Financing Moderation in the Relationship of Investing Activities and the Bank Capital Adequacy Ratio

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Introduction
For long-term going concerns, banks invest in long-term assets using long-term financing. For such a purpose, a bank might spend and keep money, ensuring the security of profitability, liquidity, and capital adequacy. One measure of a bank's success is maintaining a CAR, guaranteeing the safety of customer funds from market risk, credit risk, and operational risk due to using capital and risk-weighted asset in its formula. Banks might manage their CAR, among others, by arranging cash circulation into CFI and CFF to ensure capital buffer safety.
Each bank entity runs with its internal business strategies and directs derivative actions influencing cash and liquidity corresponding to the business portfolio. In a preliminary review from 2009 to 2013, the CFI of Indonesian commercial banks moved in the opposite direction against the CAR, while Malaysian bank CFI moved in a similar path. On the other hand, the CFF of Malaysian and Indonesian banks parallelly move in the opposite direction against the CAR. The different trends between the banks CFI, CFF, and CAR suggest a different style in using CFF to fund the CFI.
Indonesian and Malaysian commercial banks use money as an element of liquidity in operating the banks. The countries have similarities in geographic locations, economic levels as ASEAN members, and cultural roots in doing business (Chong, 2012). After suffering a severe effect from the 2008 crisis (Kompas, 2010) compared to the Malaysians (Ibrahim, 2010), the CFI, CFF, and CAR graphs show that the greater the expenditure for CFI in Indonesia, the more significant gap against the CAR. In line with Sepehrdoust & Aeini (2014), Bakke & Whited (2010), Baloch et al. (2011), and Molyneux et al. (2014), the trend of Malaysian banks' CF balance showed changes in a similar direction to CAR, but Indonesian banks denote an opposite picture.
Using CFF simultaneously lowers capital and the CFI balance and reduces the CAR but, on the other hand, increases long-term productive assets. Hence, the cash movement raises the question of how financing conversion into long-term investments influences CAR formation in Indonesian and Malaysian banking. In order to explore the issue, this paper compares the CFF moderation effect on the CFI and CAR relationship between the commercial banks in the two countries.

Capital Adequacy Ratio
The relevance of bank capital represents the ability to prevent potential bank failures by maintaining a sum of shareholders' equity and other banks' securities as backups against the financial risks of banks' assets (Eun & Resnick, 2014). In addition, the capital adequacy ratio shows the banks' ability to withstand losses in the value of the assets (Sangmi & Nazir, 2010). Therefore, the pure form of regulatory capital should be eligible for inclusion in the formula of capital ratios, including equity (Adesina & Mwamba, 2016), preferred stock, subordinated debt, and general reserves, all of which are loss-absorbing (Belém & Gartner, 2016) both ongoing basis or in the event of liquidation.
From an accounting perspective, bank capital represents the bank's funds, distinguished into common equity and retained earnings (Farag et al., 2013). The bank's capital adequacy shows the bank's ability to absorb losses, reduce the risk of banking finance, and maintain bank viability (Scannella, 2012). Capital is the bank's net worth (Parrino et al., 2012) after compensating for all obligations to third parties. The common term of capital is the shareholders' equity (Elliott & Elliott, 2017) which contains the funds contributed by the shareholders through their purchases of the bank's stock plus the bank's accumulated retained earnings. The capital is net worth derived from share purchases by shareholders plus the proportion of profit or loss retained during the bank's operations (Hubbard & O'Brien, 2012). Rose & Hudgins (2013) defined capital as long-term funds contributed to a bank or other financial institution primarily by its owner, consisting mainly of stock, reserves, and retained earnings. Capital adequacy regulation not only intends to enlarge the banks' capital, but according to Laiola (2015), it also aims to match the burden of credit losses with a capital buffer to absorb losses. Mishkin and Eakins (2012) described that the bank's capital is the net worth, which is the difference between the bank's total assets against its liabilities. In addition, bank capital is a cushion against the drop in the value of the assets, which could force the bank into insolvency due to having more liabilities than assets, leading the bank into liquidity shortage and liquidation (Davies, 2015). Dhanda & Rani (2010) defined the CAR as the ratio of capital to total risk-weighted assets. Therefore, bank managers have to decide the amount of adequate capital to maintain and seek to obtain the source of funds at lower costs and risks to ensure the availability of bank capital (Bell & Hindmoor, 2017).
The vast capital amount is essential for the banks to overcome business risk changes that are difficult to predict (Maurin & Toivanen, 2015). The banks may issue additional capital or raise the profit from each dollar available to remain competitive (Pasiouras et al., 2011). Therefore, the qualified minimum capital usage makes the banks stable and secure. Unfortunately, conservative banks tend to keep a very high CAR. Consequently, the bank might not fully take economic benefit from its capital (Sangmi & Natzir, 2010). Meanwhile, the CAR and liquidity shortages will cause difficulties for the banks in fulfilling customer payments and potentially lead to market risk (Laeven et al., 2014).
The proposed Basel III aims to strengthen bank capital and liquidity to enhance the effectiveness of capital placement (Ramona, 2013). In the early stages, Basel Committee on Banking Supervision suggests the banks meet the Common Equity Tier 1 to RWAs of 3.5%, Tier 1 capital to RWAs of 4.5%, and total capital to RWAs of 8.0%. The strong capital base significantly determines the risk exposure for the bank. According to Sangmi & Nazir (2010), capital adequacy may affect the bank's performance. In addition, the relatively high cost of equity encourages banks to lower the amount of loan capital to achieve a healthy ratio. Inadequate bank capital to cover bank risk exposure will increase the risk premium and negatively impact economic performance (Scannella, 2012).
Setting the minimum capital remains crucial for all banks because high profit does not guarantee that banks have adequate capital. Therefore, Kishore (2017) classified the core capital ratio as Tier 1 capital/Risk-weighted assets, while the Tier 1 capital ratio consists of the eligible Tier 1 capital/Risk-weighted assets. The value of the minimum capital ratio is the result of dividing total capital by the risk-weighted assets, following the Basel Committee on Banking Supervision provision.

