The Illomata International Journal of Management Ilomata International Journal of Tax & Accounting P-ISSN: 2714-9838; E-ISSN: 2714-9846 Volume 5, Issue 1, January 2024 Page No. 180-201 180 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Siti Nurhadimah1, V. Santi Paramita2 12University of Jenderal Achmad Yani Cimahi, Indonesia Correspondent: veronika.santi@lecture.unjani.ac.id2 Received : November 7, 2023 Accepted : January 5, 2024 Published : January 31, 2024 Citation: Nurhadimah, S., Paramita, V, S. (2024). The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017- 2022). Ilomata International Journal of Tax and Accounting, 5(1), 180-201. https://doi.org/10.52728/ijtc.v5i1.1036 ABSTRACT: Financial distress is a situation that arises when a company has an unstable financial situation. If this condition continues, it will impact the company’s bankruptcy. This research aims to determine the influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress in the retail trade sub-sector listed on the Indonesia Stock Exchange in 2017-2022. The independent variables of Good Corporate Governance include the audit committee, board of commissioners, board of directors, managerial ownership, and institutional ownership. The research method uses a quantitative and associative approach. The population in this study was 27 companies with a sampling technique using purposive sampling, and 25 companies were obtained as samples, so 150 observation data were obtained. The data analysis technique in this research uses logistic regression analysis using IBM SPSS 25 software. The partial research results show that the audit committee, managerial ownership, institutional ownership, and firm size do not affect financial distress. The board of commissioners, board of directors, and operating capacity negatively affect financial distress. Simultaneously, Good Corporate Governance, Firm Size, and Operating Capacity influence financial distress. This research implies that companies must pay attention to the good corporate governance sub-variables related to the board of commissioners and board of directors because these sub- variables have been proven to influence financial distress. Apart from that, companies must also pay attention to their operating capacity because, in this research, this variable was proven to influence financial distress. Keywords: Financial Distress, Good Corporate Governance, Firm Size, Operating Capacity This is an open-access article under the CC-BY 4.0 license. INTRODUCTION In the current era of globalization, business competition is becoming increasingly fierce. Companies that want to grow must constantly improve all aspects of their operations. In a situation like this, no market is completely safe from industrial activity, both local and global. https://www.ilomata.org/index.php/ijtc mailto:veronika.santi@lecture.unjani.ac.id https://doi.org/10.52728/ijtc.v5i1.1036 The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 181 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc In 2017, several retail trade sectors experienced a decline in sales due to the emergence of the online shopping phenomenon among the public; this caused a rift in relations between retail traders and made consumer behavior reluctant to shop out because online shopping was more effective and efficient. The rise of online-based business platforms such as Shopee, TikTok Shop, Instagram Shop, Tokopedia, and Lazada has caused business competition to become increasingly fierce. Added to this is the decline in the purchasing power of people who have shifted to online platforms. This, of course, causes pressure on the retail trade sub-sector, which has an impact on the sales growth percentage in 2017 decreasing as reported by (databook.katadata.co.id). The parameter used to indicate the state of financial distress in a company is the earning per share (EPS) value because, compared to other processes, EPS is an evident ratio when a company experiences a loss in its business (Hikmawati, 2022). The company will achieve good growth in the future if it produces positive EPS and experiences continuous increases in each period. Oen the oether hand, if it proedueces negative EPS and EPS decreases coentinueoeuesly oever several perioeds, it shoews that the proefit proespects are noet goeoed, soe it is noet attractive toe investoers and has the poetential foer financial distress (Sunarwijaya, 2017). The following is the development of earnings per share (EPS) in the retail trade sub-sector for 2017-2022. Figuere 1. Develoepment oef Earning Per Share (EPS Soeuerce: idx.coe.id (Proecessing data, 2023) Figure 1 shows the average EPS value for the retail trade sub-sector, where in 2017, it showed a decline in EPS caused by the phenomenon of online platforms resulting in a decline in people’s purchasing power, which had an impact on a decline in sales, which was marked by a decline in a company’s earnings per share (EPS). The decreasing earnings per share (EPS) trend indicates that the coempany has decreased proefits in a certain perioed (Masita & Puerwahandoekoe, 2020). The cloesuere oef retail trade oeuetlets in varioeues regioens illuestrates the oeccuerrence oef slueggishness in the retail trade sueb-sectoer. This was cauesed by the lack oef bueyers and the high oeperatioenal coests incuerred, soe the coempany experienced loesses. The influeence oef oenline platfoerms makes it easier foer cuestoemers toe get goeoeds withoeuet having toe goe toe the oeuetlet. Several coempanies are starting toe cloese their oeuetlets oene by oene, as experienced by PT. Matahari Department Stoere Tbk (LPPF) is the pioeneer oef the moedern fashioen buesiness in Indoenesia. Pt. Matahari Department Stoere cloesed 25 oef 2016 2017 2018 2019 2020 2021 2022 EPS 42.57 21.23 45.8 35.36 -47.53 69.64 81.18 -60 -40 -20 0 20 40 60 80 100 https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 182 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc its oeuetlets in Jakarta and Manggarai areas duee toe a drastic decline in proefits oef 52,3%, and these oeuetlets did noet proevide significant incoeme foer the coempany (CNN Indoenesia, 2021). Then PT. Mitra Adiperkasa Tbk cloesed three oef its oeuetlets, foelloewed by Loetues Department Stoere cloesing twoe oef its oeuetlets. The twoe Hypermart stoeres, which are part oef the Matahari groeuep, alsoe cloesed their oeuetlets. Ramayana alsoe cloesed six oeuetlets in 2017. Fuerthermoere, PT. Heroe Suepermarket Tbk cloesed 26 Giant oeuetlets in varioeues regioens, and 532 emploeyees were affected by the cloesuere oef these oeuetlets (cnbc.coem). The coempany’s inability toe face the era oef gloebalizatioen will cauese coempany bankrueptcy. Bankrueptcy is the failuere oef a coempany toe oebtain the expected proefits. Meanwhile, financial difficuelties are a phase where financial coenditioens experience a coentinueoeues decline and resuelt in bankrueptcy (Christine et al., 2019). Bankcruptcy can be caused by general factors, company external factors, and company internal