THE EFFECT OF CORPORATE GOVERNANCE MECHANISM ON FINANCIAL

DISTRESS
(Study of State-Owned Entreprises listed on the Indonesia Stock Exchange (IDX) for the
2013-2018 Period)

Fuad Ahsan1. Otto Randa Payangan2, Idayati Nursyamsi3

([email protected], [email protected] ,[email protected])
1
Master of Science in Management Finance, Hasanuddin University, Macassar, Indonesia
2
Master of Science in Management Finance, Hasanuddin University, Macassar, Indonesia
3
Master of Science in Management Finance, Hasanuddin University, Macassar, Indonesia

ABSTRACT
This study examines the impact of corporate governance on financial distress condition of a company. In
particular, this study discusses corporate governance, which comprises Board independence, CEO
ownership, Executive director ownership, Family ownership, Independent audit committee, and Audit
committee expertise that could affect the financial condition of a company. This study uses 16 stated-owned
expertise listed on The Indonesian Stock Exchange (8 distress companies and 8 healthy companies) during
the period 2013-2018. The results of this study, there is no significant impact in all independent variables
and only return on assets (ROA) which has a significant impact on the company’s financial distress, so that
corporate governance can not be used as a measurement to reduce company’s financial distress condition
in Indonesia.
Keywords : corporate governance, board structure, ownership, internal control, financial distress.
1. INTRODUCTION

In the current business environment regarding corporate governance issues increasingly becoming a major
focus for regulators, investors, creditors, and other stakeholders throughout the world's financial markets (Ho & Shun
Wong, 2001). Issue of corporate governance has become interesting because, in some Asian countries affected by the
financial crisis (which started in 1997), many experts argue that the weakness in corporate governance is one of the
main sources of insecurity economy led to the deterioration in the economy of these countries on 1997 and 1998. Even
in England in the late 1980s corporate governance issues to public attention as a result of corporate publicity issues
such as the problem of creative accounting, the bankruptcy of the company on a very large scale,
Therefore good corporate governance is increasingly considered important, and this is due to the opening of
large-scale financial scandals such scandals main director of PLN, Pertamina President, Head of Division II PT.
Waskita, Chief Financial Officer of PT. Waskita, and President Director of PT. IPCs are revealed early in 2019. The
majority of these cases involve the accounting profession. So here can be no implementation of good corporate
governance is well. Issues regarding corporate governance in today's business environment, increasingly becoming a
major focus for regulators, investors, creditors, and other stakeholders throughout the world's financial markets (Ho
& Shun Wong, 2001).
Predicting financial distress companies important to obtain early signs of bankruptcy as part of an early
warning system (early warning system) for management. Management can anticipate and remedial measures to
improve the performance of the company. This for stakeholders, especially shareholders and creditors, this prediction
is the basis for poor decision making in facing the prospect of financial stability in the future. Financial distress or
financial difficulties will be experienced by the company before bankruptcy. Financial distress is an economic crisis
in which the company suffered losses in the last few years because they are not able to pay its liabilities as they mature.
The economic downturn in the company needs to be aware of the management. Therefore, the management should
take action to make predictions early to improve the economic condition of the company. Financial distress arises
from a variety of situations to companies facing problems of economic hardship.
The crisis in Indonesia has led to a multidimensional level. The most prominent is the economic aspect,
namely the decline of economic activity as more and more companies are liquidated and the increasing number of
unemployed workers. The cause of this crisis is not due to weak economic fundamentals, but because of the foreign
private debt that has achieved a considerable amount. The crisis that is happening is a crisis of a sharp decline in the
value of the rupiah, due to speculation and the maturity of private debt abroad in large numbers and simultaneously
so that the demand for dollars increases, coupled with a lot of natural disasters resulting in rupiah getting weaker.
Things are not much different also hit many companies in Indonesia experienced financial conditions were not so
good. An indication of the presence of differences in interests between the internal and external parties could result in
misuse of the financial statements.
SOE is a State-Owned Enterprises are an important pillar in driving the national economy. According to
Law No. 19 of 2003, the state has a definition of a business entity that is wholly or partly owned by the state of its
capital through direct investments coming from state assets set aside. The whole entity SOE since 2001 under the
supervision and management of the Ministry of State Enterprises. Where the SOE Ministry in carrying out its
functions, led by Minister of State Enterprises. Government-issued Presidential Directive 17 of 1967 on the Direction
and the simplification of the State Enterprise. The instruction states classifying companies into three types, namely
liability company, a public company and service companies (Testament). Companies from the existing number are
not entirely recorded in the Indonesia Stock Exchange (BEI). The company is a state-owned limited liability company
whose capital stock form. The ownership of these shares is wholly or partly, with a minimum of 51% owned by the
government or country, which has the primary goal of pursuing profits.

