The Role Of Moderating Audit Quality Relationship Between Corporate Characteristics And Financial Distress In The Indonesian Mining Sector

Santoso, Perdana Wahyu and Tambunan, Martua Eliakim and Kumullah, Eva Rohima (2020) The Role Of Moderating Audit Quality Relationship Between Corporate Characteristics And Financial Distress In The Indonesian Mining Sector. Investment Management and Financial Innovations, 17 (2). pp. 88-100. ISSN 1812 9358

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Abstract

Financial performance and corporate governance play an important role in financial distress in the mining sector, which is one of the most significant contributors to the Indonesian economy. This study aims to analyze the effect of corporate characteristics on financial distress (FD), which is moderated by corporate governance (audit quality), and uses the controlling variables (inflation rate and GDP). The study uses data from audited financial statements from mining sector in the Indonesia Stock Exchange for the period 2013–2018. Since the dependent variable (FD) is dichotomous, this study used a binary logistic regression model, as it is the case in many studies regarding the probability of bankruptcy filing. In line with the current study and some previous stud ies, leverage, efficiency (activity), market-to-book value, audit quality, and GDP affect the probability of financial distress significantly. Only liquidity and inflation do not impact FD. Besides, the moderating audit quality weakens the effect of liquidity and PBV; otherwise, it strengthens leverage and efficiency in predicting financial distress. As for managerial implications, this study concludes that corporate performance, cor porate governance, and macro-risk factors affect the probability of financial distress. T he authors suggest that mining firms need to pay attention to corporate governance and should watch the economic condition for business sustainability. Keywords financial distress, corporate characteristics, corporate governance, audit quality, macro-risk

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