The Role of Economic Uncertainty and Environmental Uncertainty in Improving Performance: Mediated by Innovation and Banking Risk

Abstract

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.