025). Indonesian banking statistics 2025. https://ojk.go.id/id/kanal/perbankan/data-dan-statistik/statistik-perbankan-indonesia/Pages/Statistik-Perbankan-Indonesia---Juni-2025.aspx
Pathak, M., Chandani, A., Ubarhande, P., & Bagade, S. (2026). Unveiling corporate governance dynamics: a qualitative analysis of financial performance. Qualitative Research in Financial Markets, 18(4), 1044–1067. https://doi.org/10.1108/QRFM-05-2024-0115
Permata, N. A., & Albab, U. (2024). Dampak Fintech Terhadap Performa Kinerja Keuangan Bank Umum Syariah di Indonesia (Studi Empiris Pada OJK Periode 2020–2023). SYIRKAH: Jurnal Ekonomi Syariah, 1(1), 39–54. https://doi.org/10.36269/jes.v1i01.2730
Raja, A., Hidayat, K., Worokinasih, S., & Darmawan, A. (2026). Dynamic Interaction of Company Size, Risk Management, and Financial Performance on Company Value: The Moderating Role of Corporate Governance in Indonesian Conventional Banks (2012–2017). OIDA International Journal of Sustainable Development, 19(06), 49–66. https://doi.org/10.64211/oidaijsd190604
Rondonuwu, J. M., Artaningrum, R. G., & Trimurti, C. P. (2024). Pengaruh Manajemen Risiko dan Kebijakan Kredit terhadap Kinerja Keuangan pada BPR di Seluruh Kecamatan Mengwi Badung. Jakadara: Jurnal Ekonomika, Bisnis, Dan Humaniora, 3(1). https://doi.org/10.36002/jd.v3i1.2914
Saeed, M. M., & Donkoh, E. (2026). Credit risk management, bank-specific factors, and financial performance of banks: Insights from an emerging economy. Social Sciences & Humanities Open, 13, 102523. https://doi.org/10.1016/j.ssaho.2026.102523
Tanjung, M. F., & Aulia, D. (2022). Dampak financial technology (Fintech) dan intellectual capital terhadap kinerja keuangan perbankan komersial di Indonesia. SEIKO: Journal of Management & Business, 4(3), 413–426. https://doi.org/10.37531/sejaman.v4i3.2634
Ting, T., Mia, M. A., Hossain, M. I., & Wah, K. K. (2025). Predicting the financial performance of microfinance institutions with machine learning techniques. Journal of Modeling in Management, 20(2), 322–347. https://doi.org/10.1108/JM2-10-2023-0254
Umba, D. N., Croquet, M., & Godfroid, C. (2024). Does Digitization Affect Social and Financial Performance in Microfinance Institutions?. Journal of Alternative Finance, 1(3), 236–251. https://doi.org/10.1177/27533743241290280
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Copyright
Copyright aims to protect the specific way the article has been written to describe an experiment and the results. Shirkah: Journal of Economics and Business is committed to its authors to protect and defend their work and their reputation and takes allegations of infringement, plagiarism, ethical disputes, and fraud very seriously. Automotive Experiences is published under the terms of the Attribution-NonCommercial 4.0 International (CC BY-NC 4.0). Authors retain copyright and grant the journal right of first publication (online and print) with the work simultaneously. We use the restrictive license (non-commercial) as follows:
BY (attribution): Users are allowed to share, distribute and redistribute the published article in any medium or format, with an identification of the authors and its initial publication in this journal. Authors are encouraged to post and distribute their articles immediately after publication (e.g., institutional or public repositories, personal websites). Authors are allowed to enter into additional contractual arrangements for the non-exclusive distribution of the published and an acknowledgment of its initial publication in this journal.
NC (non-commercial): Users are not allowed to use the article commercially without the permission of the authors. Authors agree explicitly that the published article is indexed worldwide in databases, repositories and indexation services, even if these services operate on a commercial basis. Authors grant Shirkah: Journal of Economics and Business explicit the right to include the published articles in databases, repositories and indexation services. License
License to Publish
The non-commercial use of the article will be governed by the Attribution-NonCommercial 4.0 International (CC BY-NC 4.0). The author hereby grants Shirkah: Journal of Economics and Business an exclusive publishing and distribution license in the manuscript include tables, illustrations or other material submitted for publication as part of the manuscript in print, electronic and all other media (whether now known or later developed), in any form, in all languages, throughout the world, for the full term of copyright, and the right to license others to do the same, effective when the article is accepted for publication. This license includes the right to enforce the rights granted hereunder against third parties.
Author's Warranties
The author warrants that the article is original, written by stated author/s, has not been published before, contains no unlawful statements, does not infringe the rights of others, is subject to copyright that is vested exclusively in the author and free of any third party rights, and that any necessary written permissions to quote from other sources have been obtained by the author(s).
User Rights
Under the Creative Commons Attribution-Non Commercial 4.0 International (CC BY-NC 4.0) license, the author(s) and users are free to share (copy and redistribute the material in any medium or format) and adapt (remix, transform, and build upon the material). Users must give appropriate credit, provide a link to the license, and indicate if changes were made.
Rights of Authors
Authors retain the following rights:
- Copyright, and other proprietary rights relating to the article, such as patent rights,
- The right to use the substance of the article in future own works, including lectures and books,
- The right to reproduce the article for own purposes, provided the copies are not offered for sale, and
- The right to self-archive the article.
Co-Authorship
If the article was prepared jointly with other authors, the signatory of this form warrants that he/she has been authorized by all co-authors to sign this agreement on their behalf, and agrees to inform his/her co-authors of the terms of this agreement.
Royalties
This agreement entitles the author to no royalties or other fees. To such extent as legally permissible, the author waives his or her right to collect royalties relative to the article in respect of any use of the article by Shirkah: Journal of Economics and Business or its sublicensee.
Miscellaneous
Shirkah: Journal of Economics and Business will publish the article (or have it published) in the Journal if the article's editorial process is successfully completed and Shirkah: Journal of Economics and Business or its sublicensee has become obligated to have the article published. Shirkah: Journal of Economics and Business may conform the article to a style of punctuation, spelling, capitalization, and usage that it deems appropriate.