The Impact of Good Corporate Governance on Financial Distress in the Consumer Goods Sector

J. Fin. Bank. Review 2 (4) 46 – 55 (2017)

10 Pages Posted: 5 Mar 2018

Date Written: December 11, 2017

Abstract

Objective – Financial distress is referred to as a condition in which a company's operations result in insufficient funds to meet its obligations (insolvency). The success or failure of a company greatly depends on the corporate governance of the company. This study aims to identify the relationship between the existence of good corporate governance and the probability of financial distress.

Methodology/Technique – This study used secondary data obtained from annual reports from 2009 to 2014. The data is gathered from consumer goods manufacturing companies, that are listed on the Indonesian Stock Exchange (BEI). The sample includes 10 companies. The method of analysis used is multiple linear regressions.

Findings – The results of the study show that institutional ownership and managerial ownership adversely affect the possibility of financial distress. On the other hand, the proportion of commissioners and the number of board of directors have a positive effect on the probability of financial distress.

Novelty – This study found that institutional ownership (IO) has an inverse effect on the financial distress of a company.

Type of Paper – Empirical.

Keywords: Good Corporate Governance; Financial Distress; Corporate Performance

JEL Classification: G30, G34, G39

Suggested Citation

Pramudena, Sri Marti, The Impact of Good Corporate Governance on Financial Distress in the Consumer Goods Sector (December 11, 2017). J. Fin. Bank. Review 2 (4) 46 – 55 (2017), Available at SSRN: https://ssrn.com/abstract=3129301

Sri Marti Pramudena (Contact Author)

STIE Binaniaga Bogor ( email )

Padjadjaran street No. 100 Bogor
West of Java
Indonesia

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