THE EFFECT OF BUSINESS ENVIRONMENT ON THE ISLAMIC BANK PERFORMANCE IN INDONESIA: MEDIATING ROLE OF INNOVATION MANAGEMENT
The performance of Islamic banks, which have a much smaller market share and asset share than conventional banks, is contradictory to the Muslim population, which is the majority in Indonesia. Based on this background, this study aims to examine the effect of the business environment on the performance of Islamic banks, the influence of the business environment on innovation management, the influence of innovation management on Islamic bank performance, and the mediating effect of innovation management in the relationship between the business environment and the performance of Islamic banks. This study uses a causality research method. Explanatory research was carried out using a quantitative approach with cross-sectional data collection. The unit of analysis in this study is the Islamic banking service industry, so the target population is Islamic banks with a population according to data from the Financial Services Authority (OJK) totaling 197 Islamic banks consisting of three categories, namely Islamic Commercial Banks, Islamic Business Units, and Islamic People Financing Bank (BPRS). The number of samples taken was 130. The measurement scale in this study used an ordinal scale using the Likert method. The Structural Equation Modeling method was used to analyze the data. The research findings reveal that; the business environment does not have a significant effect on the performance of Islamic banks, the business environment has a significant effect on innovation management, innovation management has a significant effect on the performance of Islamic banks, and innovation management also mediates the influence of the business environment on the performance of Islamic banks. The mediating effect of innovation management is greater than its direct influence on the performance of Islamic banks. These findings show the important role of innovation management in improving the performance of Islamic banks. Innovation management that is developed by adapting to changes in the business environment will contribute more to improving the performance of Islamic banks. Thus, the results of this study provide managerial implications that Islamic bank management needs to consider the development of innovation management to improve Islamic bank performance, taking into account changes in the business environment.
Business Environment, Innovation Management, Islamic Bank Performance.