Strengthening Risk Management and Corporate Governance to Prevent Financial Distress and Enhance Business Sustainability
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This study examines the effect of enterprise risk management (ERM) disclosure and corporate governance (CG) mechanisms on financial distress and their implications for business sustainability in Indonesian manufacturing firms. Using panel data from 65 manufacturing companies listed on the Indonesia Stock Exchange over the period 2021–2024 (260 firm-year observations), this research employs Structural Equation Modeling–Partial Least Squares (SEM-PLS) to test direct and indirect relationships among variables. Financial distress is measured using the Altman Z-Score model, while sustainability performance is proxied by a Sustainability Disclosure Index based on GRI Standards (2021).
The findings reveal that both ERM disclosure and corporate governance significantly reduce financial distress. Furthermore, financial distress negatively affects sustainability performance. Mediation analysis confirms that financial distress partially mediates the relationship between ERM, corporate governance, and sustainability performance. These results highlight the importance of integrating risk governance and sustainability strategies to ensure long-term corporate resilience. This study contributes to the literature by positioning financial distress as a mediating mechanism linking risk management and governance to sustainability performance, particularly in emerging market contexts.
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