| The purpose of this thesis is to understand the effects of corporate governance mechanisms on the potential for bankruptcy. The observed corporate governance mechanisms are institutional ownership, managerial ownership, board of commissioners’ independence, commissioners’ board size, the presence of audit committee, and the presence of nomination and remuneration committee. The potential for bankruptcy is measured with the Altman Z-Score as the proxy. Companies that score lower on the Z-Score have a higher potential for bankruptcy. This study is done by utilizing the fixed effect vector decomposition model on 30 listed companies from Indonesia Stock Exchange consumer goods sector during the 2010-2012 period with a total of 90 observations. The result of the study indicates that the board of commissioners’ independence, size of the commissioners’ board, presence of an audit committee, and the presence of a nomination and remuneration committee significantly affect the potential for bankruptcy. The other two variables, institutional ownership and managerial ownership, do not significantly affect the potential for bankruptcy. The findings reveal that corporate governance mechanisms have to be taken into account in evaluating a company’s potential for bankruptcy. |