Determinant of Financial Restructuring of Financially Distress Firms in Indonesia

Abstract

This study aims to test the effect of monitoring agency variable : leverage,  ownership structure and corporate governance on the probability of the firm choose a financial restructuring using dividend cut and debt increase as proxies. This study focuses on the restructuring strategy on manufacturing firms that experience declining performance, using the proxy of decreasing Return on Assets for two consecutive years, in the period of 2007 until 2017. Data analysis techniques using panel logistic regression through Eviews Program. The result shows that leverage, managerial ownership, and size board of director and capital intensity (as control variable) have significant impact on the probability of choosing a financial restructuring strategy through dividend cut, and  the second panel data shows that institutional ownership, size board of director and liquidity have significant impact on the probability of choosing a financial restructuring through debt increase. This study provides strengthening empirical evidence about the impact of agency monitoring variables on the probability of financial restructruing choices in distress firms. This study is appropriate to carried out in Indonesia, which has a high leveraged firm on average 43%.