Financial performance as mediation is influenced by diversification and intellectual capital on sustainability performance

This study examines and analyzes diversification and intellectual capital on sustainability performance mediated by financial performance. This research was conducted at Sharia Commercial Banks (BUS) in Indonesia, registered with the Otoritas Jasa Keuangan (OJK) for 2011 - 2018, with a total sample of 10 Islamic banks that meet the criteria according to the sampling method used, namely purposive sampling. The data analysis technique used SEM-PLS with the help of WarpPLS 7.0 software. The results showed that intellectual capital and financial performance had a positive effect on sustainability performance, but diversification was not significant on sustainability performance. Financial performance can mediate the relationship between diversification and intellectual capital on sustainability performance. The VAF method calculates the mediating effect with financial performance results partially mediates because the VAF value is less than 80%.


Introduction
In accordance with POJK Number 51/POJK.03/2017Sustainability performance as a bank's commitment to building a sustainability culture and conducting socialization to all stakeholders as an effort to do sustainability performance by conveying in detail the company's performance on economic, social and environmental aspects integrated into the product portfolio or banking services.The acceleration of the country's economic growth is closely related to the contribution of the best performance of banking business entities in supporting community business activities (funding activities, financing, to the implementation of the payment traffic function).By doing diversification of financing as a form of solution, banks can avoid risk and increase profits with a financing distribution strategy that can be done by Islamic banks.According to Kang (2012) a diversified company has a broad impact on the welfare of stakeholders including the community.This is in line with the results of his research that diversification has a positive effect on the performance of corporate social responsibility.In addition, value creation in this context is by utilizing all the potential of the company in terms of human capital, physical capital, and structural capital.These components are contained in the management of intellectual capital; thus the company will have a competitive advantage.
In an effort to maximize the financial performance of banks, Islamic banking measures the performance indicators it produces through an objective assessment process so that it can effectively give an overview of the company's development.Many parties use financial information in making business or investment decisions, one of the investor.Investors need the company's financial information to make an assessment of the company, and then decide which shares to sell, buy, and hold.Therefore, the information needed must be relevant, correct, and timely.In this study financial performance as a mediating variable that links diversification, and intellectual capital to sustainability performance.
Previous research conducted by Siswanti and Sukoharsono (2017) empirically provides significant results by testing financial performance as a mediating variable between intellectual capital and business sustainability.Financial performance is important in a company, especially for Islamic banks, because the quality of performance of Islamic banks must be able to give benefits to the community, because the roles and responsibilities of Islamic banks as Islamic financial institutions are not limited to the financial needs of various parties but the most important thing is certainty that all activities carried out by Islamic banks are in accordance with sharia principles (Hameed et.al, 2004).
This study aims to examine and analyze diversification and intellectual capital on sustainability performance mediated by financial performance.

Theoretical and Empirical Review
The purpose of stakeholder theory in this study is to help corporate managers increase the value of the impact of their activities, and minimize losses for stakeholders.The bottom line lies in what will happen when corporations and stakeholders carry out their relationship.According to Maulida and Adam (2012) the emergence of stakeholder theory as the dominant paradigm strengthens the concept that companies are responsible not only to shareholders but also to stakeholders.
According to Meutia (2010) Shariah Enterprise Theory is the most appropriate theory for expressing corporate social responsibility, in this case Islamic banks.Because the resources owned by stakeholders are a mandate from Allah in which a responsibility is attached to use the methods and goals set by Allah.

Diversification on Sustainability Performance
Companies that diversify have a more flexible capital formation because the company has more internal access to various resources including external funding sources, companies can also use a number of mechanisms to create and expand the advantages of their market power.In addition, with diversification, companies gain other advantages in the form of the ability to expand the company's assets and share resources, managerial capabilities, customer loyalty and technological innovation (George & Kabir, 2005).Several studies have concluded that diversification is more profitable for firms in emerging economies (Khanna & Palepu, 1997;Guillen, 2000;Kock & Guillen, 2001).

