The Role of Corporate Governance and Financial Performance on Financial Distress

Tue, 20 Jan 2026 00:00:00 +0700

Purpose: This study examines the influence of good corporate governance—comprising institutional ownership, the board of directors, the board of commissioners, independent commissioners, and the audit committee—on financial distress, with financial performance as an intervening variable in manufacturing companies listed on the Indonesia Stock Exchange during 2020–2024.

Research Methodology: A quantitative approach using secondary data from the financial reports of 15 manufacturing companies over five years (75 samples) was applied. Purposive sampling was used, and data were analyzed to test both the direct and indirect effects of corporate governance components on financial distress through financial performance.

Results: The findings show that all corporate governance components simultaneously affect financial distress. Specifically, institutional ownership, the board of commissioners, and the audit committee negatively and significantly influence financial distress, both directly and via financial performance. Meanwhile, the board of directors and independent commissioners positively and significantly affect financial distress, both directly and through financial performance.

Conclusions: Good corporate governance plays a significant role in shaping financial distress, and financial performance acts as an important mediating mechanism. Certain governance elements can either mitigate or exacerbate financial distress depending on their influence.

Limitations: This study is limited to manufacturing companies listed on the Indonesia Stock Exchange and focuses on selected governance indicators, excluding external economic or industry-specific factors.

Contribution: The study provides empirical evidence on the role of corporate governance in financial distress and highlights the mediating function of financial performance, offering practical guidance for managers and investors to improve governance structures and enhance firm stability and performance.

The Effect of Liquidity and Solvency on Company Value With Profitability as a Mediating Variable

Chella Chella , Eka Desy Purnama — Tue, 20 Jan 2026 00:00:00 +0700

Purpose: This study examines the effect of liquidity and solvency on firm value, with profitability as a mediating variable, using empirical evidence from PT Panca Budi Idaman Tbk during the 2017–2024 period.

Research methodology: This study employs a quantitative approach using secondary data from the company’s published financial statements. Liquidity is measured by the Current Ratio, solvency by the Debt to Equity Ratio (DER), profitability by Return on Assets (ROA), and firm value by Tobin’s Q. Data are analyzed using multiple linear regression and mediation analysis, supported by classical assumption tests and the Sobel test.

Results: The results show that liquidity has a positive and significant effect on profitability, while solvency has a negative and significant effect on profitability. Profitability positively and significantly affects firm value. Liquidity also has a positive and significant direct effect on firm value, whereas solvency does not have a significant direct effect. Mediation analysis confirms that profitability significantly mediates the relationship between liquidity and firm value, as well as between solvency and firm value.

Conclusions: The study concludes that profitability plays a key mediating role in transforming liquidity conditions and capital structure decisions into higher firm value, supporting signaling theory that strong financial performance sends positive signals to the market.

Limitations: The study is limited to a single listed company and selected financial ratios, which may restrict generalizability.

Contribution: This research contributes empirical evidence on profitability as a mediating mechanism linking liquidity and solvency to firm value and provides practical insights for managers and investors.

Journal of Multidisciplinary Academic and Practice Studies

The Role of Corporate Governance and Financial Performance on Financial Distress

The Effect of Liquidity and Solvency on Company Value With Profitability as a Mediating Variable