Determinant of Financial Distress

Abstract

This study aims to examine the effect of financial performance and corporate governance mechanisms on financial distress. The financial performance used in this study was liquidity, leverage, activity, and profitability, while the corporate governance mechanism used the Board of Directors and Audit Committee. The subjects used in this study were Manufacturing Companies listed on the Indonesia Stock Exchange and Malaysia Stock Exchange for the period 2017 - 2018. The sampling technique employed purposive sampling. The number of manufacturing companies sampled was 61 companies from a total of 260 on the IDX and 62 companies from 236 companies on the KLSE. The analysis method utilized multiple linear regression using the SPSS 16 program. This study’s results indicated that liquidity, activity, and probability negatively affected both Indonesia’s and Malaysia’s financial distress. Meanwhile, the other variables: leverage, the Board of Directors, and the Audit Committee did not influence financial distress both in Indonesia and Malaysia. Also, there were differences in the financial distress level in Indonesia and Malaysia. Besides, there were differences in the impact of liquidity, leverage, activity, profitability, the Board of Directors, and the Audit Committee on financial distress in Indonesia and Malaysia.