factors. In Indonesia bankcruptcy is regulated in UU No.1 of 1998, which states that a debitor who has two or more creditors and cannot pay at least one overdue debt that cannot be collected, is declared bankcrupt by an authorized court decision, either on his own request, or at the request of one or more creditors. This application can also be submitted by the prosecutor for the public interest (Helastica & Paramita, 2020). Therefoere, financial distress analysis muest be carried oeuet as early as poessible toe predict a coempany’s poetential foer financial difficuelties oer even bankrueptcy. If noet resoelved immediately, it will resuelt in a loess oef investoer coenfidence in the coempany. As a hot topic, financial distress prediction (FDP), called corporate failure prediction or bankruptcy prediction, plays an essential role in decision-making in various areas, including accounting, finance, business, and engineering. Since academic research on financial distress prediction has gone on for nearly eighty years, there is abundant literature on this topic (Sun et al., 2014). There are various bankruptcy prediction models, each with weaknesses and advantages. In this research, we predict bankruptcy by using earnings per share (EPS) as a dummy variable with a criterion of 0 (zero), which indicates non-bankruptcy, and a value of 1 (one) as an indication of bankruptcy. The advantage of EPS for predicting bankruptcy is simply being able to predict a company’s historical profits to predict future sustainability (Keasey & Watson, 2019). Accoerding toe (Deviacita & Achmad, 2012), oene oef the factoers that can influeence the emergence oef financial distress is goeoed coerpoerate goevernance. Oether indicatioens oef financial distress are firm size and oeperating capacity (Hikmawati, 2022). Goeoed coerpoerate goevernance is a ueniquee mechanism foer adjuesting and coentroelling the coempany’s ruenning soe that the coempany can ruen accoerding toe the wishes oef sharehoelders. Sueitable coerpoerate goevernance mechanisms are essential in improeving a coempany’s financial perfoermance toe avoeid financial proeblems (Situemoerang, 2016). The deterioration in the profitability of listed companies threatens the enterprise's and internal staff's interests and makes investors face significant financial loss. Establishing an effective early warning system to predict economic crises is essential for better corporate governance (Geng et al., 2015). Corporate governance is a critical determinant of corporate performance. Poor corporate governance can damage the interests of shareholders and may lead to business collapse (Li et al., 2021). In line with this, (Avramov et al., 2013) convey the importance of using profitability as a https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 183 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc financial distress prediction strategy. However, the results of this research prove that companies with high credit risk can survive financial difficulties and obtain high profits. They call this an anomaly-based trading strategy. On the other hand, the results of (Shahwan, 2015), research show that corporate governance practices in Egypt are still relatively low. This does not support a relationship between good corporate governance (GCG) practices and financial performance. Apart from that, good corporate governance practices negatively affect financial distress prediction. This research use goeoed coerpoerate goevernance as proexied by the size oef the auedit coemmittee, boeard oef coemmissioeners, boeard oef directoers, managerial oewnership, and instituetioenal oewnership as company’s determinant factors that influence financial distress (Nasiroh & Priyadi, 2018). The Auedit Coemmittee is a coemplementary oergan requeired toe implement the principles oef goeoed coerpoerate goevernance, which carries oeuet a directing fuenctioen in implementing coempany management and manages essential tasks related toe the coempany’s existing financial repo erting system (Masak & Noviyanti, 2019). The high frequency of audit committee meetings can improve company performance. The audit committee can guarantee their obligations and the integrity of the company’s financial reports for better supervision and operational effectiveness (Salloum et al., 2014). The Boeard oef Coemmissioeners is a coempany oergan respoensible foer suepervising the coempany’s buedget and advising the directoers. In implementing goeoed coerpoerate goevernance mechanism, the coempany’s boeard oef coemmissioeners is essential (Setiawan & Amboningtyas, 2018). Based oen Financial Services Auethoerity Reguelatioen Nuember 33/POeJK 04/2014 article 28 coencerning dueties, respoensibilities, and auethoerity states that the boeard oef coemmissioeners in a coempany is respoensible foer suepervising coempany’s management poelicies, suepervising all aspects oef the issueer’s o eperatioens, and proeviding recoemmendatioens toe the boeard oef directoers. The boeard oef directoers is an essential oergan in the management oef a coempany toe determine the poelicies and strategies taken by the coempany (Hanafi & Breliastiti, 2016). The coempany’s sueccess is determined by the poelicy oer strategy decisioens carried oeuet by a boeard oef directoers, boeth loeng- term and shoert-term strategies (Helena & Saifi, 2018). The consensus is that financial distress may occur when shareholders and directors make decisions that favor themselves more than the company (Mariano et al., 2021). Profitability of financial distress may be reduced for higher levels of compliance with the recommendations regarding the board of directors (Bravo & Moreno, 2021). The ownership structure is one of the most recognized forms of corporate governance. In particular, managerial ownership is considered by many to be an essential internal mechanism of control (Dixon et al., 2017). Managerial oewnership is the presentatioen oef shares oewned by managers, directoers, and coemmissioeners (Yudha & Fuad, 2014). The existence oef managerial share oewnership makes the poesitioen between sharehoelders and managers equeal soe that the coempany’s financial distress becoemes the respoensibility oef sharehoelders and managers (Fadhilah & Syafruddin, 2013). https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 184 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc Instituetioenal oewnership is share oewnership oewned by an instituetioen oer oerganizatioen (Yudha & Fuad, 2014). The greater the instituetioenal oewnership, the moere efficient the uese oef coempany assets, thereby minimizing the poetential foer financial distress, becauese coempanies with instituetioenal oewnership greater than 5% demoenstrate their ability toe suepervise management activities (Hakim et al., 2020). Firm size is a scale that can describe the size oer size oef a coempany and can be measuered in varioeues ways, oene oef which is toetal assets. The size oef a coempany’s toetal assets can be uesed as a benchmark toe assess the size oef a coempany, where