Corporate Governance, Leverage, and Financial Distress: The Mediating Role of Profitability in Indonesian Property and Real Estate Firms

Farhan Alfa Athaya; Wirmie Eka Putra; Riski Hernando

doi:10.63922/ijbqr.v4i03.5195

Farhan Alfa Athaya Universitas Jambi
Wirmie Eka Putra Universitas Jambi
Riski Hernando Universitas Jambi

DOI: https://doi.org/10.63922/ijbqr.v4i03.5195

Keywords: Corporate Governance, Financial Distress, Leverage, Profitability, Property And Real Estate

Abstract

Financial distress remains a persistent threat for capital-intensive industries, and Indonesia's property and real estate sector illustrates this vulnerability clearly, given its heavy reliance on debt financing to fund land acquisition, construction, and infrastructure development. This study investigates whether board composition — captured through the board of commissioners and the board of directors — together with leverage, predicts financial distress among listed property and real estate firms, and whether profitability channels these effects. Secondary data were drawn from 39 firms listed on the Indonesia Stock Exchange during 2022–2024, selected through purposive sampling and yielding 117 firm-year observations. Data were analyzed using Partial Least Squares–Structural Equation Modeling (PLS-SEM) in SmartPLS 4, with bootstrapping used to test both direct and indirect (mediated) effects. The results show that the board of directors and leverage each significantly and negatively predict financial distress, while the board of commissioners does not. Profitability itself does not significantly predict financial distress and fails to mediate the relationships between governance, leverage, and distress. The study concludes that directorial effectiveness and debt-structure management, rather than current profitability, are the more relevant levers for managing distress risk in this sector.

Keywords: corporate governance; financial distress; leverage; profitability; property and real estate

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