DOES GOOD CORPORATE GOVERNANCE AFFECT FINANCIAL DISTRESS?: A STUDY OF MINING COMPANIES

Authors

Randy Faisal Sumantri Universitas Airlangga
Sonia Surya Bunga Reswara Universitas Airlangga

DOI:

Keywords:

Board Size, Financial Distress, Good Corporate Governance, Institutional Ownership, Managerial Ownership, Proportion Of Independent Commissioners.

Abstract

This study investigates the impact of good corporate governance on financial distress in mining companies listed on the Indonesia Stock Exchange (IDX). Corporate governance is measured using four variables: managerial ownership, institutional ownership, board size, and the proportion of independent commissioners. Financial distress is defined as a deteriorating financial condition that precedes bankruptcy and signals declining company performance. The research covers mining companies listed on the IDX during the 2014–2018 period, using a sample of 190 firm-year observations selected through purposive sampling. Data were analyzed using logistic regression. The findings reveal that managerial ownership and institutional ownership are negatively associated with financial distress, indicating that greater ownership by internal and institutional stakeholders reduces the likelihood of financial instability. In contrast, the proportion of independent commissioners is positively associated with financial distress, suggesting that a higher presence of independent board members may not effectively prevent financial difficulties. Board size shows no significant relationship with financial distress. These results contribute to the understanding of governance effectiveness in mitigating financial risks and provide practical implications for policymakers, investors, and corporate boards, particularly in Indonesia’s mining sector.

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