Robby Krisyadi, Selin Selin

ANALYSIS OF THE INFLUENCE OF CORPORATE GOVERNANCE ON BANKRUPTCY RISK REGISTERED COMPANIES ON THE INDONESIAN STOCK EXCHANGE

Introduction

Analysis of the influence of corporate governance on bankruptcy risk registered companies on the indonesian stock exchange. Investigate corporate governance's impact on bankruptcy risk for Indonesian Stock Exchange (IDX) companies. Logistic regression reveals audit committee and board characteristics influence insolvency.

Abstract

Several countries have entered the second phase of the current pandemic and the shock is likely to occur in the wake of firm bankruptcy risks and a significant increase in leverage, depressing investment and job creation for a long time. The objective of this research is to indicate the effect of corporate governance on insolvency risk. The logistic regression method was applied in this study to sample data on company financial statements that had been determined and registered on the Indonesia Stock Exchange (IDX) from 2017 to 2021 and then processed using the SPSS application. The results of the logistic regression test interpret that the variables of audit committee presence, and audit committee meetings are provide a significant and positive relationship to the corporate insolvency risk variable. In addition, the variables of audit committee size, audit committee independence, audit committee expertise and board size are able to provide a significant and negative relationship to the corporate insolvency risk variable. Independence board meeting variable is not significant to corporate insolvency risk variable.  

Review

This study addresses a highly pertinent and timely topic concerning the influence of corporate governance on bankruptcy risk among companies listed on the Indonesian Stock Exchange. In an era where global economic shocks, exacerbated by the ongoing pandemic, elevate the risk of firm insolvencies and leverage, research into mitigating these risks is crucial. The clear objective of the study—to indicate the effect of various corporate governance mechanisms on insolvency risk—is well-defined and holds significant implications for investors, regulators, and corporate management in Indonesia, an important emerging market. The choice of logistic regression as a methodology is appropriate for analyzing a binary outcome such as insolvency risk. The research meticulously investigates a range of corporate governance variables, utilizing financial statement data from IDX-registered companies spanning 2017 to 2021. The findings reveal a nuanced and complex relationship between corporate governance elements and insolvency risk. Specifically, the presence of an audit committee and the frequency of audit committee meetings are found to have a significant and positive relationship with insolvency risk. Conversely, audit committee size, independence, and expertise, along along with board size, demonstrate a significant negative relationship, suggesting that these factors may reduce insolvency risk. Interestingly, the independence of board meetings did not show a significant relationship, highlighting the varying impact of different governance facets. Overall, this paper contributes valuable empirical insights into the efficacy of specific corporate governance structures in influencing bankruptcy risk within the Indonesian context. The detailed breakdown of findings regarding various audit committee characteristics and board size offers practical guidance for refining corporate governance frameworks to enhance financial stability. While the abstract sufficiently outlines the methodology and key results, a deeper exploration of the theoretical underpinnings for the observed positive relationships (e.g., audit committee presence/meetings leading to *higher* insolvency risk) would be valuable in the full paper to provide a more comprehensive understanding of these complex dynamics. Nevertheless, the study's timeliness and specific, granular findings make a noteworthy contribution to corporate governance literature.

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