2. RESEARCH METHODS
2.1 Research approach
This study uses a quantitative approach is to use deductive thinking which suggests that thinking in the study
is based on a common or universal pattern then leads to a pattern more narrow or specific (Bambang Prasetyo dan
Lina Miftahul Jannah, 2005). This study uses the attributes of corporate governance - board structure (board
independence), ownership structure (CEO ownership, executive director of the ownership and family ownership) and
internal control (audit committee and the audit committee of independent expertise), and the theory of financial
difficulties (financial distress ) on the state-owned company
2.2 Types of research
Based on the research objectives, this research is explanatory. This is an explanatory research study
conducted tests on a prediction of the theory or principle (Vogt, 2015). The purpose of the study also describes a
pattern explanatory relationship between two or more variables, besides the study sought to look at and explain the
influence of corporate governance on the possibility of companies experiencing financial distress.
Based on the dimensions of time, this study is a pooled study crosssection (data panel). Data panel observed
the same thing at two or more periods is indicated by the use of time-series data. Panel data can explain the two kinds
of information, namely: a cross-section of information on the differences between subjects, and time-series
information that reflects changes on the subject of time. When both the information available, the analysis of panel
data can be used. This research will be observable data derived from the financial statements of state enterprises in
2013-2018.
This research is seen from data collection techniques included in quantitative data collection techniques,
namely the existing statistics (Vogt, 2015)in the form of financial statements published by the company. Besides, this
study used two studies in data collection, namely through library research and field study.
2.3 Population and samples
The population in this study are all state-owned companies that publish corporate governance and financial
reporting as well as those listed on the Indonesia Stock Exchange (BEI) of 2013 and was registered until 2018. The
sample in this study was selected using purposive or judgmental sampling, the sampling-based on some criteria.
Saunders et al. (2009) state that the purposive or judgmental sampling permits the assessment of researchers in sample
selection to answer research questions and also adjust to the research objectives to be achieved. Aim to investigate the
effect of corporate governance and the possibility of companies experiencing financial difficulties, and the study
focused on the period from 2015 to 2018. Researchers used the value of earnings per share (EPS) were negative in the
long term, namely in this study were six consecutive years on a company as a key indicator, because the EPS is a
reflection of how a company conducts its operations. However, based on (Maudos & Solís, 2009), classification
companies that are in financial distress in this study if the company experienced a negative EPS for three consecutive
years, because of the latest paper has classified companies experiencing financial distress annual basis.
A company has been classified as companies experiencing financial distress in 2015 if the company has
experienced a negative EPS in the two years before 2015 and including the year 2015 alone. Likewise, for the years
2016, 2017 and 2018, the procedure is the same as in 2018. In short, for a company that can be incorporated into the
final sample of this study must meet the criteria of financial distress that is experienced negative EPS for six
consecutive years from 2013- 2018 due to this study focused on the period from 2013 to 2018.
2.4 Research variable

