The Influence of Income Diversification and External Risk on Financial Performance and Stock Prices of Banks Listed on the Indonesia Stock Exchange

This study aims to examine the influence of Income Diversification and External Risk on the Financial Performance and Stock Prices of Banks Listed on the Indonesia Stock Exchange. The research sample consists of 23 banking companies listed on the Indonesia Stock Exchange. Data analysis was conducted using the Structural Equation Model (SEM) approach with the SmartPLS software. The findings reveal that income diversification has a direct negative effect on the financial performance of banking companies, though this effect is not statistically significant. Conversely, income diversification has a direct positive effect on stock prices, with the analysis indicating statistical significance. External risk shows a direct positive impact on financial performance but does not reach the level of statistical significance. Likewise, external risk has a direct negative effect on stock prices, though it is also not statistically significant. Financial performance demonstrates a direct positive impact on stock prices, with statistically significant results. Additionally, there is a negative indirect effect of income diversification on stock prices through financial performance, which is not statistically significant. In contrast, external risk has a positive indirect effect on stock prices through financial performance, with statistical significance. These findings highlight the complex relationships between income diversification, external risk, financial performance, and stock prices of banking companies on the Indonesia Stock Exchange.