ANALYSIS OF FINANCIAL DISTRESS DETERMINANTS AND THE ROLE OF CORPORATE GOVERNANCE FOR RISK MITIGATION ON LISTED INDONESIAN MANUFACTURING COMPANIES: COVID-19 PANDEMIC

Abstract

The purpose of this research is to examine the impact of COVID-19 on financial distress; additionally, this paper also analyzes the link of financial ratio and corporate governance on financial distress. This study uses panel data regression analysis method to estimate the relationship between variables. Financial ratios used in this study are Return on Equity (ROE), Debt to Asset Ratio (DAR) and firm size, meanwhile several corporate governance measurements that are applied in this research consist of institutional ownership, commissionaires independent and board size. The measurement will also be aggregated into its sub-sector which consists of Consumer Goods Industry (CGI), miscellaneous industry and basic and chemical industry. It is found that, COVID-19 pandemic statistically impacted financial distress of manufacturing companies in Indonesia as it is proven by T-Test and also regression analysis method. The result reveals that Debt to Asset (DAR) which is the measurement of leverage owned by company, positively affected financial distress of manufacturing companies in Indonesia. The greater the leverage, the greater the risk of financial distress. Despite the discrepancy with previous studies results, the result shows that the numbers of commissionaires independent on manufacturing companies in Indonesia pose significant positive effect on financial distress. Action taken by Chief of Manufacturing companies in Indonesia during this COVID-19 crisis impact the survival of company. Manufacturing companies need to mitigate risk by maintaining higher profitability (ROE) and asset as measured by firm size, lowering debt value. On corporate governance site, companies need to consider limiting the number of independent commissionaires leading the company and gaining more intuitional investor.