The dependent variable in this study is a dummy variable. (Ulum, Ghozali, & Chariri, 2008) Or qualitative
dummy variable indicating the presence (presence) or absence (absence) of a quality or an attribute. How to quantify
qualitative variables above is by forming an artificial variable with a value of 1 or 0, 1 indicates the presence of the
attributes and 0 indicates the absence of attributes. Then scoring in this study is the value of 1 (one) for distress firm
and 0 (zero) for a healthy firm.
The independent variable in this study is related to corporate governance. Board independence is a proportion
of the number of independent directors on the total number of directors on the board. CEO ownership is the percentage
ratio of ordinary shares owned by the company CEO or managing director with the total number of ordinary shares
outstanding. If the owner is less than 5%, then given the number 1, and 0 if vice versa. Executive director ownership
is proportionate to the ratio of ordinary shares held by all executive directors with the total number of ordinary shares
outstanding owned company. If the percentage of common stock owned by less than 5%, given the number 1, and 0
if otherwise. Family ownership is a comparison of the proportion of ordinary shares owned by family members where
family members here have a relationship with the board compared to the total shares outstanding. Shareholding of less
than 10% then given the numbers 1 and 0 otherwise. The Independent audit committee is a comparison of the number
of independent directors in the audit committee, with a total member of the audit committee of the company. Audit
committee expertise, if there are no audit committee members who have expertise or knowledge about finance, then
given the numbers 1 and 0 if otherwise. The Independent audit committee is a comparison of the number of
independent directors in the audit committee, with a total member of the audit committee of the company. Audit
committee expertise, if there are no audit committee members who have expertise or knowledge about finance, then
given the numbers 1 and 0 if otherwise. The Independent audit committee is a comparison of the number of
independent directors in the audit committee, with a total member of the audit committee of the company. Audit
committee expertise, if there are no audit committee members who have expertise or knowledge about finance, then
given the numbers 1 and 0 if otherwise.
The control variables used in this study was ROA (return on asset) is measured by comparing large net
income by total assets of the company. This ratio can provide a benchmark for assessing the effectiveness and
efficiency of operations of the company. Other variables used in this study is leverage. Variable leverage is seen from
the company's total liabilities divided by total assets used as a proxy to view the company's ability to manage its assets
to be able to pay its obligations.
2.5 Research model
Testing the hypothesis in this study using logistic regression because of the dependent variable and variable
independence form of dummy variables (non-metric). The dependent variable used in this research is binary, ie
whether the company is experiencing financial distress or not. The independent variables used in this model are board
independence, CEO of ownership, executive director of the ownership, family ownership, independent audit
committee, and audit committee expertise. Then estimate logistic regression models were used in this study are as
follows:
FD = BIND + CEOWN + EDOWN + fown + ACIND + ACEXP + LEV + ROA + ε𝑡

2.6 Data analysis technique

3. RESEARCH RESULTS AND DISCUSSION

Table 1. Descriptive statistics distress healthy firms and firms

distress BIND ACIND LEV ROA
mean 0.38333 0.32292 1.01708 -0.15051
maximum 0.50000 0.33333 2.78814 0.04075
Minimum 0.33333 0.00000 0.00247 -1.03358
Std. Dev. 0.07184 0.05893 0.80719 0.19361
Observations 32 32 32 32
Healthy BIND ACIND LEV ROA
mean 0.35714 0.33333 0.55737 0.07241
maximum 0.50000 0.33333 0.73888 0.31223
Minimum 0.25000 0.33333 0.16662 -0.00377
Std. Dev. 0.07310 0.00000 0.15585 0.07234
Observations 32 32 32 32

Based on Table 1, board independence (BIND) owned by distressed firms proportion is 33.3% minimum and
a maximum of 50% of the entire board of directors with an average of 38.3% and a standard deviation of 0.07184.
While boarding independence (BIND) healthy firms owned by a minimum proportion of 25% and a maximum of 50%
with an average of 35.7% and a standard deviation of 0.07310. Results The descriptive statistics indicate that the
average composition of board independence on distressed firms and firms about the same healthy and there was no
significant difference. The proportion of independent audit committee (ACIND) on distressed firms minimum of 0%
and a maximum of 33.3% with an average of 32.2% and a standard deviation of 0.05893. The proportion of
independent audit committee on healthy firms' minimum value, maximum, and his average was 33.3%.
The maximum leverage value (LEV) of distressed firms is 2.78814, with an average of 1.01708 while in
healthy firms, the maximum value of the leverage is only 0.73888 with an average of 0.55737. These results indicate
that the use of debt as a source of funding for distressed firms is greater than for healthy firms, as indicated by the
average value of leverage that is greater in distress firms. The value of return on assets (ROA) obtained from distressed
firms a minimum of -1.03358 and a maximum of 0.04075 with an average of -0.151051 while the value obtained at
healthy firms a minimum of -0.00377 and a maximum of 0.31223 with an average of 0.07241. The results of
descriptive statistics show that the average distressed firms have a smaller ROA than healthy firms.
Table 2. Descriptive statistics of the overall sample
 BIND ACIND LEV ROA
mean 0.37024 0.32813 0.7872292 -0.0390498
maximum .500 0.333 2.78814 0.31223
Minimum .250 0,000 0.00247 -1.03358
Std. Dev. 0.073097 0.41667 0.62147234 0.18341362
Observations 64 64 64 64

