Board Diversity And Risk-Taking: Empirical Evidence of Indonesian Banking Industry

Aim of this research to prove influence board_diversity on the risk-taking behaviour of Indonesian banks. Sample is used 53 bank commercial with periode from 2000-2018. We find effect positive from board diversity on risk taking commercial bank in Indonesia. Size of the diversified role of the board of director significant effect on risk. Our study provides significant findings with respect to the development of risk-taking model behavior of Indonesian banks. Implication this study contribute to develop upper echelon theory . The more diverse the board will have a positive effect on risk taking. Contributes to practice related to how to improve the quality of bank risk-taking decisions from Top Management.


Introduction
Risk taking model is created with from diversity which have board of directors on banking risk taking. Effect diversity from board is essential in relation to the study of bank risk taking in Indonesia. This is pivotal as the board of directors has an important in making decisions related to bank risk (Bank Indonesia 2008). In addition, another reason is the consideration of the number of previous studies on the effect of board diversity on bank risk taking, which is still under-researched. Previous research have examined diversity of bank executive officers on bank risk taking in Germany (Berger, Kick, and Schaeck 2013) and board directors diversity on corporate risk in the United States (Bernile, Bhagwat, Yonker 2018). Than, examined the effects of board of directors' diversity on the performance of companies and banks in various countries (Kagzi and Guha 2017). Therefore, the study of the effect of board diversity on banks' risk taking in Indonesia is deemed important for further research.
Our research is proposed to test whether board diversity affect banking risk taking in the Indonesian setting. The measure of bank risk uses credit risk with Non-Performing Loans. Market risk is proxied by Net Interest Margin. Operational risk represented by Operational Expenses to Operating Income and liquidity risk used Loan to Deposit Ratio.
Our results show various findings on the effect of board_diversty and, that have a positive effect and no influence on bank risk in BUKU 1, BUKU 2 and BUKU 3 and BUKU 4. It was found board of director diversity had a positive effect on NPLLOAN in BUKU 2; on NIM in BUKU 2 and BUKU 3 and BUKU 4, it positively affected BOPO in BUKU 2 and BOPO in BUKU 3; and has a positive effect on LDR in BUKU 1.

Literature Review
Many previous studies have shown that positive effect from board diversity to performance of company (Goll,

Research Methods
Data used in our study from the financial reports in published bank's websites from years 2000 to 2018. Sample used 53 banks commercial from population 94 banks. This study uses 11 variables in total. Dependent variables used NPLLOAN, NIM, BOPO, LDR. The independent variables in this study are BOARD_DIVERSITY. Control variables using in this research are BANKSIZE, BOARDSIZE, OWN1, OWN1-2, OWN1-5 and COM. We test two model specifications in this research.

Summary of Statistics
Classification of Commercial Banks are presented in Table 1.

Board_Diversity on bank risk
We provide the regression results on the effect of board_diversity on bank risk in Table 2. From model 1.a, we find that board_diversity has a positive effect on NPLLOAN in BUKU 2; against NIM in BUKU 2 and BUKU 3 and BUKU 4; against BOPO in BUKU 2 and BOPO in BUKU 3; and to LDR in BUKU 1. Meanwhile, from model 1b, it is found that effect positive of board_diversity on the NPLLOAN BUKU 1 and BUKU 4; against NIM of BUKU 1; against BOPO of BUKU 1, BUKU2, and BUKU 3; and on LDR in BUKU 1. These findings support the findings of Bernile et al. (2018) where the more diversity of the board of directors will lead to the occurrence of banking risks. The more diverse the board of directors from the demographic aspects (age, gender and ethnic diversity) and cognitive aspects (diversity of experiences, education graduates and skills) will cause differences in decision-making. The positive influence of board_diversity on banking risks (NPLLOAN, NIM, BOPO and LDR) in Indonesia is also consistent with (Berger et al. 2013) conducted on banks in Germany.
The results of hypothesis 1 also show that the board of directors has an important role for risk taking in Indonesia. Consistent from result this research with (Pathan 2009) and (Skala and Weill 2018), which prove that the board of directors positively affects bank risk taking. The findings of hypothesis 2 also support the criticism of (Berger et al. 2013) on theory of agency that not focus on the diversity of members in the Top Management Team, but focuses more on similarities or compatibility between executives in decision making. Associated with the upper echelon theory, the characteristics of the leadership in terms of the diversity aspect of the board of directors have a significant positive effect on bank risk taking in Indonesia. Source: data processed eviews

Conclusion and Suggestion
We find that that board_diversity has a positive effect on bank risk in Indonesia. Different factors in the number and size of banks in each classification of BUKU 1, BUKU 2, BUKU 3 and BUKU 4 also influence board of directors in making decisions regarding bank risks in Indonesia. However, these results generally support the findings of previous studies.
This study provides the following theoretical contributions related to diversity proves that the diversity of each individual which is different from its demographic and cognitive aspects has a positive impact on a decision. This is confirmed by the finding that the diversity of the board of directors can have a positive effect on risk taking for banks in Indonesia. In practical terms, this research to give informations to upgrade Top Management in bank risk taking.
Associated with the upper echelon theory which emphasizes that the outcome of an organization is influenced by the characteristics of the leader. The characteristics of the leadership that are viewed from the diversity aspect of the board of directors have a positive impact on bank risk taking. Theoretical contribution related to diversity proves that the existence of diversity in ach individual who is different from the demographic and cognitive aspects has a positive impact on a decision. This is confirmed by the findings that the diversity of the board of directors can have a positive influence on the risk taking of banks in Indonesia. This research also contributes to practice, which is related to how to improve the quality of bank risk-taking decisions from Top Management with.
Furthermore, this study is still limited to the study of banks in Indonesia in the classification of Commercial Banks based on Business Classification (BUKU) 1 to BUKU 4, has not examined in detail based on the classification of Islamic Bank or Non-Foreign Exchange Bank or studies based on Government Owned Banks, Private Ownership or Foreign Ownership. For this reason, this will be an opportunity for further research so that it can be studied more comprehensively.