Working environmental quality and financial distress: evidence from Indonesia

This study investigates the impact of the quality of the working environment on a company’s financial distress, focusing on non-financial public companies listed on the Indonesia Stock Exchange from 2019 to 2021. The observation utilizes 1,103 samples derived from annual reports and employs logistic regression, Coarsened Exact Matching (CEM), and Heckman Two-Stage analysis to ensure robust results. The findings reveal a significant inverse relationship between the quality of the working environment and financial distress, which remains consistent across different proxies of financial distress. These results offer valuable insights for company management in Indonesia, suggesting that enhancing the work environment can be a strategic approach to mitigating financial distress risks. Additionally, the study’s outcomes can aid regulators in formulating policies that foster a high-quality working environment, thereby contributing to the stability of the business sector in a region characterized by unique social, cultural, and economic dynamics. The research underscores the importance of the working environment in influencing companies’ financial performance in Indonesia, providing practical guidance for both corporate management and policymakers.This study highlights the relationship between the quality of the work environment and the financial performance of companies, as well as the application of human capital theory in the context of corporate finance. These findings provide practical guidance for decision-makers and managers in managing corporate risks, while also offering implications for regulators in assessing the adaptability of regulations to accommodate non-financial factors. Thus, this research provides valuable insights for both the public and policymakers to understand the importance of a conducive work environment in managing financial risks and enhancing overall company performance.