Effective Corporate Governance: A Mediator of Profitability and Capital Structure on Financial Performance in Indonesian Government Hospitals

This study aims to examine the role of good corporate governance in mediating the relationship between profitability, capital structure, and the financial performance of government hospitals in Indonesia. Previous research has extensively explored corporate governance but often treats it as an independent variable influencing financial performance. This study introduces a novel perspective by considering corporate governance as a mediator in this relationship. Another unique aspect of this research is its focus on the public sector, specifically government-owned hospitals, as opposed to the predominantly private sector-oriented studies. The hospitals were selected for investigation due to their critical role in responding to the Covid-19 pandemic, which significantly strained their resources and disrupted their cash flow due to an influx of Covid-19 patients. The study is based on data collected from the financial reports of 65 regional hospitals in Indonesia with Type A status, as reported by the Ministry of Health. The analysis employed the partial least squares (PLS) method to assess the mediating role of good corporate governance in the relationship between profitability, capital structure, and financial performance. The results reveal that profitability significantly impacts financial performance, mediated by good corporate governance. However, the capital structure does not have a direct significant impact on good corporate governance but does influence financial performance. Good corporate governance mediates the relationship between profitability and financial performance, highlighting its critical role in enhancing hospital performance.