The Effect Of Liquidity, Profitability, And Solvency On Financial Distress With Good Corporate Governance As A Moderation

Abstract

This study aims to determine whether the current ratio as a proxy for liquidity, the return on equity as a proxy for profitability, and the debt to equity ratio as a proxy for solvency have a significant effect on financial distress as measured by the Altman Z-score, and whether the implementation of Good Corporate Governance, which is proxied by institutional ownership, being able to moderate it. The sample for this research is construction companies listed on the Indonesia Stock Exchange for the 2017-2021 period. Samples were selected using purposive sampling. This study uses multiple linear regression with panel data. The results showed that the current ratio has no significant positive effect on the Altman Z-score, the return on equity has a significant positive effect on the Altman Z-score, and the debt to equity ratio has no significant negative effect on the Altman Z-score. Institutional ownership strengthens the effect of the current ratio and the debt to equity ratio on the Altman Z-score but weakens the effect of the return on equity on the Altman Z-score. The research results are useful for the management of construction companies in managing finances by maintaining sales levels and collectibility of payments from consumers. It is also beneficial for investors and creditors to tighten supervision in providing financial assistance to construction companies.