Corporate Governance, Financial Ratios, Political Risk and Financial Distress: A Survival Analysis

Farida Titik Kristanti · Aldrin Herwany

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Financial Distress and Bankruptcy Prediction Corporate Finance and Governance Corporate Insolvency and Governance

Abstract

Objective - The objective of this study was to investigate the factors like corporate governance, financial ratios, and political risk and their impacts on company's survival. Methodology/Technique - Collecting data of Indonesian Stock Exchange from 2000 to 2014 and employing purposive random sampling, this research collects samples of 58 companies undergoing financial distress and 275 others which do not. Findings - The research eventually proves that agency theory and Asymmetric Information theory do occur in Indonesia. With Cox Proportional Hazard model, it then proves that all two models employed: independence commissioners, leverage, operating risk, size, return on asset and control of corruption, are variables which consistently affect financial distress of the company. Novelty - The study uses original data and gives supported suggestion for the researched issues. Type of Paper: Empirical Keywords: Financial Distress; Financial Ratios; Corporate Governance; Political Risk. JEL Classification: G01,G34, M48

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References

1980Financial Ratios and the Probabilistic Prediction of Bankruptcy 1966Financial Ratios As Predictors of Failure 1991Stewardship Theory or Agency Theory: CEO Governance and Shareholder Returns 1984Methodological Issues Related to the Estimation of Financial Distress Prediction Models 2001Forecasting Bankruptcy More Accurately: A Simple Hazard Model 1992STAKEHOLDER‐AGENCY THEORY 1977ZETATM analysis A new model to identify bankruptcy risk of corporations 1997How Costly is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed

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