THE INFLUENCE OF FINANCIAL RATIOS AND GOOD CORPORATE GOVERNANCE TOWARDS FINANCIAL DISTRESS ON ISLAMIC BANKS IN INDONESIA

Abstract

This research aims to empirically prove the influence of debt to total assets ratio, capital adequacy ratio, total assets turnover, return on assets, and good corporate governance towards financial distress by Altman Z-Score. The five independent variables within this research being examine by several analysis methods of descriptive analysis, classical assumption, multiple regression analysis, and hypothesis testing. This study uses the population of Islamic banks published in the Financial Service Authority during the period 2013-2018, where the data is collected from official bank websites. Adopting a quantitative research and has 72 observations from twelve banks in six years. The result shows that capital adequacy ratio and return on assets have significant positive influence towards financial distress. While debt to total assets ratio has the significant negative influence to financial distress. However, total assets turnover and good corporate governance have a negative insignificant influence to Financial Distress. Simultaneously, all independent variables have a significant influence on financial distress, which is indicated by a value of 59.9% and the remaining 40.1% is explained by other variables excluded this study. Moreover, debt to total assets was chosen as the most significant factor affecting financial distress.