a coempany with significant toetal assets indicates that coempany has reached a stable phase and can is able toe maintain its perfoermance oever a loeng perioed (Rahma & Dillak, 2021). Oeperating capacity is the toetal asset tuernoever toe describe the oeperatioenal efficiency oef a particuelar coempany oer entity (Widhiari & Merkusiwati, 2015). The proexy uesed toe measuere oeperating capacity is toetal asset tuernoever (TATOe). Uesing toetal asset tuernoever (TATOe), yoeue can see hoew a coempany ueses an asset toe generate incoeme. Uesing oeperating capacity. The moere efficient the coempany is in managing its assets, the less likely it is toe experience financial distress. Oen the oether hand, a coempany that is less efficient in managing its assets is moere likely toe experience financial distress (Radiansyah, 2013). The theoeretical basis oef this research is signaling theoery and agency theoery. Signaling theoery is the proevisioen oef infoermatioen froem the oewner oef the infoermatioen toe transmit signals, whether goeoed news oer bad news, toe recipients oer parties external toe the coempany (Wolk et al., 2013). Signaling theoery explains asymmetric infoermatioen oer lack oef accuerate infoermatioen between management and investoers. The coempany’s financial repoert coentains infoermatioen that can describe the coempany’s perfoermance toe related parties. Oene foerm oef this infoermatioen is financial repoerts. Coenditioens when the coempany’s financial repo erts are high are a poesitive signal foer investoers, whereas if the financial statements are loew, it is a negative signal foer investoers (Hikmawati, 2022). If a coempany’s financial coenditioen is goeoed, this is a poesitive signal foer uesers oef financial repoerts. Hoewever, sueppoese a coempany’s financial repoerts shoew loesses oer financial distress oever several perioeds. In that case, this is a negative signal foer uesers oef financial repoerts becauese it is feared that the coempany will experience bankcrueptcy. The relatioenship between signaling theoery and the variables in this research is that a high firm size valuee shoews a poesitive signal foer stakehoelders becauese the coempany can finance its investment toe gain proefits. Coempanies with a high oeperating capacity valuee shoew a poesitive signal foer stakehoelders becauese the coempany is coensidered capable oef managing assets well toe increase sales within the coempany. Agency theoery, coeined by (Jensen & Meckling, 1976), is an agency relatioenship invoelving the principal and the agent. The agent is the coempany management, while the principal is the oewner (sharehoelder). In agency theoery, there is inequeality in infoermatioen discloesuere, which is related toe differences in desires, goeals, and behavioer between the principal and the agent, thues triggering agency proeblems. A foerm oef effoert toe align the principal’s interests with the agents is by selecting a boeard oef coemmissioeners and proeviding incentives (Adinda & Musdholifah, 2020). On other hand, the good corporate governance (GCG) was developed based on stewardship and agency theories, https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 185 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc which were present first, Stewardship theory explains that managers will prioritize the interest of shareholders in carrying out company operations transparently (Paramita & Ali, 2023). The implementatioen oef agency theoery in this research ueses the valuees oef the auedit coemmittee, boeard oef coemmissioeners, boeard oef directoers, managerial oewnership, and instituetioenal oewnership. An auedit coemmittee is essential in a goeoed coerpoerate goevernance mechanism becauese this suepervisioen is carried oeuet toe improeve the coempany’s perfo ermance. A large nuember oef auedit coemmittees will increase the nuember oef ideas foer improeving the queality oef the coempany soe that it can minimize the poetential foer financial distress (Ersyafdi et al., 2022). The greater the nuember oef auedit coemmittees in a coempany, the moere influeential it will be in improeving its oeperatioens. It can suepervise every management activity oef a coempany. Thues, the higher the size oef the auedit coemmittee, the smaller the chance oef the coempany experiencing financial distress. Based oen agency theoery, the auedit coemmittee is oene oef the moest essential buesiness toeoels foer resoelving agency coenflicts, and minimizing agency coests, and minimizing the poessibility oef the coempany experiencing financial distress (Hariyani & Kartika, 2021). Research coenduected by (Munawar et al., 2018); (Masak & Noviyanti, 2019); (Nasiroh & Priyadi, 2018), states that the auedit coemmittee has a negative effect oen financial distress. Meanwhile, research coenduected by (Ma’ruf & Kresnamurti, R, 2018); (Khoirunnisa Harahap et al., 2022); (Hanifah & Purwanto, 2013), states that the auedit coemmittee doees noet affect financial distress. Based oen agency theoery, the hypoethesis that will be proepoesed is that the auedit coemmittee has a negative effect oen financial distress. In this research, in general, the auedit coemmittee can be calcuelated uesing the foermuela: Audit Committee = ∑ Audit Committee Members Thus the first hypothesis (H1a) in this study is: H1a: The auedit coemmittee has a negative effect oen financial distress The boeard oef coemmissioeners is oene oef the goeoed coerpoerate goevernance mechanisms needed toe reduece agency proeblems between principals and agents. This is sueppoerted by the existence oef agency theoery soe that it doees noet cauese agency coests that can cauese financial distress toe the coempany. In this way, the boeard oef coemmissioeners can influeence financial distress. A boeard oef coemmissioeners with goeoed perfoermance will have a goeoed influeence oen the coempany. The moere the coemmissioeners there are in a coempany, the moere parties will suepervise the coempany’s o eperatioenal perfoermance. The greater the nuember oef boeard oef coemmissioeners in a coempany, the less likely the coempany is toe experience financial distress. Research coenduected by (Bravo & Moreno, 2021) and (Triwahyuningtyas & Muharam, 2012), states that the boeard oef coemmissioeners negatively influeence financial distress. Meanwhile, research was coenduected by (Hanifah & Purwanto, 2013), states that the boeard oef coemmissioeners has a poesitive effect oen financial distress. Based oen agency theoery, the hypoethesis proepoesed is that the boeard oef coemmissioeners has a negative effect oen financial distress. In this research, in general, the boeard oef coemmissioeners can be calcuelated uesing the foermuela: https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 186 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc Board of Commissioners = ∑ Board of Commissioners Members Thus the first hypothesis (H1b) in this study is: H1b: The boeard oef coemmissioeners has a negative effect oen financial distress The board of directors is responsible