The Role of Economic Uncertainty and Environmental Uncertainty in Improving Performance: Mediated by Innovation and Banking Risk
Keywords:economic uncertainty, environmental uncertainty, performance, innovation, banking risk
Objective: This research aims to examine the design model for innovation, risk identification of economic uncertainty and environmental uncertainty to improve banking performance in Indonesia. This research supports the theme of the G20 congress, how the world creates strategies to strengthen the economy amidst global uncertainty, then this study will examine how economic uncertainty can create significant risks for business.
Methodology: The method used in this research is using data on the Indonesian Stock Exchange. There are 33 companies as samples for the 2021-2022 period, the test tool used is Stata.
Result and Conlusion: The results of this research are that high economic policy uncertainty can hamper economic growth, reduce investment, or cause volatility in financial markets. Conversely, when the level of economic policy uncertainty is low, the confidence of economic actors can increase, and this can create a more stable environment and encourage economic activity. Innovation has an effect on increasing company performance with a coefficient of 0.0024 and a significance level of 0.30 < 0.05, meaning that innovation can mediate between economic and environmental uncertainty on performance, This aims to produce positive change, increase competitiveness and create added value. Risk produces a coefficient level that influences performance (0.04) but does not directly influence performance (0.77>0.05), meaning that risk cannot mediate between economic and environmental uncertainty on performance, this is because good risk can help manage risk and reduce NPL level.
Novelty: The novelty in this research lies in the role of economic uncertainty and environmental uncertainty in improving banking performance, as well as looking at banking innovation and risk. This research can provide valuable insight for the banking industry in facing complex economic and environmental challenges, therefore the novelty presented in this study is that banking companies can seek innovation in adjusting product and service portfolios and implementation processes, as well as managing risks by paying attention to the consequences of changing policies.
Adach-Pawelus, K., Gogolewska, A., Górniak-Zimroz, J., Kiełczawa, B., Krupa-Kurzynowska, J., Paszkowska, G., Szyszka, D., Worsa-Kozak, M., & Woźniak, J. (2021). A new face of mining engineer—international curricula to sustainable development and green deal (A case study of the Wrocław university of science and technology). Sustainability (Switzerland), 13(3), 1–18. https://doi.org/10.3390/su13031393
Aji, G., Abdurrahman, U. K. H., Pekalongan, W., Fakhru, A., Uin, N., Abdurrahman, K. H., Uin, F., & Nurlela, S. (2023). Recession: Strengthening The Company’s Foundation With External Environmental Analysis In The Face Of Economic Uncertainty. In Bisnis dan Akuntansi (Vol. 2, Issue 2). Jurnal Manajemen.
Al Shaar, I. M., Khattab, S., Alkaied, R., & Al-Abbadi, L. (2022a). Supply chain integration and green innovation, the role of environmental uncertainty: Evidence from Jordan. Uncertain Supply Chain Management, 10(3), 657–666. https://doi.org/10.5267/j.uscm.2022.5.009
Al Shaar, I. M., Khattab, S., Alkaied, R., & Al-Abbadi, L. (2022b). Supply chain integration and green innovation, the role of environmental uncertainty: Evidence from Jordan. Uncertain Supply Chain Management, 10(3), 657–666. https://doi.org/10.5267/j.uscm.2022.5.009
Ashiru, O., Balogun, G., & Paseda, O. (2023). Financial innovation and bank financial performance: Evidence from Nigerian deposit money banks. In Research in Globalization (Vol. 6). Elsevier B.V. https://doi.org/10.1016/j.resglo.2023.100120
Ayad, H., Sari-Hassoun, S. E., Usman, M., & Ahmad, P. (2023). The impact of economic uncertainty, economic growth and energy consumption on environmental degradation in MENA countries: Fresh insights from multiple thresholds NARDL approach. Environmental Science and Pollution Research, 30(1), 1806–1824. https://doi.org/10.1007/s11356-022-22256-w
Baker, S. R., Bloom, N., Davis, S. J., Jorring, A., Kost, K., Al-Kuwari, A., Biffar, S., Boehnke, J., Dashkeyev, V., Deriy, O., Dinh, E., Ezure, Y., Gong, R., Jindal, S., Kim, R., Klosin, S., Koh, J., Lajewski, P., Nebiyu, D., … Katz, L. (2016). Measuring Economic Policy Uncertainty. www.policyuncertainty.com
Bang, N. H., Hang, N. P. T., & Dao, L. T. (2023). ENVIRONMENTAL POLICY AFFECTING THE DEVELOPMENT OF GREEN BANKING AND GREEN ECONOMY: A CASE STUDY IN VIETNAM. Revista de Gestao Social e Ambiental, 17(4). https://doi.org/10.24857/rgsa.v17n4-029
Chiang, T. C. (2022). The effects of economic uncertainty, geopolitical risk and pandemic upheaval on gold prices. Resources Policy, 76. https://doi.org/10.1016/j.resourpol.2021.102546
Chodnicka-Jaworska, P. (2022). Environmental, Social, and Governance Impact on Energy Sector Default Risk—Long-Term Issuer Credit Ratings Perspective. Frontiers in Energy Research, 10. https://doi.org/10.3389/fenrg.2022.817679
Claveria, O. (2022). Global economic uncertainty and suicide: Worldwide evidence. Social Science and Medicine, 305. https://doi.org/10.1016/j.socscimed.2022.115041
Fayman, A. (2023). Covid pandemic, politics and bank performance. Managerial Finance, 49(1), 1–12. https://doi.org/10.1108/MF-11-2021-0549
