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Do firm characteristics, political connection and corporate governance mechanism affect financial distress? (Evidence from Indonesia)

Author

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  • Yeterina Widi Nugrahanti
  • T. Sutrisno
  • Aulia Fuad Rahman
  • Endang Mardiati

Abstract

The objectives of this study are to evaluate the impact of firm characteristics (firm size, liquidity, profitability, and leverage), political connection and corporate governance mechanism (independent board of commissioner, institutional ownership, and board of commissioner size) on the level of financial distress. Altman Z-score is used to measure financial distress in this study. Purposive sampling was conducted and 576 firm-years non-financial companies listed in Indonesian Stock Exchange during 2014-2016 were acquired as the samples. For testing the hypotheses, unbalanced panel data regression with a random effect model was used. The findings showed that firm size, liquidity, profitability, and institutional ownership had a negative impact on financial distress; while leverage and the political connection had a positive impact on financial distress. The hypotheses testing results also showed that an independent board of commissioner and board of commissioner size did not influence financial distress.

Suggested Citation

  • Yeterina Widi Nugrahanti & T. Sutrisno & Aulia Fuad Rahman & Endang Mardiati, 2020. "Do firm characteristics, political connection and corporate governance mechanism affect financial distress? (Evidence from Indonesia)," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 13(2), pages 220-250.
    • Handle: RePEc:ids:ijtrgm:v:13:y:2020:i:2:p:220-250
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    Cited by:

    1. Shoukat Ali & Ramiz ur Rehman & Wang Yuan & Muhammad Ishfaq Ahmad & Rizwan Ali, 2022. "Does foreign institutional ownership mediate the nexus between board diversity and the risk of financial distress? A case of an emerging economy of China," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 12(3), pages 553-581, September.

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