The role of moderating audit quality relationship between corporate characteristics and financial distress in the Indonesian mining sector

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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 studies, 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, corporate governance, and macro-risk factors affect the probability of financial distress. The authors suggest that mining firms need to pay attention to corporate governance and should watch the economic condition for business sustainability.

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    • Table 1. Description of variables
    • Table 2. Descriptive statistics
    • Table 3. Correlation analysis
    • Table 4. Logistic regression results
    • Conceptualization
      Perdana Wahyu Santosa, Martua Eliakim Tambunan
    • Formal Analysis
      Perdana Wahyu Santosa, Eva Rohima Kumullah
    • Funding acquisition
      Perdana Wahyu Santosa, Martua Eliakim Tambunan
    • Methodology
      Perdana Wahyu Santosa, Martua Eliakim Tambunan, Eva Rohima Kumullah
    • Resources
      Perdana Wahyu Santosa, Martua Eliakim Tambunan
    • Supervision
      Perdana Wahyu Santosa, Martua Eliakim Tambunan
    • Writing – original draft
      Perdana Wahyu Santosa, Martua Eliakim Tambunan
    • Writing – review & editing
      Perdana Wahyu Santosa
    • Validation
      Martua Eliakim Tambunan, Eva Rohima Kumullah
    • Data curation
      Eva Rohima Kumullah
    • Investigation
      Eva Rohima Kumullah
    • Software
      Eva Rohima Kumullah