Analysis Of The Effect Of Application Of Good Corporate Governance, Profitability And Leverage On The Possible Financial Distress In Manufacturing Companies Listed On The Indonesia Stock Exchange (BEI)

Feb 27, 2025 by ADMIN 202 views

Introduction

In the world of corporations, the application of Good Corporate Governance (GCG) is an essential aspect that needs to be considered, especially for companies listed on the Stock Exchange. The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a significant number of manufacturing companies listed on it. These companies play a crucial role in the country's economy, and their financial health is vital for the overall economic growth. This study aims to analyze the effect of the GCG, profitability, and leverage mechanism on the possibility of financial distress in manufacturing companies listed on the IDX.

Background

Good Corporate Governance (GCG) is a set of principles and practices that aim to ensure the effective and efficient management of a company. It encompasses various aspects, including the composition of the board of directors, the size of the board of commissioners, the size of the audit committee, managerial ownership, and institutional ownership. The application of GCG is essential for companies to maintain their financial health and stability. However, the effectiveness of GCG in preventing financial distress is still a topic of debate among researchers and practitioners.

Methodology

This study uses a sample of 18 manufacturing companies listed on the IDX, selected through the purposive sampling method. The analysis method used in this study is logistical regression analysis, which makes it possible to identify the relationship between existing variables. The study aims to examine the effect of GCG, profitability, and leverage on the possibility of financial distress in manufacturing companies.

Results

The results of the study showed some interesting findings. First, managerial ownership has no significant influence on the possibility of financial distress. This shows that the presence of managers as owners does not always guarantee the company's financial stability. Managerial ownership is often considered a key aspect of GCG, as it is believed to provide a sense of accountability and responsibility among managers. However, the results of this study suggest that managerial ownership is not a significant predictor of financial distress.

Second, institutional ownership also has no effect on financial distress. Although generally the presence of institutions as shareholders is considered to be able to increase company supervision and control, in the context of this research, this does not have an expected impact. Institutional ownership is often seen as a way to increase the level of transparency and accountability in a company. However, the results of this study suggest that institutional ownership is not a significant predictor of financial distress.

Third, the size of the board of directors found has a negative influence on the possibility of financial distress. This can be interpreted that the greater the board of directors, the lower the possibility that the company experiences financial difficulties. This may be related to the variety of perspectives and experiences of board members who can enrich the decision-making process. The size of the board of directors is often seen as a key aspect of GCG, as it is believed to provide a diverse range of perspectives and experiences.

Meanwhile, the size of the Board of Commissioners and the size of the Audit Committee did not show a significant effect on financial distress, showing that the composition of the Board of Commissioners and the existence of the Audit Committee was not strong enough to prevent financial difficulties. The Board of Commissioners is often seen as a key aspect of GCG, as it is believed to provide a level of oversight and accountability. However, the results of this study suggest that the Board of Commissioners is not a significant predictor of financial distress.

On the other hand, profitability and leverage also have no influence on the possibility of financial distress. Although profitability is often considered a good financial health indicator, in this study, the resulting profits do not necessarily guarantee the stability of the company from the financial crisis. Likewise, the high and low leverage does not directly affect the company's ability to avoid financial distress. Profitability and leverage are often seen as key indicators of a company's financial health. However, the results of this study suggest that they are not significant predictors of financial distress.

Conclusion

Overall, this study revealed the importance of good management in a company, although not all elements in GCG have a significant impact on financial stability. These findings provide valuable insights for stakeholders and business practitioners to pay more attention to aspects that are truly influential in maintaining the financial health of companies in competitive markets such as the Indonesia Stock Exchange. Thus, companies need to reconsider managerial strategies and management of ownership structures in order to minimize the risk of financial distress.

Recommendations

Based on the findings of this study, the following recommendations are made:

Companies need to reconsider managerial strategies: Companies need to reconsider their managerial strategies and focus on aspects that are truly influential in maintaining the financial health of the company.
Management of ownership structures: Companies need to manage their ownership structures effectively, taking into account the size of the board of directors, the size of the board of commissioners, and the size of the audit committee.
Focus on profitability and leverage: Companies need to focus on profitability and leverage as key indicators of financial health, and take steps to improve them.
Stakeholders need to pay attention: Stakeholders, including investors and regulators, need to pay attention to the aspects that are truly influential in maintaining the financial health of companies.