Diversification on Sustainability Performance with Financial performance as mediation
Diversification certainly has a very good impact on sustainability of the company, where when a company diversified that improves financial performance it will expand the company's social activities, because the extent of social and environmental disclosure is seen from the company's performance and concern for other stakeholders who are not directly related to the company From a business point of view, the results of the CSR program evaluation can be used as an objective presentation of the company's social performance, which then becomes very beneficial for the company's sustainability.Higgins and Schall (1975) diversification can improve capital capacity, cut the possibility of bankruptcy by launching new products and entering new markets, as well as improving asset development and profitability, this action is certainly very good for the sustainability of the company.

Intellectual Capital on Sustainability Performance
Intellectual capital is one of the factors that have an impact on sustainability of the company, as knowledge and information can create value-added efficiency to generate wealth for the company (Stewart, 1997;Siswanti et al, 2017).In line with research conducted by Altuner et al (2015); Siswanti et al (2017).According to Sirojudin and Nazaruddin (2014) in this context, stakeholders have the authority to influence management in the process of utilizing all the potential possessed by the organization.With good management of all the potential contained in the organization will encourage the company's sustainability performance.

Intellectual Capital on Sustainability Performance with Financial performance as mediation
Regardless of the type of entity, human resources have a greater influence to create a better structure in service and non-service companies (Bontis et al, 2000).Research by Ulum (2013) shows that intellectual capital has a positive effect on financial performance.This proves that intellectual capital is the main part of innovation and learning so that companies can survive in intense business competition.When a company has higher intellectual resources, it will synergistically improve the company's performance and give sustainability performance for the company to carry out social responsibility and equitably.

Financial Performance on Sustainability Performance
According to Burhan (2009), the financial condition of banks alone is not enough to guarantee sustainable company value, this is due to the demands of company stakeholders who want to know about the company's non-financial performance.Therefore, financial performance is one of the factors that give companies the ability to carry out and attach social and environmental activities as an achievement of sustainability performance.In other words, the company's sustainability performance is strongly influenced by the company's ability as measured by the size of its financial performance.Siswanti et.al (2017) and Sumail and Mappamiring (2015) which give financial performance results that affect the company's business sustainability.

Population, Sample, and Data Sources
This study analyzes the annual report data of Islamic Commercial Banks in Indonesia for the period 2011-2018, based on 2019 Islamic banking statistics at the Financial Services Authority.The sampling method used in this research is purposive sampling, namely the determination of the sample based on 3 criteria as follows: i.
Islamic commercial banks that have operated nationally during the 2011-2018 research period. ii.
Islamic commercial banks that publish annual reports for the period 2011 -2018 with complete data according to the needs in this study which are available on the official banking website.

Conceptual Framework
One of the factors that must be considered by the bank in order to continue to survive is the condition and financial performance of the bank.Islamic banking as an institution that operates based on sharia principles certainly has different characteristics from other companies in its performance orientation.Therefore, the performance of Islamic banks is not only measured by conventional methods but also must be measured by methods that are oriented towards sharia goals, to find out whether the performance of Islamic banking has been carried out in accordance with sharia principles.

Measurement Outer Model
Testing the convergent validity and discriminant validity of research indicators on the reflective construct of financial performance variables is known through the value of the outer loading factor and the average variance extracted (AVE) value.Overall, it can be concluded that the indicator measurement has passed the convergent validity test (Table 2).The validity test for the reflective construct is also reviewed from the cross-factor value with the criterion that if the loading factor value in a corresponding indicator is greater than the indicator correlation value with other variables, the indicator is declared valid, the cross factor value can be obtained by testing discriminant validity.Overall, it can be concluded that the indicator measurement has passed the discriminant validity test (Table 3).Reliability testing was conducted with the aim of ensuring that the research instrument used could provide a consistent measurement of the concept without bias.Overall for all constructs have met the requirements of reliability testing (Table 5).

Measurement Inner Model
The R 2 value of the sustainability performance construct is 0.82, thus that the sustainability performance construct can be explained by 82% through the constructs of diversification, corporate governance, intellectual capital, and financial performance.While 18% is the contribution of other variables outside the research model.Can be explained by the total diversity of data by the model as measured by the formula:   Mediation effects test aim to determine whether the mediation construct in the study has a significant effect on endogenous and exogenous constructs.The total indirect effect is 0.62 and the total direct effect 0.30.Full mediator if (VAF value > 80%), partial mediator (20% value < VAF < 80%) and there is no mediator role at all (VAF value < 20%).Overall, the total effect obtained can be concluded that in this study financial performance is partially mediated (Table 6).