Risk-Weighted Assets
Banks use the regulatory risk weight coefficient according to the loan quality quantified by external ratings (Klepczarek, 2015). Sufian (2012) found that banking risk positively and significantly impacts profitability. Hence, a capital plan should assess the effect on capital of credit risk, earnings at risk, and liquidity risk (Brew, 2011). Subject to the Basel II supervisory validation and approval (Roy, 2016), the banks simplified the risk categories into credit, market, and operational risks to determine the RWA.

Credit Risk
The term credit line refers to an agreement on lending-borrowing agreed upon by the parties under the terms the bank offers (Mora, 2010). On the other hand, the low credit level distribution indicates that the banks are concerned with running conservatively with lower credit risk (Pasiouras et al., 2011). According to Choudhry (2011), credit risk includes losses from credit migration through credit downgrades. Despite the various ways the banks do to prevent bad debts, in practice, creditors always face credit risks stemming from the failure of customers to repay their debts (Cecchetti & Schoenholtz, 2015). In a bank, the credit risk related to the interest rate is associated with a loanable loan from consumer savings, business savings, government budget surplus, and reserve increase in the money supply (Kidwell et al., 2013). Arora (2012) explains that in commercial banks, credit risk in lending activities includes the possibility of the borrower failing to repay the loan in a manner and time different from the creditor's expectations. Therefore, attention is essential because such a risk inherent in the customers' failure to repay the debt results in a loss and constitutes a risk for banks (Hassan et al., 2013). Therefore, banks need capital management to avoid failing to fulfill commitments to the creditor (Sardo & Serrasqueiro, 2022).
Basel accord weighs each of these assets with a level of risk regulated by the BCBS to calculate the capital adequacy ratio and gives banks some latitude in setting their capital requirements (Stowell, 2013). On the other hand, customer credit risk relates to loanable funds requirements in the form of consumer credit purchases, business investments, and government budget deficits from economic phenomena (Dedu & Nechif, 2010). The high credit channeling contains the potential losses stemming from the credit risk. Behr et al. (2010) use the average default ratio of the bank's loan portfolio to indicate credit risk.

