The Influence Of The Corporate Governance, Leverage And Company Size Mechanism On Financial Distress With Profitability As A Moderating Variable In Manufacturing Companies Listed On The IDX
The Influence of Corporate Governance, Leverage, and Company Size Mechanisms on Financial Distress: The Role of Profitability as Moderating Variables in Manufacturing Companies Registered on the IDX
Introduction
In today's fast-paced business environment, corporate governance, leverage, and company size have become crucial factors in determining the financial health of manufacturing companies. The Indonesia Stock Exchange (IDX) is home to numerous manufacturing companies, and understanding the impact of these factors on financial distress is essential for investors, policymakers, and company management. This study aims to analyze the influence of corporate governance, leverage, and company size on financial distress in manufacturing companies listed on the IDX, with a focus on profitability as a moderating variable.
Background and Research Objectives
Corporate governance is a critical aspect of company management, encompassing various elements such as managerial ownership, institutional ownership, independent commissioners, and the competency of the audit committee. These elements play a vital role in ensuring the transparency and accountability of company operations. However, the relationship between corporate governance, leverage, and company size, and financial distress in manufacturing companies is not well understood. This study seeks to fill this knowledge gap by investigating the impact of these factors on financial distress in the Indonesian manufacturing sector.
The Importance of Corporate Governance
Corporate governance mechanisms are designed to supervise and restructure companies to improve performance and transparency. Effective corporate governance can help companies navigate challenging economic conditions, reduce the risk of financial distress, and increase shareholder value. In the context of manufacturing companies, corporate governance can be particularly important, as these companies often face significant operational and financial challenges.
The Role of Leverage
Leverage refers to the use of debt to finance company assets. While debt can be an essential tool for financing business growth, excessive leverage can increase the risk of financial distress. Manufacturing companies that rely heavily on debt may struggle to meet their financial obligations, particularly during economic downturns. This study aims to investigate the impact of leverage on financial distress in manufacturing companies listed on the IDX.
The Impact of Company Size
Company size can be an important factor in determining financial distress. Larger companies may have greater resources and capacity to survive in poor economic conditions, while smaller companies may be more vulnerable to financial shocks. This study seeks to examine the relationship between company size and financial distress in manufacturing companies listed on the IDX.
Research Methodology
This study uses a causal approach with a population consisting of 136 manufacturing companies registered on the IDX during the 2009-2013 period. The sampling technique used is purposive sampling, which produces 105 units of analysis for observation. The data collected is then analyzed using multiple linear regression analysis and residual tests to test moderating variables.
Research Findings
The results of this study show that the mechanism of corporate governance, leverage, and company size has a significant influence on financial distress simultaneously. However, partially, only leverage shows a negative and significant influence on financial distress. This suggests that increasing debt can increase the risk of financial bankruptcy for the company.
Profitability as a moderating variable is also proven to have a negative and significant influence. This indicates that high profitability can reduce the negative impact of the mechanism of corporate governance, leverage, and company size on financial distress. In this context, companies that have good profitability tend to be more able to face financial pressure, thereby reducing the risk of bankruptcy.
Conclusion
From the results of this study, it can be concluded that a good corporate governance mechanism, accompanied by the management of appropriate debt and company size, plays an important role in preventing financial distress. Therefore, company management must pay attention to a healthy supervision and governance mechanism and consider the management of debt wisely. In addition, increasing profitability is also an effective strategy to protect the company from the risk of bankruptcy in the future.
Implications of the Study
This study provides in-depth insight into the importance of corporate governance, leverage, and profitability in the financial context of manufacturing companies in Indonesia. The findings of this study have several implications for investors, policymakers, and company management. Firstly, the study highlights the critical role of corporate governance in preventing financial distress. Secondly, the study suggests that companies should manage their debt wisely to avoid excessive leverage. Finally, the study emphasizes the importance of increasing profitability as a strategy to protect the company from the risk of bankruptcy.
Limitations of the Study
This study has several limitations. Firstly, the study is based on a sample of manufacturing companies listed on the IDX, which may not be representative of all manufacturing companies in Indonesia. Secondly, the study uses a causal approach, which may not capture the complexity of the relationships between corporate governance, leverage, company size, and financial distress. Finally, the study relies on secondary data, which may be subject to limitations in terms of accuracy and completeness.
Future Research Directions
This study provides several avenues for future research. Firstly, future studies can investigate the impact of corporate governance, leverage, and company size on financial distress in other industries or countries. Secondly, future studies can examine the relationship between corporate governance, leverage, company size, and financial distress in the context of other moderating variables, such as market conditions or economic policies. Finally, future studies can investigate the effectiveness of strategies to prevent financial distress, such as increasing profitability or managing debt wisely.
References
- [List of references cited in the study]
Appendix
- [Appendix containing additional information, such as tables, figures, or raw data]
Frequently Asked Questions: The Influence of Corporate Governance, Leverage, and Company Size Mechanisms on Financial Distress
Q: What is the main objective of this study?
A: The main objective of this study is to analyze the influence of corporate governance, leverage, and company size on financial distress in manufacturing companies listed on the Indonesia Stock Exchange (IDX), with a focus on profitability as a moderating variable.
Q: What are the key findings of this study?
A: The study finds that the mechanism of corporate governance, leverage, and company size has a significant influence on financial distress simultaneously. However, partially, only leverage shows a negative and significant influence on financial distress. Additionally, profitability is proven to have a negative and significant influence, indicating that high profitability can reduce the negative impact of the mechanism of corporate governance, leverage, and company size on financial distress.
Q: What are the implications of this study for investors, policymakers, and company management?
A: The study highlights the critical role of corporate governance in preventing financial distress. It also suggests that companies should manage their debt wisely to avoid excessive leverage. Furthermore, the study emphasizes the importance of increasing profitability as a strategy to protect the company from the risk of bankruptcy.
Q: What are the limitations of this study?
A: The study has several limitations, including the use of a sample of manufacturing companies listed on the IDX, which may not be representative of all manufacturing companies in Indonesia. Additionally, the study uses a causal approach, which may not capture the complexity of the relationships between corporate governance, leverage, company size, and financial distress. Finally, the study relies on secondary data, which may be subject to limitations in terms of accuracy and completeness.
Q: What are the future research directions based on this study?
A: This study provides several avenues for future research, including investigating the impact of corporate governance, leverage, and company size on financial distress in other industries or countries. Additionally, future studies can examine the relationship between corporate governance, leverage, company size, and financial distress in the context of other moderating variables, such as market conditions or economic policies. Finally, future studies can investigate the effectiveness of strategies to prevent financial distress, such as increasing profitability or managing debt wisely.
Q: What are the practical implications of this study for company management?
A: The study suggests that company management should pay attention to a healthy supervision and governance mechanism and consider the management of debt wisely. Additionally, increasing profitability is also an effective strategy to protect the company from the risk of bankruptcy in the future.
Q: What are the policy implications of this study for regulators and policymakers?
A: The study highlights the importance of effective corporate governance and debt management in preventing financial distress. Regulators and policymakers can use this study to develop policies that promote good corporate governance and debt management practices among companies.
Q: What are the implications of this study for investors?
A: The study suggests that investors should pay attention to the corporate governance and debt management practices of companies they invest in. Additionally, investors can use this study to develop strategies to mitigate the risk of financial distress in their investments.
Q: What are the implications of this study for the Indonesian economy?
A: The study highlights the importance of effective corporate governance and debt management in preventing financial distress in the Indonesian economy. The study suggests that policymakers and regulators can use this study to develop policies that promote good corporate governance and debt management practices among companies, which can contribute to the stability and growth of the Indonesian economy.