Corporate Governance and Financial Distress

This paper explores mechanisms of corporate governance (board characteristics, audit committee, and audit quality) of Indonesian listed companies and their influence on the likelihood of a fi nancial distress. This study was conducted between 2012 and 2014. The results confirm that the composition of board of commissioners has a significant impact on the likelihood of financial distress, at least in the Indonesian context; the larger the number of Commissioners, the greater is the likelihood of financial distress. Companies with larger numbers of Commissioners have not been able to coordinate and communicate and engage in decision-making better than those with smaller numbers. In other words, the marginal value of a larger board size is questionable. There is also a signifi cant relationship between the size of the audit committee and financial distress. It is argued the bigger the audit committee, the greater the likelihood the company experiencing fi nancial distress as it appears to divert focus away from the company’s operations. Additionally, the relationship between audit quality and the likelihood of fi nancial distress is insignifi cant. This suggests that variations in the scale of auditing may not have a significant effect on the possible issuance of audit opinion by the auditor or on the likelihood of fi nancial distress