Corporate governance and intellectual capital as drivers of financial sustainability: The mediating role of profitability in community-based financial institutions

Luh Ade Mirah Anggara Wati; I Wayan Suartana

doi:10.21744/ijbem.v9n3.2499

Authors

Luh Ade Mirah Anggara Wati
mirahanggaraw13@gmail.com
Udayana University, Denpasar, Indonesia
I Wayan Suartana Udayana University, Denpasar, Indonesia

Keywords:

Corporate Governance, Intellectual Capital, Profitability, Financial Sustainability, Community-Based Financial Institutions

Abstract

This study examines the effect of corporate governance and intellectual capital on financial sustainability with profitability as a mediating variable in Village Credit Institutions (LPD) in Badung Regency, Bali, Indonesia. LPDs play an important role as indigenous community-based financial institutions that support local economic development and community welfare; therefore, maintaining their financial sustainability is essential. This study is grounded in Goal Setting Theory and Agency Theory and employs a quantitative approach using Partial Least Squares–Structural Equation Modeling (PLS-SEM). Data were collected through questionnaires distributed to LPD managers and supervisors in Badung Regency. The results reveal that corporate governance positively influences profitability but does not directly affect financial sustainability. Intellectual capital negatively affects profitability while positively influencing financial sustainability. Furthermore, profitability has a positive effect on financial sustainability and mediates the relationship between corporate governance, intellectual capital, and financial sustainability. These findings indicate that the sustainability of community-based financial institutions is determined not only by governance mechanisms and intellectual resources but also by their ability to generate sustainable profitability. This study contributes to the financial sustainability literature by providing empirical evidence from indigenous financial institutions and offers practical implications for policymakers, supervisory institutions, and LPD managers in strengthening long-term institutional sustainability.

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