The influence of good corporate governance on financial distress (original) (raw)
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This study aims to analyze the effect of financial ratios and corporate governance on financial distress by making a prediction model of bankruptcy using data from non-financial sector companies listed on the Indonesia Stock Exchange (IDX). This research used the quantitative approach with a logistic regression model. The samples used in this study were 310 companies from the non-financial sector with 1550 observations. The research findings suggested that the variables included in the model are current liabilities to total assets, total liabilities to total assets, book-to-market value, blockholder ownership, sales to total assets, earnings before interest, and taxes to total assets. While the audit opinion variable has no significant effect. Although not all the variables which have been incorporated into the model were significant, the insignificant variables still remained in the model to improve the accuracy of the prediction model. The results suggested that the accuracy of this bankruptcy prediction model was 98.1%.
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Purpose – This study aims to investigate the impact of corporate governance mechanisms on financial distress in firms listed on the Indonesia Stock Exchange (IDX). Methodology/approach – This study uses secondary data from the financial statements of firms, between 2014 and 2019. The number of samples that met the established criteria was 341 firms unbalanced panel, which were further analyzed using logistic regression and sub-group logistic regression analysis. Findings – This study concludes that corporate governance mechanisms (independent commissioners and board size of commissioners), has a mixed impact on financial distress. The larger of board commissioners, the better the company's financial condition, while the proportion of independent commissioners has no significant effect on financial distress. Profitability consistently has a significant effect on financial distress. Ownership i.e. state-owned enterprises (SOE) and non-state-owned enterprises (NSOE) change the dire...
International Journal of Financial Research, 2020
This study aims to examine the effect of four variables, which include independent commissioners, audit committees, institutional ownership and managerial ownership as a proxy for the corporate governance mechanisms on financial distress. This was carried out on the manufacturing companies listed on the Indonesia Stock Exchange (IDX) in 2016-2018. The samples were selected using the purposive sampling method and 224 data were obtained. The hypothesis in this study was tested using logistic regression. The results showed that independent commissioners have a negative influence on financial distress, while the audit committee, institutional ownership and managerial ownership have no effect. This implies that an independent commissioner functions as an effective supervisory mechanism to prevent a company from experiencing financial distress. Furthermore, two control variables used in this study, namely leverage and profitability, were able to produce results as predicted. It was discov...
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The main objective of this paper is to explore the most significant determinants of financial distress of manufacturing companies in Indonesia and to provide explanations on this issue by using multiple regression models. With Modigliani and Miller’s and Trade-off theories were reviewed to formulate a testable proposition on the determinants of financial distress of manufacturing companies in Indonesia. Multiple regression models were used as a statistical tool to investigate the most significant profitability determinants of manufacturing companies in Indonesia. The Lisrel software was used to analyze 300 manufacturing companies listed on the Indonesia Stock Exchange. It was found that institutional ownership, firm size, profitability, and board independence as variables had a positive relationship in an effort to avoid financial distress. Meanwhile, the board size variable had an insignificant positive relationship. The findings are consistent with the pecking order and financial ...
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Good corporate governance practices play an import role in increasing the firm value. Based on the agency theory related to corporate governance, if an agent (management) does not protect interest of principal (shareholders) then, agency cost is occurred and this creates a bad impact on the corporate performance. Therefore, it is necessary to address weak corporate governance practices in early stages otherwise firms can go in financial distress and eventually become bankrupt. The objective of this current study is to conduct a nonsystematic review of literature on theories and models related to corporate governance and financial distress. In the light of thorough review of literature, it is found that corporate governance variables (i.e. ownership concentration, board size, board composition, CEO duality, level of independence of board from management and managerial ownership) are good predictors for predicting financial distress. Moreover, it is also found that these corporate gov...
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Financial distress is a condition where management fails to manage company finances. This study aims to determine the effect of leverage, net profit margin, liquidity, and sales growth on financial distress with corporate governance as a moderating variable. This sample used all consumer goods sector companies listed on the Indonesia Stock Exchange for the 2018-2020 period. Sampling was used with the purposive sampling technique and selected 25 companies. Data analysis used multiple linear regression and the absolute difference value test. The results are that the variables of leverage, net profit margin, and liquidity affect predicting financial distress. Meanwhile, sales growth does not affect financial distress. As measured by managerial ownership, corporate governance can moderate the effect of liquidity on financial distress. Still, it cannot moderate the effect of leverage, net profit margin, and sales growth on financial distress. Keywords:leverage, net profit margin, liqudit...
The Impact of Ownership Structure on the Indicator of Financial Distress In Indonesian Companies
Jurnal Akuntansi dan Bisnis, 2020
The increase in bankruptcy cases and delaying debt repayment by 16.43 percent during the year of 2015 to 2017 reinforced the importance of having good corporate governance to avoid this issue. This study aims to delve into the effect of ownership structures on the risk of financial distress in 421 companies (except financial institutions) in the period from 2012 to 2017. The types of ownership that are being examined are Institutional Ownership, Insider Ownership, Government Ownership, and Foreign Ownership. This study uses OLS Driscoll-Kraay standard error panel data regression. The results of this study shows that Institutional Ownership has a positive relationship to financial distress which is caused by the tendency of Institutional investors to conduct passive monitoring. Inversely, foreign ownership and government ownership have been proven to have a negative relationship with the risk of financial distress. This was caused by the capability of the foreign investors to do better-monitoring activities and maintain the ultimate shareholder's company in their home country. Furthermore, the presence of merah putih shares allows the government to have absolute voting power. This research intends to provide new business perspectives to companies, investors, regulators, creditors, and other stakeholders for economic decision-making purposes.
Advance Science Letter, 2016
Financial distress is a condition in which a company is potential unable to fulfill its obligations. The survivability of a company is determined by many factors. This study investigated several of those factors i.e., corporate governance and financial ratios from the companies listed in capital market. The study utilizes purposive random sampling coverage the year 2002-2014. Estimation method using Cox proportional hazards regressions showed that board size, board independence, leverage, size, liquidity and return on asset had a impact on the survival likelihood of the financial distress. This findings was, therefore, in line with the Agency Theory.