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Submitted
August 7, 2023
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August 31, 2026
Published
August 31, 2026
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Abstract

Purpose — This study examines the effect of good corporate governance on financial distress in Indonesian listed firms and investigates whether the effectiveness of board independence differs between state-owned enterprises (BUMN) and private firms.


Method — The study employs panel data from Indonesian listed firms over 2015–2021, comprising 966 firm-year observations. Financial distress is measured using the Altman Z-Score, while governance is proxied by the proportions of independent commissioners and independent directors. The relationships are estimated using Generalized Least Squares (GLS).


Findings — Profitability significantly reduces financial distress, while higher leverage increases it. Independent commissioners and independent directors are associated with stronger financial conditions across the overall sample. However, BUMN status has no significant direct effect. More importantly, the interaction between independent directors and BUMN status is significantly negative, indicating that the beneficial role of board independence does not translate effectively into state-owned enterprises. The interaction involving independent commissioners is not significant.


Implications — Strengthening corporate governance in Indonesian state-owned enterprises requires more than formal compliance with board independence requirements. Policymakers, government shareholders, and corporate boards should emphasize the competence, integrity, accountability, and supervisory capacity of independent board members, particularly independent directors. Governance reforms should focus not only on-board composition, but also on appointment quality and monitoring effectiveness, while prudent leverage management and sustained profitability remain essential for reducing financial distress.


Originality — This study provides evidence that the effectiveness of board independence is ownership-specific, showing that governance mechanisms associated with stronger financial resilience in listed firms may operate differently within state-owned enterprises.

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Copyright (c) 2026 Muhammad Fadli Hanafi, Rumanintya Lisaria Putri, Irwanda Wisnu Wardhana

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Hanafi, M. F., Putri, R. L., & Wardhana, I. W. (2026). Good corporate governance and financial distress in Indonesian state-owned enterprises. Jurnal Ekonomi Indonesia, 15(2). https://doi.org/10.52813/jei.v18i2.433
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