Fortin, I., Hlouskova, J., & Sögner, L. (2023). Financial and economic uncertainties and their effects on the economy. Empirica, 50(2), 481–521. https://doi.org/10.1007/s10663-023-09570-3
Gartner, W., & Liao, J. (2012). The effects of perceptions of risk, environmental uncertainty, and growth aspirations on new venture creation success. Small Business Economics, 39(3), 703–712. https://doi.org/10.1007/s11187-011-9356-1
Haryono, U., Iskandar, R., Paminto, A., & Ulfah, Y. (2016). Sustainability performance: It’s impact on risk and value of the firm. In Corporate Ownership and Control (Vol. 14, Issue 1Continued1, pp. 278–286). pdfs.semanticscholar.org. https://doi.org/10.22495/cocv14i1c1p11
Hu, Y., Bai, W., Farrukh, M., & Koo, C. K. (2023). How does environmental policy uncertainty influence corporate green investments? Technological Forecasting and Social Change, 189. https://doi.org/10.1016/j.techfore.2023.122330
In, S. Y., Weyant, J. P., & Manav, B. (2022). Pricing climate-related risks of energy investments. Renewable and Sustainable Energy Reviews, 154(November 2021), 111881. https://doi.org/10.1016/j.rser.2021.111881
Jiang, L., Gu, Y., Yu, W., & Dai, J. (2022). Blockchain-based Life Cycle Assessment System for ESG Reporting. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4121907
Komari, N., Juliana, R., Kebijakan, K., Dan, E., & Modal, B. (n.d.). Economic Policy Uncertainty and Cost of Debt Financing in Indonesia. https://doi.org/10.24843/EJA.2022.v
Ma, D., Zhang, C., Hui, Y., & Xu, B. (2022). Economic uncertainty spillover and social networks. Journal of Business Research, 145, 454–467. https://doi.org/10.1016/j.jbusres.2022.03.015
Shabir, M., Jiang, P., Shahab, Y., & Wang, P. (2023). Geopolitical, economic uncertainty and bank risk: Do CEO power and board strength matter? International Review of Financial Analysis, 87. https://doi.org/10.1016/j.irfa.2023.102603
Strehle, F., Katzy, B. R., & Davila, T. (2010). Learning capabilities and the growth of technology-based new ventures. In International Journal of Technology Management (Vol. 52, Issues 1–2, pp. 26–45). scholar.archive.org. https://doi.org/10.1504/IJTM.2010.035854
Su, C. W., Khan, K., Umar, M., & Chang, T. (2022). Renewable energy in prism of technological innovation and economic uncertainty. Renewable Energy, 189, 467–478. https://doi.org/10.1016/j.renene.2022.02.110
Wijayanti, R., & Setiawan, D. (2022). Social Reporting by Islamic Banks: The Role of Sharia Supervisory Board and the Effect on Firm Performance. Sustainability (Switzerland), 14(17). https://doi.org/10.3390/su141710965
Wu, J., Yao, Y., Chen, M., & Jeon, B. N. (2020). Economic uncertainty and bank risk: Evidence from emerging economies. Journal of International Financial Markets, Institutions and Money, 68. https://doi.org/10.1016/j.intfin.2020.101242
Wu, J., Yao, Y., Chen, M., & Jeon, B. N. (2021). Does economic uncertainty affect the soundness of banks? Evidence from emerging Asian economies. Journal of Asian Economics, 77. https://doi.org/10.1016/j.asieco.2021.101394
Zhang, Y., & Li, X. (2022). The Impact of the Green Finance Reform and Innovation Pilot Zone on the Green Innovation—Evidence from China. International Journal of Environmental Research and Public Health, 19(12). https://doi.org/10.3390/ijerph19127330
Zouari-Hadiji, R. (2021). Financial innovation characteristics and banking performance: The mediating effect of risk management. International Journal of Finance and Economics. https://doi.org/10.1002/ijfe.2471
How to Cite
Copyright (c) 2023 Heni Noviarita, Moh. Mukri, Jum Anggriani, Rini Setiawati, Bilal Fayiz Obeidat
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Authors who publish with this journal agree to the following terms:
1. Authors who publish in this journal agree to the following terms: the author(s) authorize(s) the publication of the text in the journal;
2. The author(s) ensure(s) that the contribution is original and unpublished and that it is not in the process of evaluation by another journal;
3. The journal is not responsible for the views, ideas and concepts presented in articles, and these are the sole responsibility of the author(s);
4. The publishers reserve the right to make textual adjustments and adapt texts to meet with publication standards.
5. Authors retain copyright and grant the journal the right to first publication, with the work simultaneously licensed under the Creative Commons Atribuição NãoComercial 4.0 internacional, which allows the work to be shared with recognized authorship and initial publication in this journal.
6. Authors are allowed to assume additional contracts separately, for non-exclusive distribution of the version of the work published in this journal (e.g. publish in institutional repository or as a book chapter), with recognition of authorship and initial publication in this journal.
7. Authors are allowed and are encouraged to publish and distribute their work online (e.g. in institutional repositories or on a personal web page) at any point before or during the editorial process, as this can generate positive effects, as well as increase the impact and citations of the published work (see the effect of Free Access) at http://opcit.eprints.org/oacitation-biblio.html
• 8. Authors are able to use ORCID is a system of identification for authors. An ORCID identifier is unique to an individual and acts as a persistent digital identifier to ensure that authors (particularly those with relatively common names) can be distinguished and their work properly attributed.