Discussion
The Direct Effect of Diversification on Sustainability Performance.
Based on the results of the diversification test on sustainability performance, it does not support the stakeholder theory, namely that companies that diversify will create value for stakeholders but also create synergies for company sustainability, as well as companies that fall into the group of sustainable companies not only pursuing tangible assets but tend to pay attention to intangible assets or assets.social and environmental aspects.Sumail and Mappamiring (2015) state that if the diversification strategy is not oriented towards tangible assets, it will cut the company's performance, thus the diversification strategy is meaningless in determining the sustainability of Islamic banking companies.

Indirect Effect of Diversification through Financial Performance on Sustainability Performance.
The results of testing the second hypothesis state that financial performance can be a mediator between the effects of diversification and sustainability performance.The results of this test are in line with stakeholder theory which explains that a company with a diversification strategy will run its business responsibly to stakeholders and sustainably and the company will gain new market share and expand existing market share as well as improve its financial performance by providing opportunities and excel in competing with other companies.This is in line with research conducted by Sumail and Mappamiring (2015) which revealed that financial performance can mediate between diversification and sustainability performance.

The Direct Effect of Intellectual Capital on Sustainability Performance
The results of testing this hypothesis are in line with stakeholder theory which states that organizational management is expected to be able to carry out company activities that are considered important by stakeholders and report back on these activities to stakeholders.The results of this test are in line with the previous one by Siswanti et.al (2017) intellectual capital is one of the factors that have an impact on the sustainability of Islamic banks, as knowledge and efficiency that creates added value.

Indirect Effect of Intellectual Capital through Financial Performance on Sustainability Performance
Stakeholder theory emphasizes organizational accountability far beyond simple financial or economic performance (Deegan, 2004).This theory states that organizations will choose to voluntarily disclose information about their environmental, social, and intellectual performance beyond their mandatory demands to meet stakeholder-acknowledged expectations.Islamic banks have resources in which responsibility is attached, therefore when the company has higher intellectual resources it will continuously improve financial performance and provide equal responsibility for stakeholders as a form of sharia bank sustainability performance.Siswanti et.al (2017) financial performance has succeeded in being a mediator between intellectual capital and business sustainability

The Direct Effect of Financial Performance on Sustainability Performance
The test results support the stakeholder theory which states that the company is included in the socio-economic system of the community and can leave a reciprocal relationship that requires the company not only to meet their needs but also to give benefits to other stakeholders, the company in this case runs its business to improve its financial performance in order to provide other human rights as the achievement of the company's sustainability performance that can boost the image and sustainable company in the future.The results of this study are in line with research conducted by Sumail and Mappamiring (2015) that financial performance has a positive effect on good and quality company sustainability performance.

Conclusion
Based on the results of the analysis and discussion of research, diversification and intellectual capital have a positive effect on sustainability performance through financial performance as a mediation, this shows that financial performance plays a role in supporting business activities, Islamic banks also run their business to improve financial performance to give equal responsibility for all stakeholders.Internal and external stakeholders as the achievement of sharia bank sustainability performance.However, diversification cannot have a direct effect on sustainability performance, this is presumably because diversification does not play a role as an effort to improve sustainability performance in Islamic banks.

Figure 1 :
Figure 1: Conceptual Model of the Study; Source: Authors

Figure 2 :
Figure 2: Structural Research Model Output; Source: PLS Processed Data

Table 1 :
Summary of Literature Review

Table 2 :
Convergent validity test results for reflective constructs

Table 3 :
The results of the discriminant validity test of the reflective construct Testing the validity of the formative model is indicated by the size of the probability value.An indicator is declared valid if the p value < (0.05).Overall, it can be concluded that the indicator measurement has passed the convergent validity test (Table4).

Table 4 :
Convergent validity test results for formative constructs

Table 5 :
Reliability Test Results

Table 6 :
Hypothesis Testing Results

Table 7 :
Mediation Effect Test