Market Risk
Market risk is potential loss due to costs incurred regarding the market changes, which includes the threat from the changes in market prices of on and off-balance sheet commodities (Dhanda & Rani, 2010). Market risks are losses in interest charges, and exchange rates are affected by the combination of prevailing interest rates, foreign exchange, and public trust in the securities issuing banks (Sbârcea, 2017). Market risk occurs due to stimulation from both domestic and foreign factors. Market risk is more related to the bank's failure to sell its products, including off-balance sheets, as a result of price changes, should the investors pay (Hussain et al., 2012).
Liquidity risk refers to the liquidity market (Perobelli et al., 2016) and the ease of converting assets into cash (Gideon et al., 2012). Market risk may result in a loss of money due to changes in the value of the traded instrument. The trigger of market risk is more extensive due to the indirect role of the changes in the bank's external factors. According to Rena and Kamuinjo (2022), the reforming rate to sensitivity to market risk policies, capital adequacy policies, and liquidity policy measures can simultaneously be valuable policy tools to minimize liquidity shortages and avoid insolvent banks.

Operational Risk
Operational risk develops due to internal bank failures such as personnel disability, system weakness, lack of technology, and external factors such as natural disasters. In addition, the operational risk may stem from a failure or improper process, resulting in a loss (Dhanda & Rani, 2010). Therefore, the risk boosts the banks' nonperforming loans, and banks should apply a risk management function. Chang & Lin (2011) asserted that information asymmetry about the company's internal conditions could lead to a deviation in the achievement of returns from risk management. Ames et al. (2015) pointed out that although severe to measure, operational risks contribute up to 10-30% of the overall banking risk. Therefore, banks might adopt information systems, reporting structures, and compliance monitoring improvements and minimize funding gaps to avoid operational risk (Ersoz & Hirsch, 2010).
As a commercial entity, to minimize such a risk, a bank should emphasize the need for adequate internal controls, quality supervision, adequacy of policies and restrictions, and risk measurement and monitoring (Romney & Steinbart, 2015). Due to the growth of banking risk, Basel II strongly emphasizes the need for risk management functions for credit institutions to overcome the threats. Kieso et al. (2012) asserted that cash flows from investing involve cash in and out for long-term assets acquisition, loan provision and recollection, and the acquisition and retirement of productive long-term assets. According to Wahlen et al. (2011), the firms acquire such investments by using excess cash from other entities' securities, including stocks, government bonds, private companies, and money market funds, another asset referred to as financial assets. Hence, cash inflows include the receipts from the collected loans, the sale of bonds and equity securities of other companies, and sales of property, factories, and equipment (Gibson, 2011). Farag et al. (2013) described that banks hold some assets supporting their investment activities, including liquid assets such as cash, central bank reserves, or government bonds; the bank's buildings and other physical infrastructure; and intangible assets such as brand value. However, according to Dasgupta et al. (2011), investment in long-term assets is sensitive to cash flow because it cannot withstand financial risks every time.

Cash Flow from Investing Activities
According to Ostergaard et al. (2010), an internal source placement of banks' funds for current investments will automatically reduce future liquidity and investment capability. An entity might buy such assets for investment in the form of fixed assets or inventory investments. The changes in investment value during an accounting period represent the cash flow in from and out for the items (Elliott & Elliott, 2017). In the broader scope, investment activity also means obtaining and disposing of non-cash assets Wahlen et al. (2011). In addition, the bank may set aside funds from free cash flow (Qandhari et al. 2016). The bank made such investments to generate additional revenue, maintain good relationships with the parties, control the investee's business, or expand the product. Singh & Vyas (2011) suggested that banks with a higher risk in their assets portfolio and Capital to Risk-Weighted Assets Ratio enjoy high Return on Assets. Otherwise, such assets' ownership may also be shaped indirectly by trading other securities of an entity through an investment company (Park, 2018).
Investors place their funds in investment by agreeing to some agreements on the timing of the execution, the applicable currency, the interest rate or other compensation, the investment period, and the risks of the payment and its anticipation (Reilly & Brown, 2012). However, in the long run, such assets improve capacity due to the net income (Qin & Pastory, 2012) the banks capitalized in the equity capital.

