The Governance Shield: Rethinking Investment Resilience in Financially Distressed Indonesian Banks A Moderating Regression Analysis Perspective on Agency Theory and Corporate Governance
DOI:
https://doi.org/10.62794/ijober.v4i3.365Keywords:
Altman Z-Score, corporate governance;, financial distress;, Indonesian banking, investment resilienceAbstract
Financial distress episodes in the Indonesian banking sector generate investment suppression dynamics whose severity is conditioned by the institutional quality of the distressed firm's governance architecture. This study investigates corporate governance as an active "crisis shield" that attenuates the negative relationship between financial distress and investment decisions in the Indonesian banking sector. Employing Moderated Regression Analysis (MRA) on panel data from 30 IDX-listed banking companies (2019-2022; N = 120 firm-year observations), and proxying financial distress by the Altman Z-Score and investment decisions by Tobin's Q, this study finds that financial distress exerts a significant negative effect on investment decisions (β = -0.412, p < 0.001), consistent with agency theory's underinvestment hypothesis. Corporate governance (composite of independent commissioner proportion and institutional ownership) exerts a significant positive direct effect (β = 0.341, p < 0.001) and, critically, significantly moderates the distress-investment relationship (β = 0.287, p < 0.01), such that the negative effect of distress on investment is meaningfully weaker in well-governed banks. The model explains 61.4% of investment decision variance. It should be noted, however, that the pooled cross-sectional design precludes strictly causal inference, and these findings are best interpreted as consistent with, rather than proof of, the proposed buffering mechanism. Notwithstanding this observational caveat, these findings reframe corporate governance from a regulatory compliance mechanism to a strategic resilience investment, with important implications for OJK banking supervisors, board practitioners, and institutional investors in emerging market banking.
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