Managerial Ownership, Audit Quality, and Financial Performance: The Moderating Role of Agency Costs in Indonesian Listed Banks

Abstract

This study investigates how managerial ownership and audit quality relate to the financial performance of banks listed on the Indonesia Stock Exchange, and examines whether agency costs measured through the Operating Expense Ratio moderate both relationships. Drawing on panel data from 19 listed banks across the 2022–2024 period (57 firm-year observations) and estimating a Random Effects Model through Moderated Regression Analysis, the results indicate that neither managerial ownership nor audit quality (proxied by affiliation with a Big Four accounting firm) exerts a statistically significant direct effect on Return on Assets. Agency costs, however, emerge as a significant moderator in both relationships, though the direction of that moderation differs: agency costs amplify the influence of managerial ownership on financial performance while dampening the influence of audit quality. Taken together, these results imply that governance mechanisms do not enhance bank profitability uniformly; rather, their impact hinges on how efficiently a bank operates. The study contributes to agency theory by reframing agency costs as a boundary condition rather than a mere direct predictor of performance, offering a more unified account of why prior governance–performance findings have been inconsistent. From a practical standpoint, the results suggest that banks under heavier operating-cost pressure stand to gain more from managerial ownership incentives, whereas the payoff from audit-quality investments is greatest for banks that already operate efficiently.