Descriptive statistics of the test results, the average board independence on 16 companies in the research
samples in the year 2015 to 2018 is 0.37024. Mimimumnya where board independence is 0.250, and the maximum is
0.500. Based on the average value of board independence, it is known that the average proportion of independent
directors compared to the total commissioners amounted to 37.024% or most companies already own the proportion
of independent commissioners exceed one-third of the commissioners at a company and have also fulfilled provisions
made by Indonesia Stock Exchange that is at least 30% of the Board of Commissioners are Independent
Commissioners. The standard deviation on board independence variable is 0.073097. This means there is a deviation
of 0.073097 against the average counted. The standard deviation of the audit committee of independent variables is
0.041667. This means there is a deviation of 0.041667 against the average counted. The average value of leverage as
measured by the ratio between the total liabilities than the total assets of 16 companies are 0.7872292 (78.72%). The
standard deviation of the variable LEV is 0.62147234. This means there is a deviation of 0.62147234 against average
counted. The minimum value of the leverage is 0.00247, while the maximum value is 2.78814. Based on the results
of the average value of leverage, we can know that the companies included in the study sample fund most of its assets
from debt, however, there are also companies that only little use debt as a source of funding during the study period.
The average return on assets on the 16th of this company that -0.0390498 it can be said that the companies sampled
companies have not been effective in the management of its assets. Where the minimum value of the ROA is -1.03358
and its greatest value is 0.31223. The standard deviation in ROA is 0.18341362. This means there is a deviation of
0.18341362 against average counted.
Table 3. Results in the correlation between independent variables

Variables BIND CEOWN EDOWN FOWN ACIND ACEXP LEV ROA

BIND 1.0
(0.000)
CEOWN -0.009 1.0
(0.472) (0.000)
EDOWN 0.009 1,000 ** 1.0
(0.472) (0.000) (0.000)
FOWN 0,014 0.905 ** 0.905 ** 1.0
(0.455) (0.000) (0.000) (0.000)
ACIND -0.225 * -0.041 -0.041 -0.037 1.0
(0.037) (0.375) (0.375) (0.387) (0.000)
ACEXP -0.009 -0.348 ** -0.348 ** -0.409 ** 0,067 1.0
(0.473) (0.002) (0.002) (0.000) (0.300) (0.000)
LEV -0.067 -0.103 .103 .098 -0.156 .098 1.0
(0.300) (0.208) (0.208) (0.221) (0.109) (0.220) (0.000)
ROA -0.242 * -0.131 -0.131 -0.103 -0.042 0,011 -0.365 ** 1.0
(0.027) (0.151) (0.151) (0.209) (0.371) (0.466) (0.002) (0.000)

The correlation between the independent variables in Table 3 suggested a positive correlation between the
variables and the perfect CEO ownership (CEOWN) and executive director of the ownership (r = 1.000, p-value
<0.01), shows that companies with a stake by the CEO of the Similarly there will be managerial ownership. A perfect
correlation is causing the redundancy in the design matrix on the results of subsequent logistic regression, that is where
EDOWN = CEOWN. There is also a significant positive correlation strong between CEOWN and ownership by family
 members (family ownership) (fown) (r = 0.905, p-value <0.01) as well as the executive director of the ownership
(EDOWN) and fown (r = 0.905, p value <0,
The relationship between the audit committee expertise (ACEXP) with CEOWN (r = -0.348, p-value <0.01),
EDOWN (r = -0.348, p-value <0.01), and fown (r = -0.409, p Value-<0.01) suggests a negative relationship being and
significant, so that even though with their proposed audit committee members who have experience in finance
company retains ownership of shares by managerial and lower by family members. Board independence (BIND) and
return on assets (ROA) has a moderate negative correlation but significant (r = -0.242, p-value <0.05) which showed
that companies with higher board independence would degrade the performance of the company is reflected in the
value of ROA. Board independence (BIND) with independent audit committee (ACIND) also has a negative but
significant correlation (r = -0, 225, p-value <0.05) which showed that companies with board independence that the
higher the proportion of independent commissioners did not lead in the audit committee also higher. Leverage and
ROA has a negative relationship towards a moderate but significant (r = -0.365, p-value <0.01) in the sense that firms
with higher leverage would have lower ROA, these results are consistent with the findings by the (Charitou,
Lambertides, & Trigeorgis, 2007), and (Yusoff, Mohamad, & Darus, 2014).
Table 3 can be seen the correlation between the dependent variable and the independent variables and control
variables in this study. The results of the analysis of the correlation between the independent variables and the
independent variables suggest that there is a significant relationship only between the dependent variable and
independent variables CEOWN, EDOWN, fown, and the control variables.
Distress condition has a significant positive correlation with CEOWN and EDOWN which means companies are in
a state of distress CEO stock ownership and managerial stock ownership is less than 5% of the total shares outstanding.
A significant positive correlation between the condition of distress and fown indicates ownership by a family member
who has a relationship with commissioners under 10% of the total shares outstanding.
Table 4 The correlation between the dependent variable and the independent variables

