Corporate Governance and Financial Distress in the Indonesia Banking Sector: An Empirical Study

Abstract

Studying the relationship between corporate governance, interest rate risk and financial distress is the aim of this study. To examine this relationship, interest rate risk is used as a moderating variable. The variables used in this study are the board of directors and institutional ownership as proxies for corporate governance, and net interest margin is used as a proxy for interest rate risk. The research was conducted on the conventional banking sector listed on the Indonesia Stock Exchange in the period 2015-2019. Sampling of data using purposive sampling method. Data analysis to determine the relationship and hypothesis testing using logistic regression. The results showed that institutional ownership had a negative effect on financial distress at a significance level of less than 5%, while interest rate risk had a negative effect on a significance level of less than 10%, and the board of directors had a negative but insignificant effect. Interest rate risk acts as a moderating variable in determining the relationship between institutional ownership and financial distress. Institutional ownership has an impact on increasing financial distress in banks with high interest rate risk.