Cash Flow from Financing Activities
Financing activities include cash receipts and payments related to long-term debt, such as bonds and receipts from the sale of shares and disbursements for share redundancy and dividends to shareholders (Kieso et al. 2012). In addition, cash flow from financing activities consists of the cash receipts and disbursements of long-term liabilities to creditors and shareholder equity (Siddiqua & Hossan, 2012). An essential factor of cash flow from financing activities is its function in forming the banks' capital (Park, 2018). When cash flow from other activities is insufficient, the subsequent alternatives are debt and even equity as a last resort (Naseem et al. 2017).
According to Schroeder et al. (2016), (Warren et al. 2012), and Subramanyam (2014), cash flow from financing activities explains the acquisition of financial resources from the owner, refunds to owners of their investments, lending activities, and repayment back to long-term creditors. Therefore, cash flow from financing activities reports cash transactions related to cash investments, owner ownership, and loan receipts from third parties and their payments.
An essential factor of cash flow from financing activities is its function in forming the banks' capital (Park, 2018). In conjunction with the net worth, the bank's capital also serves as the cushion for the impairment of assets that can press banks into insolvency (Pervin & Nowreen, 2018). In addition, DeBoeuf (2010) confirmed that free cash flow, a measure of cash available for distribution to a company's shareholders and creditors, is predominantly affected by the operating income and retained earnings. Therefore, management makes decisions about the combination of sources of financing by considering the advantages and disadvantages that influence the cash flow or profitability (Parrino et al. 2012). Belloumma (2010) found that net liquidity balance is positively associated with increased profitability while working capital requirements are negatively related to corporate capital investment. The banks obtain the funds by selling new shares and retained earnings (Warren et al. 2012) derived from the accumulated profits and losses from operations after deducted by annual dividends. According to Yeh et al. (2013), cash inflows from equity primarily include the sale of equity securities. On the other hand, Ghosh & Moon (2010) asserted that companies relying heavily on debt financing would bear higher borrowing costs. Hence, according to Naseem et al. (2017), managers prefer internal funding sources.
Its cash outflow contains payouts for dividends and the repurchase of outstanding shares (Yeh et al., 2013). The banks paid dividends to the investor from net income besides paying periodic interest to the creditor. According to Subramanyam (2014), a nontrade creditor or debtor provides funding to the company in the hope of earning interest during their credit life, even though it became scarce during the crisis (Strahan, 2012). Regarding the risk and return relationship, banks with a high risk in the asset portfolio are likely to enjoy an increased net interest margin (Singh & Vyas, 2011), and the banks capitalized into equity capital. In the fundraising framework, the banks borrow money by issuing long-term debt securities and obtain cash as an element of liquidity; the banks reinvest in long-term assets resulting in cash flow from investing activities. On the other hand, the banking authorities require minimum capital regulation as the guidance for the banks (Stowell, 2013). Therefore, financing activities are a primary funding source for a bank (Ross et al. 2013).

Conceptual Framework
The literature review discusses the variables' universal definitions and reciprocal relationships. Therefore, this study adopts the essence of being empirically comparable among countries. Thus, Figure 1 below depicts the discrete moderating effect of CFF on the CFI and CAR relationship and its comparison, specifically between Indonesian and Malaysian commercial banks.

Research Question, Objective, and Hypothesis
Concerning the literature review and the research problems, this study raises the question of whether there is (i) any positive and significant impact of CFF moderation on the CFI and CAR relationship of Indonesian commercial banks, (ii) any positive and significant impact of CFF moderation on the CFI and CAR relationship of Malaysian commercial banks, and (iii) is there any significant difference between the influence of CFF moderation on CFI and CAR relations between Indonesian and Malaysian commercial banks. Accordingly, this study aims to measure (i) the impact of CFF moderation on the CFI and CAR relationship of Indonesian commercial banks, (ii) the impact of CFF moderation on the CFI and CAR relationship of Malaysian commercial banks, and (iii) the difference between the influence of CFF moderation on CFI and CAR relationship between Indonesian and Malaysian commercial banks. Considering similarities and differences in the qualitative and quantitative characteristics of the two countries' banking environments, this study proposes the following hypotheses: Hypothesis 1: CFF moderation positively and significantly influences Indonesian Commercial banks' CFI and CFF relationship.
Hypothesis 2: CFF moderation positively and significantly influences Malaysian Commercial banks' CFI and CFF relationship.
Hypothesis 3: CFF moderation impact has an insignificant difference on the CFI and CAR relationship between Indonesian and Malaysian commercial banks.