Variables distress
BIND .181
(0.077)
CEOWN 0.322 **
(0.005)
fown (0.005)
0.291 **
(0.010)
ACIND -0.126
(0.161)
ACEXP 0.076
(0.276)
0.373 **
ROA -0.613
(0.000)

A significant association was also found between the two variables control the distress condition; (Leverage
at r = 0.373, p-value <0,01dan ROA at r = - 0.613, p-value <0.01). This indicates that companies are in a state of
distress have higher leverage levels that generate value return on assets (ROA) of the company declined. These
findings support the results found by (Charitou et al., 2007)and (Yusoff et al., 2014) in which companies that are
experiencing financial difficulties were found to have a negative correlation with company performance (ROA) and
positively related to leverage.

3.1 Multivariate Analysis

Table 5 Table classification (Block 0; Beginning block)

predicted
Observed distress Percentage Correct
0 1
Step 0 distress 0 0 32 0.0
1 0 32 100.0
Overall Percentage 50.0

The table shows the classification table that provides information about the accuracy of the prediction. By
simply using the constant, the accuracy of the prediction is 50%. See Table 5, while the variables in the equation to
show the Wald test. Only constants without entering the independent variable value are not significant at α = 5% in
affecting companies experiencing financial distress.
Table 5 variables in the equation
B SE Wald df Sig. Exp (B)

Step0 Constant .000 .250 .000 1 1,000 1,000

Table 6 Hosmer and Lemeshow test

Step Chi-square df Sig.
7 7.506 8 0,483

Based on the table shows the results of testing the value of Hosmer and Lemeshow's Goodness of Fit shown
in the Chi-square value is 7.506 with a significance of 0.483. At α of 0.05, with a significance level of 0,483 is greater
than the value of α, which 5% can be concluded that H0 is not rejected (accepted). This means that the model is
feasible or suitable hypothesized that the model can predict the value of observation.
Table 7 Chi-Square Test
Overall likelihood fit
iteration -2 Log
likelihood
1 7.814
2 7.814
3 7.814
4 8.043
5 10.201
6 12.513
7 16.039

Chi-square test for the overall model of the data is done by comparing the value between -2 log-likelihood at
the beginning of the results of block number 0 with a value of -2 log-likelihood at the end of the results of block
number 1 (Ulum et al., 2008). Table 7 is a depiction of -2 log-likelihood of impairment in this study. In the event of -
2 log-likelihood of impairment on the outcome of block number 0 and the block number 1, then the model can be said
to exhibit a good regression model. In testing the block number 0, where the logistic regression model has only
constants -2 log-likelihood values obtained by 88.723. When compared to the value of -2 log-likelihood on block
number 0 with block number 1 then the value is decreased lower to reach a value of -2 log-likelihood at iteration to
seven by 16,

Table 8 Omnimbu test of moel coefficients

 Chi-squaree df Sig.

Step 7 Step -3.526 1 .060

Block 72.684 1 0,000
Model 72.684 1 0,000

Testing the overall regression coefficient (overall model) of six independent variables and two variables
overall control is done by using an omnibus test of the model coefficient. As previously described for this study use a
stepwise method, then the result will be displayed in several steps (step) where the last step will produce independent
variables that affect the dependent variable. In the final step, namely, the seventh step of this test resulted in one
variable that affects the possibility of companies experiencing financial distress that is a control variable ROA. Value
Chi squares in Table 8 is a difference in the value of -2 log-likelihood models with only consists of the constants
contained in block 0, beginning with model estimates. Chi value amounted to 72.684 squares models with df equal to
1, and the value of chi-squares are significant (sig 0.000). Α level of 0.05 with the significance value is smaller than
α, which means it can be concluded that the control variables that affect the company ROA financial distress at the
company.
Table 9 Testing Results Cox and Snell's R Square and Nagelkerke's Square

Step -2 Log Cox & Snell Nagelkerke's

likelihood R Square Square
7 16.039 0.679 0.905

Value Cox & Snell R Square 9 at the table of 0.679 this means that the variables contained in the last step
logit model can explain a company's financial distress or not amounting to 67.9%. While based Nagelkerke's R Square
amount of 0.905 indicates that the variability of the dependent variable is financial distress can be explained by the
variability of ROA of 90.5% and 9.5% can be explained by other variables outside the model.
Table 10 Classification Table 2x2

predicted
Observed
distress Percentage Correct
0 1
Step 7 distress 0 31 1 96.9
1 1 31 96.9
Overall 96.9
Percentage

