e-ISSN 2231-8542
ISSN 1511-3701

Home / Regular Issue / JTAS Vol. 25 (S) Nov. 2017 / JSSH-S0610-2017


Corporate Governance and Financial Distress

Irma, Olivia Idrus and Mailani Hamdani

Pertanika Journal of Tropical Agricultural Science, Volume 25, Issue S, November 2017

Keywords: Audit committee, audit quality, board of commissioners, corporate governance, financial distress

Published on: 7 May 2018

This paper explores mechanisms of corporate governance (board characteristics, audit committee, and audit quality) of Indonesian listed companies and their influence on the likelihood of a financial distress. This study was conducted between 2012 and 2014. The results confirm that the composition of board of commissioners has a significant impact on the likelihood of financial distress, at least in the Indonesian context; the larger the number of Commissioners, the greater is the likelihood of financial distress. Companies with larger numbers of Commissioners have not been able to coordinate and communicate and engage in decision-making better than those with smaller numbers. In other words, the marginal value of a larger board size is questionable. There is also a significant relationship between the size of the audit committee and financial distress. It is argued the bigger the audit committee, the greater the likelihood the company experiencing financial distress as it appears to divert focus away from the company's operations. Additionally, the relationship between audit quality and the likelihood of financial distress is insignificant. This suggests that variations in the scale of auditing may not have a significant effect on the possible issuance of audit opinion by the auditor or on the likelihood of financial distress.

ISSN 1511-3701

e-ISSN 2231-8542

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