Data and Variables
This study was conducted for the big-five banks in Indonesia and Malaysia, considering their total assets' top ranks and leading domestic position in banking market capitalization. In addition, the comparative study considers the similarities between the two countries regarding geographical locations, economic levels, and cultural roots similarities in doing business (Chong 2012).
This study selected the unit of analysis, population, and secondary data purposively to track the first five years of banking performance post the 2008 financial crisis. The data comprise the quantitative value for each dependent variable CAR and, respectively, independent variables of CFI and CFF from 2009 to 2013.

Method of Data Analysis
Data analysis lasted through four stages consisting of (1) descriptive analysis to determine the data feasibility, (2) discrete regression analysis to measure the variables' coefficients, (3) the Sobel test to examine the CFF moderation effect on the CFI and CAR relationship, and (4) the Chow test to distinguish the CFF moderation influence on the CFI and CAR relationship between Indonesian and Malaysian Commercial banks. In addition, as the research stages passage, this study respectively applied the following nine equations: CAR I = a I + bCFI I (1) CAR I = a I + bCFI I + bCFF I Sb I = √ab +(sa)(sb) + (sa 2 )(sb 2 ) (3) Sb M = √ab +(sa)(sb) + (sa 2 )(sb 2 ) (7) Chow= (

Data Description
The Capital Adequacy Ratio of Indonesian commercial banks from 2019 to 2013 was between 20.87% and 12.20%, with an average of 15.36%. On the other hand, Malaysian banks' CAR was between 17.27% and the lowest of 11.22%, with an average of 14.10%.  The results of data validity tests showed no multicollinearity, autocorrelation, or heteroscedasticity. Furthermore, the normality and linearity tests show that all data have a normal distribution, and independent variables are linear with dependent variables. Therefore, all data is suitable for use in further quantitative analysis.

Hypothesis 1
This section presents the hierarchical regression consisting of CAR I = a + b 2 CFI I and the simultaneous equation of CAR I = a + b 2 CFI I + b 3 CFF I . In addition, the equation of CAR I = a + b 2 CFI I is available to show the individual CFF impact on CAR of Indonesian commercial banks. CFI, CFF, and CAR Regression. Data processing by the e-views application resulted in the partial regression of CAR = 15.09492 -0.000118*CFI I for the CFI and CAR regression. The CFF mediation on the CFI and CAR relationship yields the multiple regression of CAR = 15.07391 -0.000133*CFI I -5.75E -05 *CFF I .
The multiple regressions show the negative coefficients for the CFI of -0.000133 and CFF of -5.75E -05 . Due to the negative coefficient, assuming the CFI is constant, the equation means that each Rp 1 billion increase in the CFF will decrease the CAR by 5.75E -05 %. Conversely, when the CFI reduces Rp 1 billion, the CAR will increase by 5.75E -05 % over the constant level of 15.07391%. On the other hand, if the CFF is constant, the equation means that each Rp 1 billion increase in the CFI will decrease the CAR by -0.000133%. Conversely, when the CFI decreases by Rp 1 billion, the CAR will increase by 0.000133% over the constant level of 15.07391%. Regarding the CFF impact on the CFI and CAR relationships, this study combined the partial and simultaneous equations into a Sobel statistic. Including data from both equations in the Sobel application yields the t statistic of 3.07E -07 . The figure represents the power of the CFF as a moderation variable to influence the CFI and CAR relationship. The two-tail table of t distribution, with the RSS of 46.9769, n = 25, k = 3, and α = 5%, show a t table of 2.074 > t statistic of 3.07E -07 . Hence, this study concluded that CFF moderation has no significant impact on CFI and CAR's relationship. Respecting the CAR spreading of Malaysian banks, it is noticeable that CFI and CAR's growth changes in the same direction. In the CAR and CFI regression, the skewness of these growths represented the positive b coefficient of 0.000229%. The positive CFI represents the CFI's changes shifted in a similar direction as the CAR. It means the higher the CFI, the higher the CAR. Conversely, the lower the CFI, the lower the CAR. The equation indicates that each RM 1 million rises in the CFI, it pushes the increase in the CAR of 0.000229% over the constant level of 14.53147%. Contrary, a decrease of RM 1 million in CFI will decrease the CAR by 0.000229 %. The regression also resulted in the Residual Sum of Square of 21.6193 and t statistic = 2.8594. The two-tail table of t distribution for n = 25, k=2, and α = 5% shows that t

