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

Authors: Yeterina Widi Nugrahanti; T. Sutrisno; Aulia Fuad Rahman; Endang Mardiati

Addresses: Faculty of Economics and Business, University of Brawijaya, MT. Haryono Street, Malang, 65145, Indonesia; Economics and Business Faculty, Satya Wacana Christian University, Diponegoro Street, Salatiga, 50711, Indonesia ' Faculty of Economics and Business, University of Brawijaya, MT. Haryono Street, Malang, 65145, Indonesia ' Faculty of Economics and Business, University of Brawijaya, MT. Haryono Street, Malang, 65145, Indonesia ' Faculty of Economics and Business, University of Brawijaya, MT. Haryono Street, Malang, 65145, Indonesia

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.

Keywords: financial distress; firm size; liquidity; profitability; leverage; political connection; independent board of commissioner; institutional ownership; the board of commissioner size.

DOI: 10.1504/IJTGM.2020.106753

International Journal of Trade and Global Markets, 2020 Vol.13 No.2, pp.220 - 250

Received: 18 Oct 2018
Accepted: 08 Apr 2019
Published online: 20 Apr 2020 *

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