The Role of Cost Efficiency in Mediating the Effect of Revenue Diversification on Profitability in Commercial Banks Listed on the Indonesia Stock Exchange (IDX)

Abstract

This study aims to analyze the effect of revenue diversification on bank profitability with cost efficiency as a mediating variable in commercial banks listed on the Indonesia Stock Exchange (IDX). The study uses a quantitative approach with a causal-comparative design and utilizes panel data combining cross-section and time-series data for the period 2018–2024. The research sample consists of 16 national commercial banks selected based on certain criteria. Data analysis was conducted in stages using Partial Least Squares-based Structural Equation Modeling (PLS-SEM). The results show that revenue diversification has a positive and significant effect on profitability, and has a very strong and significant effect on cost efficiency. Cost efficiency is also proven to have a positive and significant effect on profitability. Furthermore, cost efficiency acts as a partial complementary mediator in the relationship between revenue diversification and profitability, where the indirect effect through cost efficiency is greater than the direct effect. These findings indicate that increasing bank profitability will be more optimal if the revenue diversification strategy is implemented simultaneously with strengthening cost efficiency. This research provides theoretical contributions to enrich the banking literature on value creation mechanisms, as well as practical implications for bank management and regulators in formulating sustainable business strategies.