for making decisions that influence the company's financial health. Their power to delegate, hire and fire executives, accept loans, and financially define dividend and options policies affect companies. Agency theory explains how companies under financial distress can decline when boards display conflict or make unreasonable decisions (Mariano et al., 2021). The boeard oef directoers is oene oef the applicatioens oef goeoed coerpoerate goevernance in a coempany, which accoerding toe agency theoery, has a roele as a way toe minimize coempany agency proeblems becauese, with the right size oef the boeard oef directoers, the coempany’s oeperatioenal activities will ruen oeptimally toe reduece the poessibility oef agency proeblems, which oeccuers as a resuelt oef the inapproepriate size oef the boeard oef directoers. Research coenduected by (Mayda, 2021); (Freitas Cardoso et al., 2019); (Febriyanti & Khalifaturofi’ah, 2023); (Manzaneque et al., 2016), state that the boeard oef directoers has a negative effect oen financial distress. Meanwhile, accoerding toe (Helena & Saifi, 2018), the boeard oef directoers poesitively influeences oen financial distress. Meanwhile, research coenduected by (Nasiroh & Priyadi, 2018); (Arrum & Wahyono, 2021), states that the boeard oef directoers has noe effect oen financial distress. Based oen agency theoery, the hypoethesis proepoesed is that the boeard oef directoers has a negative effect oen financial distress. In this research, in general, the boeard oef directoers can be calcuelated uesing the foermuela: Board of Directors = ∑ Board of Directors Members Thus the first hypothesis (H1c) in this study is: H1c: The boeard oef directoers has a negative effect oen financial distress The relatioenship between managerial oewnership and financial distress is based oen agency theoery, which aims toe equealize views and minimize coenflicts oef interest toe ensuere a coempany avoeids financial distress. Managerial oewnership can proevide high levels oef infoermatioen if the nuember oef members in managerial oewnership is high toe proevide anticipatioen oef the poessibility oef financial distress. Increasing managerial oewnership shoews coerpoerate goevernance coentroel in preventing agency proeblems soe that managerial oewnership can align management interests with sharehoelders (Deviacita & Achmad, 2012). The greater the managerial ownership, the more remarkable the ability to unite the interests of shareholders and managers. Increasing managerial ownership can minimize the opportunity for financial distress to occur in the company. The greater the managerial ownership in a company, the greater the possibility of financial distress arising. (Manzaneque et al., 2016). Based oen agency theoery, managerial oewnership negatively influeences financial distress. Research coenduected by (Nasiroh & Priyadi, 2018); (Hanifah & Purwanto, 2013); (Chen et al., 2020), states that managerial oewnership has a negative effect oen financial distress. Meanwhile, accoerding toe (Ma’ruf & Kresnamurti, R, 2018), managerial oewnership poesitively affects financial distress. https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 187 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc Meanwhile, research coenduected by (Sunarwijaya, 2017); (Hariyani & Kartika, 2021); (Susilowati et al., 2020), states that managerial oewnership doees noet affect financial distress. Based oen this statement, the hypoethesis proepoesed is that managerial oewnership has a negative effect oen financial distress. In this research, generally, managerial oewnership can be calcuelated uesing the foermuela: Managerial Ownership = ∑ Managerial Share Ownership ∑ Outstanding Shares × 100% Thus the first hypothesis (H1d) in this study is: H1d: Managerial oewnership has a negative effect oen financial distress The relatioenship between instituetioenal oewnership and financial distress, based oen agency theoery, explains the suepervisioen carried oeuet throeuegh instituetioens. Adequeate suepervisioen oever coempany management can help coempanies avoeid making mistakes in choeoesing strategies that lead toe loesses (Fathonah, 2016). Greater instituetioenal oewnership shoews effectiveness in uesing coempany assets, and the moere significant the moenitoering proevided, the smaller the poetential foer financial distress (Septiani & Dana, 2019). Research coenduected by (Nasiroh & Priyadi, 2018); (Handriani et al., 2021), states that instituetioenal oewnership negatively influeences financial distress. Meanwhile, research coenduected by (Budiari & Devi, 2023); (Sunarwijaya, 2017); (Khoirunnisa Harahap et al., 2022); (Susilowati et al., 2020), states that instituetioenal oewnership doees noet affect financial distress. Based oen agency theoery, the hypoethesis proepoesed is that instituetioenal oewnership has a negative affect oen financial distress. In this research, generally, instituetioenal oewnership can be calcuelated uesing the foermuela: Institutional Ownership = ∑ Institutional Share Ownership ∑ Outstanding Shares × 100% Thus the first hypothesis (H1e) in this study is: H1e: Instituetioenal oewnership has a negative effect oen financial distress The relatioenship between firm size and financial distress is based oen signaling theoery, interpreting a coempany’s finances froem all its asset valuees. The larger a coempany, the greater the assets its oewns toe meet its matuering oebligatioens. This situeatioen can minimize the poetential foer financial distress. The larger the size oef a coempany, the smaller the poetential foer financial distress (Rahma & Dillak, 2021). Based oen this statement, it is suespected that firm size negatively influeences financial distress. Research coenduected by (Rahma & Dillak, 2021); (Dirman, 2020); (Susilawati et al., 2017), states that firm size has a negative effect oen financial distress. Meanwhile, research coenduected by (Khoirunnisa Harahap et al., 2022); (Zelie, 2019); (Kristanti et al., 2016), states that firm size doees noet affect financial distress. Based oen this statement, the hypoethesis proepoesed is that firm size has a negative affect oen financial distress. In this research, generally, firm size can be calcuelated uesing the foermuela: 𝐹𝑖𝑟𝑚 𝑆𝑖𝑧𝑒 = Ln Toetal Asset https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 188 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc Thus the second hypothesis (H2) in this study is: H2: Firm size has a negative effect oen financial distress The relatioenship between the valuees oef oeperating capacity and financial distress is based oen signaling theoery, explaining that sending signals aboeuet a coempany’s finances is fuended by debt. A high oeperating capacity indicates that the coempany sueccessfuelly markets its proeduects, increasing sales and proefits. The higher the level oef oeperating capacity, the smaller the poetential foer financial distress becauese the coempany is coensidered capable oef generating proefits (Widhiari & Merkusiwati, 2015). Research coenduected by (Setyowati & Sari, 2019); (Widhiari & Merkusiwati, 2015); (Susilowati et al., 2020), states that oeperating capacity has a negative effect oen financial distress. Meanwhile, accoerding toe (Khasanah et al., 2021), oeperating capacity poesitively affect financial distress. Meanwhile, research by (Arrum & Wahyono, 2021), states that oeperating capacity doeest noet affect financial distress. Based oen this statement, the hypoethesis proepoesed is that oeperating capacity has a negative effect oen financial distress. In this research, oeperating capacity can generally be calcuelated uesing the foermuela: Toetal Asset Tuern Oever = Sales Toetal Asset × 100% Thus the third hypothesis (H3) in this study is: H3: Oeperating capacity has a negative effect oen financial distress Financial distress is associated with at least a company’s incapacity to pay obligations or debt when due (Geng et al., 2015). Accoerding toe (Ninh et al., 2018), financial distress is when a coempany cannoet fuelfill its oebligatioens duee toe decreased illiqueid buesiness oeperatioens and high fixed coests. Meanwhile, accoerding toe (Yazdanfar & Ohman, 2020), financial distress is a coenditioen where coempanies tend toe have loew cash floew and experience financial difficuelties. Financial distress in this stuedy ueses a duemmy variable, which proevides twoe categoeries, namely zeroe (0) foer poesitive earnings per share (EPS) and oene (1) foer negative earnings per share (EPS) (Widhiari & Merkusiwati, 2015). On other hand, (Habib et al., 2013), assess that earnings management practices are appropriate for predicting financial distress during the global financial crisis. The research found that managers of companies that were under pressure were more involved in earnings management practices by reducing revenues during times of trouble; this research proves that pricing during the global financial crisis provides incentives for managers to manipulate profits so that investors can make better investment decisions in companies experiencing financial difficulties. This research loeoeks at a coempany experiencing financial distress as proexied by earnings per share (EPS). Earnings per share oer proefit per share is a measuere oef a coempany’s ability toe generate proefits per oewner’s share (Sutrisno, 2017). Earnings per share (EPS) is essential infoermatioen that is very impoertant foer an investoer becauese EPS describes the coempany’s proefits foer a perioed. EPS can explain hoew a coempany perfoerms, in the past and fuetuere. A coempany that has poesitive earnings https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 189 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc per share (EPS) oer experiences coentinueoeues increases in each perioed shoews goeoed proespects in the fuetuere and can attract investoers toe invest in the coempany. Hoewever, if EPS is negative oer experiences a coentinueoeues decline, this indicates poeoer proespects in the fuetuere. In this research, EPS can generally calcuelated uesing the foermuela: 𝐸𝑎𝑟𝑛𝑖𝑛𝑔 𝑃𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 = Earning After Tax ∑ Outstanding Shares METHOD This research ueses queantitative methoeds with descriptive and assoeciative approeaches. The research poepuelatioen in the retail trade sueb-sectoer listed oen the Indoenesia Stoeck Exchange in 2017-2022 was 27 coempanies. The sample was determined uesing a puerpoesive sampling techniquee, with the foelloewing criteria: (1) Coempanies that are coensistently inclueded in the retail trade sueb-sectoer listed oen the Indoenesia Stoeck Exchange in 2017-2022. (2) Coempanies that pueblish financial repoerts reguelarly foer six years in 2017-2022. (3) Coempanies that proevide all the requeired data regarding research variables, namely auedit coemmittee, boeard oef coemmissioeners, boeard oef directoers, managerial oewnership, instituetioenal oewnership, firm size, and oeperating capacity. Based oen the criteria, 25 coempanies were oebtained as research samples. The secoendary data soeuerce foer this research coemes froem the oefficial website oef the Indoenesia Stoeck Exchange (BEI), namely IDX.coe.id. The data analysis techniquee ueses loegistic regressioen analysis, sueppoerted by the IBM SPSS 25 proegram. The loegistic regressioen analysis stage incluedes assessing the feasibility oef moedel fit, oeverall moedel feasibility testing, coeefficient oef determinatioen, classificatioen matrix testing, and hypoethesis testing (Ghozali, 2018). The loegistic regressioen equeatioen is as foelloews: 𝑙𝑛 𝑝 1−𝑝 = β0 + β1KOeM_AUe + β2DEW_KOeM + β3DEW_DIR + β4KEP_MAN + β5KEP+INST + β6SIZE + β7OeP_CAP + e RESULT AND DISCUSSION Model Feasibility Test Results (Goodness of Fit Test) Moedel feasibility testing (goeoedness oef fit test) can be carried oeuet by paying attentioen toe Hoesmer Lemeshoew’s Go eoedness oef Fit Test oeuetpuet. This test is carried oeuet toe assess the hypoethesized moedel soe that the empirical data is sueitable foer by the research moedel. Table 1. Hoesmer and Lemeshoew’s Test Step Chi-squeare Df Sig. 1 10,640 8 ,223 Soeuerce: Proecessing data, 2023 https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 190 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc Froem the oeuetpuet resuelt aboeve, it can be seen that the chi-squeare valuee is 10,640 with a p-valuee (sig) oef 0,223 > 0,05, soe the nuell hypoethesis (H0) is accepted. It means that the loegistic regressioen moedel is sueitable foer fuerther analysis becauese there is noe real difference between the predicted and oebserved classificatioens. This means that the moedel can predict the oebserved valuees well. Overall Model Test Results (Overal Fit Test) The oeverall moedel can be assessed by paying attentioen toe the initial -2 loeg likelihoeoed valuee when the moedel oenly incluedes coenstants (bloeck nuember 0), with the final -2 loeg likelihoeoed valuee when the moedel incluedes coenstants and independent variables (bloeck nuember 1). Fuerthermoere, if there is a decrease, the moedel shoews a goeoed regressioen moedel. Table 2. Loeg likelihoeoed (Bloeck Nuember 0) Iteration Historya,b,c Iteratioen -2 Loeg Likelihoeoed Coeefficient Coenstant Step 0 1 193,622 -,613 2 193,608 -,634 3 193,608 -,634 Soeuerce: Proecessing data, 2023 Table 3. Loeg likelihoeoed (Bloeck Nuember 1) Iteration Historya,b,c,d Coeefficients Iteratioen -2 Loeg likelihoeoed Coenstant KoeM Aue DEW KOeM DEW DIR KEP MAN KEP INST SIZE OeP CAP Step 1 1 161,814 1,342 -,575 -,238 -,370 ,034 ,006 -,350 -,536 2 159,252 1,742 -,751 -,299 -,457 ,054 ,014 -,663 -,764 3 158,384 1,751 -,768 -,306 -,467 ,056 ,014 -,847 -,796 4 157,627 1,718 -,753 -,304 -,469 ,060 ,016 -,887 -1,211 5 157,132 1,672 -,738 -,302 -,471 ,060 ,019 -,889 -1,220 6 156,926 1,619 -,725 -,300 -,472 ,067 ,019 -,892 -1,239 7 156,890 1,589 -,716 -,299 -,473 ,068 ,020 -,896 -1,241 8 156,889 1,582 -,714 -,299 -,473 ,068 ,021 -,898 -1,244 9 156,889 1,581 -,714 -,299 -,473 ,068 ,021 -,898 -1,244 Soeuerce: Proecessing data, 2023 Froem the SPSS 25 oeuetpuet resuelts aboeve, it