Discussion
In Indonesian banks, discrete CFI and CFF regressions showed negative correlations. The CFI has a significant impact, while CFF's impact is insignificant on CAR. In the multiple regression CFI, CFF, and CAR of Indonesian commercial banks, the CFI and CFF still show negative correlations with CAR. It means that the two independent variables, CFI and CFF, show a decrease when CAR shows an increase. The CFI, CFF, and CAR trend in Figure 2 ensures that the negative relationship was mainly caused by significant growth during CAR increasing from 2009 to 2013. In Malaysian banks, the CFI showed a positive correlation with CAR, while the CFF showed a negative correlation. In the multiple regression CFI, CFF, and CAR of Malaysian commercial banks, the CFI and CFF still show negative correlations with CAR.
After including the CFF as a source of funds for CFI, the equations still show a negative relationship between the two cash flows against the CAR in Indonesia. But on the contrary, all variables correlate positively with the CAR in Malaysian banks in the CFI and CAR equations after placing the CFF moderation. The result shows that the strong influence of CFI on CAR even forces a positive correlation between CFF and CAR.
Further E-view statistics analysis shows that the coefficient of determination of simultaneous CFI and CFF on CAR of Indonesian banks is 0.6191, while Malaysian banks lie at 0.5248. The CFF moderation in the CFI and CAR relationships of Indonesian banks tends to strengthen the difference in the increase of 1.55%, while Malaysian banks showed stronger influences of 0.79%. Hence, the CFF moderation enhances the coefficient of determination in the CFI's impact on CAR for Indonesian and Malaysian commercial banks.
Concerning some previous studies such as Sepehrdoust and Aeini (2014), Singh and Vyas (2011), Molyneux et al. (2014), Gatchev et al. (2010), Fatma andChichti (2011), Baloch et al. (2011), and Gibbard and Stevens, (2011) indicated the reciprocal relationships closeness between the financial performance refers to the banks' liquidity, operating, efficiency, and banks' leverage in shaping the CFI, CFF, and the CAR. However, on the other hand, this study provides the explicit cash flow and capital relationship in the form of statistical pattern differences between CFF and CFI in shaping the CAR in Indonesian and Malaysian commercial banks during the first five years post-crisis 2008.

Conclusion
This study concludes a significant difference in the CFF moderation impact on the CFI and CAR relationship between Indonesian and Malaysian commercial banks. In addition, the discrete Sobel tests showed insignificant CFF moderation impact on CFI and CAR for each bank cluster in the two countries. Therefore, the difference primarily comes from the respective contradictory positive and negative CFI and CAR correlations between Indonesian and Malaysian commercial banks. However, on the other hand, the CFF moderation statistically enhances the coefficient of determination of the CFIs' influence on CAR.

Implication.
The uniqueness of this study lies in using the cash information directly to map banking activities in shaping the capital adequacy ratio. Therefore, this study shares the following research practice, theoretical, and managerial implications. (i) Practical implication. The insignificant CFF moderation influence on the CFI and CAR relationship reinforces an understanding that CFF is not a single source for funding the CFI of Indonesian and Malaysian commercial banks. In addition, both countries' contradictory CFI and CAR behavior require strategic alignment to match investment asset utilization and financing policy. Under a typical environment, each bank entity needs to enact an in-depth analysis concerning its risk-sensitive characteristics to optimize capital formation. (ii) Theoretical implication. This study provides empirical evidence concerning the different patterns of cash flow and the banks' CAR post-financial crisis of 2008. Regarding the insignificant CFF moderating and the CFI's significant effects on CAR in the countries, banking scientists require further study to investigate the role of individual CFF, CFI, and other environmental determinants in shaping the CAR. (iii) Managerial implication. Concerning the above findings and implications, the banks' managers need intelligent managerial control to meet the CFI, CFF, and CAR equilibrium to achieve the best tradeoff to keep pace with the banks' sound CAR and liquidity.