Limitations

This study has several limitations, including:

Sample size: The sample size of this study is relatively small, which may limit the generalizability of the findings.
Data availability: The data used in this study may not be comprehensive, which may limit the accuracy of the findings.
Methodology: The methodology used in this study may not be the most effective way to analyze the data.

Future Research Directions

Future research directions include:

Examining the effect of GCG on financial distress: Future research should examine the effect of GCG on financial distress in more detail, taking into account the size of the board of directors, the size of the board of commissioners, and the size of the audit committee.
Examining the effect of profitability and leverage on financial distress: Future research should examine the effect of profitability and leverage on financial distress in more detail, taking into account the level of profitability and leverage.
Examining the effect of institutional ownership on financial distress: Future research should examine the effect of institutional ownership on financial distress in more detail, taking into account the level of institutional ownership.

Conclusion

In conclusion, this study provides valuable insights into the effect of GCG, profitability, and leverage on the possibility of financial distress in manufacturing companies listed on the IDX. The findings of this study suggest that not all elements in GCG have a significant impact on financial stability, and that companies need to reconsider managerial strategies and management of ownership structures in order to minimize the risk of financial distress.

Q1: What is the main objective of this study?

A1: The main objective of this study is to analyze the effect of the application of Good Corporate Governance (GCG), profitability, and leverage mechanism on the possibility of financial distress in manufacturing companies listed on the Indonesia Stock Exchange (IDX).

Q2: What is the sample size of this study?

A2: The sample size of this study is 18 manufacturing companies listed on the IDX, selected through the purposive sampling method.

Q3: What is the analysis method used in this study?

A3: The analysis method used in this study is logistical regression analysis, which makes it possible to identify the relationship between existing variables.

Q4: What are the findings of this study?

A4: The findings of this study show that managerial ownership has no significant influence on the possibility of financial distress. Institutional ownership also has no effect on financial distress. The size of the board of directors found has a negative influence on the possibility of financial distress. The size of the Board of Commissioners and the size of the Audit Committee did not show a significant effect on financial distress. Profitability and leverage also have no influence on the possibility of financial distress.

Q5: What are the implications of this study?

A5: The implications of this study are that companies need to reconsider managerial strategies and management of ownership structures in order to minimize the risk of financial distress. Stakeholders, including investors and regulators, need to pay attention to the aspects that are truly influential in maintaining the financial health of companies.

Q6: What are the limitations of this study?

A6: The limitations of this study are that the sample size is relatively small, which may limit the generalizability of the findings. The data used in this study may not be comprehensive, which may limit the accuracy of the findings. The methodology used in this study may not be the most effective way to analyze the data.

Q7: What are the future research directions?

A7: The future research directions include examining the effect of GCG on financial distress in more detail, taking into account the size of the board of directors, the size of the board of commissioners, and the size of the audit committee. Examining the effect of profitability and leverage on financial distress in more detail, taking into account the level of profitability and leverage. Examining the effect of institutional ownership on financial distress in more detail, taking into account the level of institutional ownership.

Q8: What are the practical implications of this study?

A8: The practical implications of this study are that companies need to focus on aspects that are truly influential in maintaining the financial health of the company. Companies need to manage their ownership structures effectively, taking into account the size of the board of directors, the size of the board of commissioners, and the size of the audit committee. Companies need to focus on profitability and leverage as key indicators of financial health, and take steps to improve them.

Q9: What are the theoretical implications of this study?

A9: The theoretical implications of this study are that the application of GCG is not a guarantee of financial stability. The size of the board of directors, the size of the board of commissioners, and the size of the audit committee are not the only factors that influence financial distress. Profitability and leverage are not the only factors that influence financial distress.

Q10: What are the policy implications of this study?

A10: The policy implications of this study are that regulators need to pay attention to the aspects that are truly influential in maintaining the financial health of companies. Regulators need to take steps to improve the quality of corporate governance in companies listed on the IDX. Regulators need to take steps to improve the level of transparency and accountability in companies listed on the IDX.