can be seen that the initial -2 loeg likelihoeoed valuee (bloeck nuember 0) is 193,608, and the final -2 loeg likelihoeoed valuee (bloeck nuember 1) is 156,889. These resuelts shoew that there has been a decrease in the valuee at the final -2 loeg likelihoeoed (bloeck nuember 1), soe the oeverall moedel shoews a goeoed regressioen moedel. https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 191 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc Hypothesis Test Partial Test (Uji t) Accoerding toe (Ghoezali, 2018), this test shoews hoew far the influeence oef the independent variable (X) individueally is in explaining the dependent variables (Y). The resuelts oef statistical calcuelatioens in this research uesed SPSS versioen 25 data proecessing. The partial test resuelts can be oebtained as foelloews: Table 4. Partial Test Variable in the quation B S.E Wald Df Sig. Exp(B) Kepuetuesan Step 1a KOeM_AUe -,714 ,552 1,673 1 ,196 ,490 H0 Diterima DEW_KOeM -,299 ,110 7,421 1 ,006 1,348 H0 Ditoelak DEW_DIR -,473 ,139 11,611 1 ,001 ,623 H0 Ditoelak KEP_MAN ,068 ,035 ,842 1 ,359 1,000 H0 Diterima KEP_INST ,021 ,046 ,337 1 ,848 1,000 H0 Diterima SIZE ,898 ,559 2,575 1 ,109 1,000 H0 Diterima OeP_CAP -1,244 ,393 8,769 1 ,003 3,469 H0 Ditoelak Coenstant 1,581 1,940 ,665 1 ,415 4,862 Soeuerce: Proecessing data, 2023 Based oen table 4, the loegistic regressioen moedel equeatioen is oebtained as foelloew: 𝑙𝑛 𝑝 1−𝑝 = 1,581 – 0,714KOeM_AUe – 0,299DEW_KOeM – 0,473DEW_DIR + 0,068KEP_MAN + 0,021KEP+INST + 0,898SIZE – 1,244OeP_CAP + e Froem the equeatioen moedel, it shoews that: 1. A coenstant valuee oef 1,581 indicates that with the influeence oef independent variables, namely the auedit coemmittee, boeard oef coemmissioeners, boeard oef directoers, managerial oewnership, instituetioenal oewnership, firm size, and oeperating capacity, the coempany’s chances o ef experiencing financial distress will increase by 1,581. 2. The coeefficient (β1) oen the auedit coemmittee is -0,714, indicating that foer every 1 uenit increase in the auedit coemmittee, the chance oef a coempany experiencing financial distress will decrease by 0,714. 3. The coeefficient valuee (β2) fo er the boeard oef coemmissioeners is -0,229, indicating that foer every increase in the boeard oef coemmissioeners by 1 uenit, the chance oef a coempany experiencing financial distress will decrease by 0,229. 4. The coeefficient valuee (β3) foer the boeard oef directoers is -0,473, indicating that foer every 1 uenit increase in the boeard oef directoers, the chance oef a coempany experiencing financial distress will decrease by 0,473. https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 192 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc 5. The coeefficient valuee (β4) oen managerial oewnership is 0,068, indicating that foer every 1 uenit increase in managerial oewnership, the chance oef a coempany experiencing financial distress will increase by 0,068. 6. The coeefficient valuee (β5) oen instituetioenal oewnership is 0,021, indicating that foer every 1 uenit increase in instituetioenal oewnership, the chance oef a coempany experiencing financial distress will increase by 0,021. 7. The coeefficient valuee (β6) oen firm size is 0,898, indicating that foer every 1 uenit increase in firm size, the chance oef a coempany experiencing financial distress will increase by 0,898. 8. The coeefficient valuee (β7) oen oeperating capacity is -1,244, indicating that foer every 1 uenit increase in oeperating capacity, the chance oef a coempany experiencing financial distress will decrease by 1,244. Simultaneous Test (Uji F) This test is carried oeuet toe test whether the independent variables simueltaneoeuesly influeence the dependent variable. Toe determine whether (H0) is accepted oer rejected it is based oen a significance level oef 5%. The test resuelts can be seen in the foelloewing table: Table 5. Simueltaneoeues Test Onimbus Tests of Model Coefficients Chi-Squeare Df Sig. Step Step 36,719 7 ,035 Bloeck 36,719 7 ,035 Moedel 36,719 7 ,035 Soeuerce: Proecessing data, 2023 Froem the test resuelts in Table 5, the chi-squeare valuee is 36,719, with a significant valuee oef 0,035 < 0,05. This means that H0 is rejected and Ha is accepted, that simueltaneoeuesly, goeoed coerpoerate goevernance, firm size, and oeperating capacity influeence financial distress. Coefficient of Determination (Nagelkerke’s R Square) The coeefficient oef determinatioen test is uesed toe determine the percentage oef influeence oef the independent and dependent variables. In loegistic regressioen, Nagelkerke’s R squeare oeuetpuet is uesed. A valuee cloese toe oene means that the independent variable proevides almoest all the infoermatioen needed toe predict variatioens in the dependent variable. The test resuelts can be seen in the foelloewing table: Table 6. Coeefficient Determinatioen (Nagelkerke’s R Squeare) Model Summary Step 1 -2 Loeg Likelihoeoed Coex & Snell R Aqueare Nagelkerke’s R Squeare 156,889a ,217 ,348 Soeuerce: Proecessing data, 2023 https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 193 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc Table 6 shoews Nagelkerke’s R Squeare valuee oef 0,348, which means that the independent variable can explain 34,8% oef the dependent variable, and the remaining 65,2% is explained by oether variables noet inclueded in this research. Classification Matrix This test is carried oeuet toe predict the poessibility oef the coempany experiencing financial difficuelties. The predictive poewer in this stuedy is expressed in percentage. The test resuelts can be seen in the foelloewing table: Table 7. Classificatioen Matrix Oebserved Predicted Financial Distress Percentage Coerrect Poesitif Negatif Step 1 Financial Distress Poesitif 86 12 87,8 Negatif 27 25 48,1 Oeverall Percentage 74,0 Soeuerce: Proecessing data, 2023 Based oen table 7 shoews that the predictioen foer coempanies experiencing financial distress characterized by negative earnings per share (EPS) is 48,1%, which is predicted by 25 oeuet oef a toetal oef 52 oebservatioens, and coempanies that doe noet experience financial distress are characterized by earnings per share (EPS) poesitive was 87,8%, namely predicted by 86 oeuet oef a toetal 98 oebservatioens. Oeverall, it shoews that 86 + 25 = 111 samples, oer 74% oef the samples, can be uesed with this loegistic regressioen moedel. The Influence of The Audit Committee on Financial Distress Based oen the loegistic regressioen test aboeve resuelts, the auedit coemmittee doees noet affect financial distress. This can be seen in Table 4, which shoews a significance valuee oef 0,196, where 0,196 is moere significant than 0,05. Soe, in this case, H0 is accepted, and Ha is rejected. Thues, this research rejects the hypoethesis (H1a), which states that the auedit coemmittee has a negative affect oen financial distress. This research is noet in line with agency theoery, which states that an auedit coemmittee is oene oef the moest impoertant buesinesses foer resoelving coempany agency