THE EFFECT OF CORPORATE GOVERNANCE ON FINANCIAL DISTRESS WITH FINANCIAL RATIO AS CONTROL VARIABLE

Abstract

Purpose - This research aims to examine the effect corporate governance mechanisms, encompassing board independence, CEO tenure, ownership concentration, board size, board diversity, and audit committee size influence corporate financial distress, while incorporating financial ratio control mechanisms that encompass leverage, profitability, and liquidity metrics in companies with the availability of corporate governance data and financial ratios for five years (2019-2023).

Design/Methodology/Approach - This study applies a quantitative paradigm in its implementation. The total population that is the object of the study reaches 938 corporate entities, while the sample resulting in 153 companies as the unit of analysis, determination is carried out through a purposive sampling technique.

Findings - Panel data regression methodology serves as the analytical approach employed in this study, utilizing EViews software as the computational instrument for data processing and statistical estimation. This investigation seeks to address research gaps identified in prior scholarly work examining the corporate governance-financial distress relationship by integrating financial metrics, specifically leverage, liquidity, and profitability indicators as control mechanisms within the analytical framework. Furthermore, this study integrates a comprehensive spectrum of corporate governance dimensions, including board independence, CEO tenure, ownership concentration, board size, board diversity, and audit committee size.

Practical Implications - This research has implications for company management, not only to establish a structural corporate governance framework but also to ensure that decision-making and oversight functions are carried out effectively.

Originality/Value - This study integrates a comprehensive spectrum of corporate governance dimensions, including board size, CEO tenure, board independence, ownership concentration, board diversity, and audit committee size.

Keywords: Corporate Governance, Financial Distress, and Financial Ratio