The Influence of Good Corporate Governance Mechanisms and Capital Structure on The Financial Performance of Manufacturing Companies

Abstract

Manufacturing enterprises face intense global competition and volatile production costs, requiring precise corporate governance and optimal financing configurations to sustain profitability. This research employs a quantitative approach using secondary data derived from audited annual reports over a multi-year observation period. The GCG mechanisms examined include institutional ownership, managerial ownership, independent commissioners, and the size of the audit committee, while the capital structure is evaluated using the Debt-to-Equity Ratio (DER). Financial performance is operationalized through profitability metrics, specifically Return on Assets (ROA). By establishing a multi-variable regression or structural equation model, this paper analyzes how strict internal oversight limits agency conflicts and how leveraging debt influences corporate returns. The findings indicate that effective governance mechanisms reduce monitoring costs and align managerial actions with shareholder interests, thus enhancing asset utilization efficiency. Concurrently, the composition of capital structure plays a dual role, acting as a tax shield while introducing financial distress risks if poorly managed. This study provides valuable insights for corporate executives, financial analysts, and regulators in formulating corporate policies that optimize funding combinations and governance compliance to maximize corporate financial sustainability.

Keywords: Good Corporate Governance, Capital Structure, Financial Performance, Manufacturing Companies, Agency Theory.