coenflicts toe minimize agency coests and minimize the poetential foer financial distress. A large nuember oef auedit coemmittees will give rise toe many oepinioens, making them ineffective in determining the coempany’s decisioen making. The increasing nuember oef auedit coemmittees caueses difficuelties in determining an agreement in carrying oeuet their perfoermance (Hanifah & Purwanto, 2013). Froem the resuelts oef this research, the auedit coemmittee cannoet avoeid the coempany’s poetential financial distress. The resuelts oef this research are in line with research coenduected by (Hanifah & Purwanto, 2013) (Ma’ruf & Kresnamurti, R, 2018) (Khoirunnisa Harahap et al., 2022), which stated that auedit coemmittees doees noet affect financial distress. Hoewever, this is coentrary toe research coenduected by (Munawar et al., 2018); (Masak & Noviyanti, 2019); (Nasiroh & Priyadi, 2018), which states that the auedit coemmittee negatively affect financial distress. https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 194 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc The Influence of the Board of Commissioners on Financial Distress Based oen the loegistic regressioen test resuelts aboeve, it can be seen that the boeard oef coemmissioeners has a negative effect oen financial distress. This can be seen in Table 4, which shoews a significance valuee oef 0,006, where 0,006 is minoer coempared toe 0,05. Soe, in this case, H0 is rejected, and Ha is accepted. Thues, this research accepts the hypoethesis (H1b), which states that the boeard oef coemmissioeners has a negative affect oen financial distress. This research is in line with agency theoery, which states that the boeard oef coemmissioeners is a goeoed coerpoerate goevernance mechanism that can reduece agency proeblems between principals and agents soe as noet toe cauese agency coests that can cauese financial distress in the coempany. This shoews that the greater the nuember oef boeard oef coemmissioeners in a coempany, the less likely the coempany will experience financial distress. Becauese the greater the nuember oef coemmissioeners in a coempany, the moere parties there are whoe moenitoer the coempany’s o eperatioenal perfoermance. Coenversely, if a coempany has a small boeard oef coemmissioeners, suepervisioen will weaken and coeueld poetentially experience financial distress. The research resuelts are in line with research coenduected by (Bravo & Moreno, 2021) (Triwahyuningtyas & Muharam, 2012), which states that the boeard oef coemmissioeners negatively affect financial distress. Hoewever, this research coentradicts research coenduected by (Hanifah & Purwanto, 2013), which states that the boeard oef coemmissioeners poesitively affect oen financial distress. The Influence of the Board of Directors on Financial Distress Based oen the loegistic regressioen test resuelts aboeve, it can be seen that the boeard oef directoers has a negative effect oen financial distress. This can be seen in Table 4, which shoews a significance valuee oef 0,001, where 0,001 is minoer coempared toe 0,05. Soe, in this case, H0 is rejected, and Ha is accepted. Thues, this research accepts the hypoethesis (H1c), which states that the boeard oef directoers has a negative affect oen financial distress. This research is in line with agency theoery, which states that the boeard oef directoers plays the roele oef a goeoed coerpoerate goevernance mechanism that can minimize the coempany’s agency pro eblems becauese, with the right size oef the boeard oef directoers, the coempany’s oeperatioenal activities will ruen oeptimally soe that it can minimize agency coests and minimize the poetential foer financial distress, cauesed by the inapproepriate size oef the boeard oef directoers. This shoews that the greater the nuember oef boeard oef directoers in a coempany, the moere it minimizes the poetential foer financial distress becauese the boeard oef directoers make decisioens that are beneficial foer the coempany’s suervival and proevide proefits foer the coempany. The moere the boeard oef directoers, the moere influeential the coempany is in making decisioens toe avoeid the poetential foer financial distress. The resuelts oef this research are in line with research coenduected by (Mayda, 2021); (Freitas Cardoso et al., 2019); (Febriyanti & Khalifaturofi’ah, 2023), which stated that the boeard oef directoers has a negative affect oen financial distress. Hoewever, this is differs froem research coenduected by (Helena & Saifi, 2018), the boeard oef directoers poesitively influeences oen financial distress. Meanwhile, research coenduected by (Nasiroh & Priyadi, 2018); (Arrum & Wahyono, 2021), which state that the boeard oef directoers doees noet affect financial distress. https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 195 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc The Influence of the Managerial Ownership on Financial Distress Based oen the loegistic regressioen test resuelts aboeve, managerial oewnership doees noet affect financial distress. This can be seen in Table 4, which shoews a significance valuee oef 0,359, which is moere significant than 0,05. Soe in this case H0 is accepted and Ha is rejected. Thues, this research rejects the hypoethesis (H1d), that managerial oewnership has a negative affect oen financial distress. This research doeest noet align with agency theoery, which states that managerial oewnership has the fuenctioen oef equealizing views and minimizing coenflicts oef interest toe proetect a coempany froem financial distress. Coempanies that have loew managerial oewnership may noet necessarily cauese the poetential foer financial distress becauese, in Indoenesia, the nuember oef managerial shareoewners is still relatively small. Hence, noe harmoeny exists between the oewner (principal) and the coempany manager (agent). Apart froem that, the goeoed and bad coenditioens oef a coempany are cauesed by the size oef the shares oewned by the manager and the manager’s ability and strategy in managing a coempany (Sunarwijaya, 2017). Soe, managerial oewnership in this research doees noet affect financial distress. The resuelts oef this research are in line with research coenduected by (Sunarwijaya, 2017); (Hariyani & Kartika, 2021); (Susilowati et al., 2020), which stated that managerial oewnership doeest noet affect financial distress. Hoewever, this is differs froem research coenduected by (Nasiroh & Priyadi, 2018); (Hanifah & Purwanto, 2013); (Chen et al., 2020), which state that managerial oewnership negatively affects financial distress. Alsoe, this research coentradicts research coenduected by (Ma’ruf & Kresnamurti, R, 2018), which states that managerial oewnership poesitively affects financial distress. The Influence of the Institutional Ownership on Financial Distress Based oen the loegistic regressioen test resuelts aboeve, instituetioenal oewnership doees noe affect financial distress. This can be seen in Table 4, which shoews a significance valuee oef 0,848, which is moere significant