Analyzing the impact of Good Corporate Governance and Financial Performance on predicting Financial Distress using the modified Altman Z Score model

Destriwanti, Okrivia and Sintha, Lis and Bertuah, Eka and Munandar, Agus (2022) Analyzing the impact of Good Corporate Governance and Financial Performance on predicting Financial Distress using the modified Altman Z Score model. American International Journal of Business Management (AIJBM), 5 (2). pp. 27-36. ISSN 2379 106X

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Abstract

Business and company performance have been affected by the ever-changing economic conditios. If management can’t manage the business effectively, financial performance will decline and even financial distress. The researches sought to discover which aspects of managements had the most impact on the financial success of a business. The survey type is used quantitative. The source used secondary data sources. Management ownership, Institutional ownership, and Financial performance are the factors considered in this study. There are 169 manufacturing companies participating and 62 companies fit for purpose. Technical Analysist this research used the Altman Z-score model and adds some factors to develop financial distress model, Based on the research findings, the factors that have a large impact on the forecast of financial distress are Managerial Ownership, Institutional Ownership, Debt Ratio, Return on Equity (ROE), Retained Earnings to Total Assets (RETA), Earning Before Interest Tax to Total Assets (EBITTA), and Return on Asset (ROA). Thus, it results in the following Z-score equation: FD = 8.982988 - 0.000632KM + 0.003579KI - 26.32420DR - 6.878581ROE - 13.56442RETA - 151.3487EBITTA + 125.2030ROA and ANOVA test has been carried out on the Altman Z-score model and the modified Altman model developed by the researchers to get the mean values of 0.0119756 and 0.058778. The Modified Altman mean value is smaller than the Altman Z-score so that the Modified Altman Model is arguably better than the Altman Z-score model. KEYWORDS –Good Corporate Governance, Financial Performance, Financial Distress, Altman Z-Score, ANOVA

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