Research Article
The Effect of Good Corporate Governance Mechanisms, Financial Ratio, and Financial Distress: A Study on Financial Companies
@INPROCEEDINGS{10.4108/eai.10-8-2022.2320848, author={Nurcahyono Nurcahyono and Fatmasari Sukesti and Haerudin Haerudin}, title={The Effect of Good Corporate Governance Mechanisms, Financial Ratio, and Financial Distress: A Study on Financial Companies}, proceedings={Proceedings of the 3rd International Conference of Business, Accounting, and Economics, ICBAE 2022, 10-11 August 2022, Purwokerto, Central Java, Indonesia}, publisher={EAI}, proceedings_a={ICBAE}, year={2022}, month={8}, keywords={financial distress good corporate governance mechanism and financial ratio}, doi={10.4108/eai.10-8-2022.2320848} }- Nurcahyono Nurcahyono
Fatmasari Sukesti
Haerudin Haerudin
Year: 2022
The Effect of Good Corporate Governance Mechanisms, Financial Ratio, and Financial Distress: A Study on Financial Companies
ICBAE
EAI
DOI: 10.4108/eai.10-8-2022.2320848
Abstract
The COVID-19 pandemic has significantly impacted the Indonesian economy, as indicated by the capital market's high volatility due to the business environment. The pandemic has caused companies to adjust their business activities which has an impact on decreasing productivity so that companies have the potential to go bankrupt. This study aims to predict the financial distress faced by mining companies by using predictors of good corporate governance mechanisms, operating cash flow, and leverage. The population of this study is mining companies listed on the Indonesia Stock Exchange in 2020 and 2021, with a purposive sampling type. The unit of analysis that we use is 91 annual reports with 140 financial companies. Analysis of the data used is multiple linear regression by testing the relationship between variables. Good corporate governance mechanisms that the company appropriately implements will prevent the company from financial difficulties because it acts as a controller. Operating cash flow and leverage can be good predictors of potential financial distress. Low operational cash flow and high leverage are early signals that the company is experiencing financial problems that will potentially go bankrupt in the long term.