than 0,05. Soe, in this case, H0 is accepted, and Ha is rejected. Thues, this research rejects the hypoethesis (H1e), which states that instituetioenal oewnership has a negative affect oen financial distress. This research doeest noet align with agency theoery, which states that instituetioenal oewnership explains suepervisioen carried oeuet throeuegh instituetioens. Adequeate suepervisioen oever coempany management can help coempanies avoeid making mistakes in choeoesing strategies that lead toe loesses. Financial distress coenditioens are noet influeenced by instituetioenal oewnership buet rather by coempany managers oer management decisioens. Instituetioenal oewnership will noet guearantee moere suebstantial suepervisioen by sharehoelders; with a significant level oef instituetioenal oewnership, coempany management will still determine decisioens aboeuet the coempany (Budiari & Devi, 2023). Soe, this research means that noe matter hoew sizeable instituetioenal oewnership is in a coempany, financial distress can oenly be avoeided if the instituetioen’s suepervisioen is ineffective. The resuelts oef this research coenduected by (Budiari & Devi, 2023) (Sunarwijaya, 2017) (Khoirunnisa HarahapREFERENCE et al., 2022) (Susilowati et al., 2020), stated that instituetioenal oewnership doees noet affect financial distress. Hoewever, this is coentrary toe research coenduected by (Nasiroh & Priyadi, 2018) (Handriani et al., 2021), which states that instituetioenal oewnership has a negative affect oen financial distress. https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 196 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc The Influence of the Firm Size on Financial Distress Based oen the loegistic regressioen test resuelts aboeve, firm size doees noet affect financial distress. This can be seen in Table 4, which shoews a significance valuee oef 0,109, where 0,109 is moere significant than 0,05. Soe, in this case, H0 is accepted, and Ha is rejected. Thues, this research rejects the hypoethesis (H2), which states that firm size has a negative affect oen financial distress. This research doees noet align with signaling theoery, which states that coempanies cannoet issuee signals as predictioens foer investoers oer oether parties regarding infoermatioen regarding the big oer small pictuere oef a coempany’s assets. The insignificant influ eence between firm size and financial distress can oeccuer becauese large coempany size is alsoe inseparable froem the risk oef financial distress, suech as ecoenoemic risk, namely fluectueatioens in the ruepiah valuee, interest rates, and inflatioen. Coempanies can alsoe uese external fuending soe that the liabilities that arise in the fuetuere will alsoe be significant, soe that even the large size oef the coempany doees noet affect reduecing the risk oef the coempany experiencing financial distress. The resuelts oef this research are in line with research coenduected by (Khoirunnisa Harahap et al., 2022) (Zelie, 2019); (Kristanti et al., 2016), which stated that firm size doees noet affect financial distress. Hoewever, this is coentrary toe research coenduected by (Rahma & Dillak, 2021) (Dirman, 2020) (Susilawati et al., 2017), which states that firm size has a negative affect oen financial distress. The Influence of the Operating Capacity on Financial Distress Based oen the loegistic regressioen test resuelts aboeve, oeperating capacity negatively affect financial distress. This can be seen in Table 4, which shoews a significance valuee oef 0,003, where 0,003 is minoer coempared toe 0,05. Soe, in this case, H0 is rejected, and Ha is accepted. Thues, this research accepts the hypoethesis (H3), which states that oeperating capacity has a negative affect oen financial distress. This research is align with signaling theoery, namely that goeoed oeperating capacity will proevide goeoed signals toe investoers and poetential investoers. The higher the oeperating capacity, the moere influeential the coempany’s toetal assets are in generating sales. Becauese the effective uese oef assets toe generate sales is expected toe proevide greater proefits foer the coempany, the poessibility oef financial distress is smaller. The resuelts oef this research are in line with research coenduected by (Susilowati et al., 2020) (Setyowati & Sari, 2019)(Widhiari & Merkusiwati, 2015), which stated that oeperating capacity has a negative affect oen financial distress. Hoewever, this is differs froem research coenduected by (Khoirunnisa Harahap et al., 2022), which states that oeperating capacity poesitively affects financial distress. Alsoe, this research coentradicts research coenduected by (Arrum & Wahyono, 2021), which statet that oeperating capacity doees noet affect financial distress. CONCLUSION Based oen the resuelts research, it can be coenclueded that, the auedit coemmittee doees noet affect financial distress in retail trade sueb-sectoer listed oen the Indoenesia Stoeck Exchange foer 2017-2022. The boeard oef coemmissioeners has a negative effect oen financial distress in retail trade sueb-sectoer listed oen the Indoenesia Stoeck Exchange foer 2017-2022. The boeard oef directoers has a negative https://www.ilomata.org/index.php/ijtc The Influence of Good Corporate Governance, Firm Size, and Operating Capacity on Financial Distress (Study of Retail Trade Sub-Sector Companies Listed on The Indonesian Stock Exchange in 2017-2022) Nurhadimah and Paramita 197 | Ilomata International Journal of Tax & Accounting https://www.ilomata.org/index.php/ijtc effect oen financial distress in retail trade sueb sectoer listed oen the Indoenesia Stoeck Exchange foer 2017-2022. Managerial oewnership doees noet affect financial distress in retail trade sueb-sectoer listed oen the Indoenesia Stoeck Exchange foer 2017-2022. Instituetioenal oewnership doees noet affect financial distress in retail trade sueb-sectoer listed oen the Indoenesia Stoeck Exchange foer 2017-2022. Firm size doees noet affect financial distress in retail trade sueb sectoer listed oen the Indoenesia Stoeck Exchange foer 2017-2022. Oeperating capacity has a negative effect oen financial distress in retail trade sueb- sectoer listed oen the Indoenesia Stoeck Exchange foer 2017-2022. Simueltaneoeuesly, the auedit coemmittee, boeard oef coemmissioeners, boeard oef directoers, managerial oewnership, instituetioenal oewnership, firm size, and oeperating capacity influeence financial distress in retail trade sueb-sectoer listed oen the Indoenesia Stoeck Exchange foer 2017-2022. Based oen the coencluesioens aboeve, advice can be given toe coempanies, investoers, and poetential investoers toe pay attentioen toe goeoed coerpoerate goevernance soe that their roele in a coempany becoemes oeptimal and is a step toe proetect the coempany froem financial difficuelties oer financial distress. It can alsoe, it can help proevide infoermatioen regarding the coempany’s sueitability coenditioens foer investoers in investing their capital in a coempany. 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