How do corporate governance mechanisms affect a firm’s potential for bankruptcy?

Abstract

The purpose of this thesis is to understand the effects of corporate governance mechanisms on the potential for bankruptcy. This study is done by utilizing the linear regression fixed effect vector decomposition model on 30 listed firms from the consumer goods sector of Indonesia Stock Exchange during the 2010-2012 periods. The results of the study indicate that: the board of commissioners’ independence and size of the commissioners’ board pose a significant positive effect on the potential for bankruptcy; the presence of an audit committee and the presence of a nomination and remuneration committee pose a significant negative effect and institutional ownership and managerial ownership do not significantly affect the potential for bankruptcy.