The distressed company refers to a company that is facing financial difficulty.
Various factors can contribute to a distressed company. Some of the factors are weak
corporate governance system due to board composition, which is a lack in a combination
of executive, non-executive, independent, non-independent, male and female directors,
and wrong board size and audit committee. Besides, the company characteristics such
as the size of the company, type of industry and company age might also effect
distressed companies. Early detection of financial distress helps the company’s manager
to come out with a strategy to prevent the company from facing financial distress and
avoid liquidation. If the company is liquidated, many parties will also be affected where
employees will lose a job, shareholder loss income in the form of a dividend; creditors
lose the money owed by company and customer will not able to continuously enjoy the
goods and services offered. Thus it is critical to identify the factors that determine a
distressed company. There are two main objectives of this study. First is to determine
the level of possibility of PN17 companies will be facing financial distress. Secondly,
to identify the corporate governance attributes and company characteristics that
contributes to distressed companies. The sample of the study is consist of nine (9) PN17
companies. The data are obtained from the annual reports of the companies over a period
of five years. A correlation and multiple regression analysis are used to test all the
hypotheses developed for this study. The key finding of the study indicates that PN17
companies have a moderate possibility of facing financial distress. It also observed that
none of the corporate governance attributes influences distressed companies. For
company characteristics, only company industry has a significant relationship to
distressed companies.