Table 10 shows that of the 32 years the firm has a healthy financial (non financial distress), 31 companies or
96.9% accurately be predicted by a logistic regression model, and one sample is not exactly predicted by the model,
while the firm 32 years financial distress, 31 samples or 96.9% of companies with the right can be predicted by a
logistic regression model, while only one other acquired companies are estimated to deviate from observations. Overall
mean that 31 + 31 = 62 samples of 64 observations or 96.9% of observation can be predicted accurately by this logistic
regression model.
This study uses the dependent variable has two categories (dichotomous) that is financial distress and using
a model of logistic regression used in this study to test the effect of corporate governance relating to board structure
(board independence), ownership structure (CEO ownership, executive director of the ownership, and family
ownership), and the internal control (audit committee and the audit committee of independent expertise) company to
financial distress.

Table 11 Variables eliminated in the logistic regression model

 Step variable coefficient Std error Wald stat Df Sig.
1 fown -7.728 42567.224 0,000 1 1,000
2 ACIND 41.162 120,578.943 0,000 1 0,999
3 BIND 19.226 15.412 1.556 1 0.212
4 CEOWN -17 109 12842.346 0,000 1 0,999
5 ACEXP 13.876 398.052 0,001 1 0,972
6 LEV 8,031 7127 1270 1 0,260

Table 12. Results of the logistic regression models

variable coefficient Std error Wald stat Df Sig.

ROA -89 900 32 724 7,547 1 .006
Constant -.324 .639 .257 1 .612

Based on the hypothesis testing table shows that for board independence variable (BIND) has a beta value of
correlation equal to 19.226 with a significance of 0.212. The significance value is above 0.05 showed no effect of
variable BIND signing against financial distress companies that H1 is rejected.
Associated with the ownership structure of the company, based on Table 12 variables family ownership
(fown) has a beta value of the correlation of -7.728 with a significance of 1.000. The significance value is above 0.05
showed no significant effect of the variable fown against financial distress companies, so H4 is rejected. Variable
CEO ownership (CEOWN) is beta value amounted to -17.109 correlation with a significance of 0.999. The
significance value is above 0.05 showed no significant effect of the variable CEOWN against financial distress
companies that H2 and H3 rejected.
Hypothesis testing results on independent variables related to internal control of the company stated that the
independent audit committee variable (ACIND) obtained a correlation beta value of 41.162 with a significance of
1,000. The significance value is above 0.05 indicates no significant effect of the variable ACINDP against financial
distress companies that H5 is rejected. Variable audit committee expertise (ACEXP) has a beta value of the correlation
of 13.876 with a significance of 0.972. The significance value is above 0.05 showed no significant effect of the variable
ACEXP against financial distress companies that H6 rejected.
The control variables used in this research that leverage (LEV) obtain the beta value of the correlation of
8.031 with a significance of 0.260. The significance value is above 0.05 showed no significant effect of the variable
LEV against financial distress companies. As for the control, variables return on assets (ROA) is a beta value
correlation of -89 900 with a significance of 0.006. The significance value is below 0.05 indicates a significant effect
on the ROA of the company's financial distress. It can be concluded, and the results showed that companies that are
in a state of distress among public companies in Indonesia Stock Exchange are more determined by how the
organization of the company's operations which represented the value of return on assets (ROA) of the company.
Corporate governance may not be used as an effective measure in reducing the company's failure caused by the
financial condition of companies experiencing difficulties (distress).
4. CONCLUSIONS
No significant difference related to the board's structure in terms of board independence on the condition of
financial difficulties or financial distress experienced by the company. No significant relationship between the
proportion of independent directors and the company's financial distress show that the existence of independent
commissioners can not act as an effective oversight to prevent companies from financial difficulty (financial distress).
There is no significant effect related to ownership structure, namely CEO ownership, executive director
ownership, and family ownership on the condition of financial distress experienced by the company. The results are
consistent with research (Yusoff et al., 2014), which prove that the company's shares by its CEO, executive director
and a member of the family do not have a significant impact in preventing the company from experiencing financial
distress, it indicates that the stake has not been able to function as a mechanism for resolving conflicts of interest
between agents and owners.
There is no significant influence related to company internal control, which includes the existence of an
independent audit committee and audit committee expertise in a company on the condition of financial distress. It can
be concluded that the internal control of the company through the existence of an audit committee.
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