ANALYSIS OF FINANCIAL DISTRESS DETERMINANTS IN SECURITIES COMPANIES AS MEMBERS OF THE EXCHANGE IN INDONESIA
DOI:
10.54443/morfai.v5i3.2987Published:
2025-05-25Downloads
Abstract
Financial distress in securities companies can be an early indicator of potential financial failure that has a systemic impact on capital market stability. In the context of global and domestic economic dynamics, including the COVID-19 pandemic, securities companies face complex pressures from both internal and external sides. Therefore, early identification of factors that influence financial distress is very important in maintaining business continuity and protecting investors. This study aims to examine the effect of profitability, liquidity, solvency, capital structure, company size, corporate governance, and macroeconomic factors on the probability of financial distress in securities companies that are members of the stock exchange in Indonesia. This study is motivated by the importance of early detection of the financial condition of securities companies that have the potential to experience financial distress, especially in the context of market dynamics and external challenges such as the COVID-19 pandemic. The research method used is logistic regression analysis of secondary data from securities companies, namely93 securities companies are members of the stock exchange in Indonesia during the period 2018 to 2023.The variables analyzed include financial ratios (ROA, ROE, NIATTA, CR, TAANC, DER, TLOE, ECCABC, WACC, TA), corporate governance indicators (GCG), and macroeconomic indicators (GDP, INF, IHSG, BI7DRR). The results of the study indicate that profitability and liquidity do not have a significant effect on the probability of financial distress. On the contrary, the variables of solvency, capital structure, and company size are proven to have a significant effect in reducing the possibility of financial distress. In particular, the variables of Debt to Equity Ratio (DER) and ECCABC have the strongest influence in predicting this risk. The corporate governance variable does not show a significant effect, which indicates that the governance dimension is not always in line with the indicators of financial distress. Meanwhile, macroeconomic variables such as GDP, inflation, and the composite stock price index (IHSG) are proven to be significant in reducing the probability of financial distress, while the BI benchmark interest rate (BI7DRR) does not have a significant effect.
Keywords:
Financial Distress, Profitability, Liquidity, Solvency, Capital Structure, Company Size, Corporate Governance, Macroeconomics.References
Ahmad, G.N. (2013). Analysis of Financial Distress in Indonesian Stock Exchange. Review of Integrative Business and Economics Research, 2(2), 521–533.
Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of Finance, 23(4), 589–609.
Altman, E. I. (1993). Corporate Financial Distress and Bankruptcy: A Complete Guide to Predicting & Avoiding Distress and Profiting from Bankruptcy. In Wiley finance editions (p. 356).
Altman, E.I.;, Hotchkiss, E.;, & Wang, W. (2019). Corporate Financial Distress, Restructuring, and Bankruptcy (Analyze Leveraged Finance, Distressed Debt, and Bankruptcy) (Fourth Edition). John Wiley & Sons, Inc. www.WileyFinance.com.
Altman, E. I., & Loris, B. (1976). A Financial Early Warning System for Over-the-Counter Broker-Dealers. The Journal of Finance, 31(4), 1201. https://doi.org/10.2307/2326283
Altman, Edward I, Hotchkiss, E., & Wang, W. (2019). Corporate Financial Distress, Restructuring, and Bankruptcy (Analyze Leveraged Finance, Distressed Debt, and Bankruptcy). John Wiley & Sons, Inc. , Hoboken, New Jersey.
Andriani, I. (2022). Prediction of financial distress and bankruptcy (case study on airline companies). Jurnal.Polban.Ac.Id, 2(1).
Arief, H., Fauzi, F., Saratian, ETP, Ashshidiqy, N., & Kolis, DN (2021). The Effect of Financial Performance of Liquidity, Leverage and Profitability on Financial Distress. Journal of Doctor of Management (JDM), 4(1). https://doi.org/10.22441/jdm.v4i1.12130
Assagaf, A., Hassan, M., Haat, C., Yusliza, Y., Saputra, J., & Muhammad, Z. (2021). Examining the Effect of Operating Cash Flow on Financial Distress: An Evidence from Indonesian State-Owned Enterprises (SOEs). Proceedings of the 11th Annual International Conference on Industrial Engineering and Operations Management Singapore.
Beaver, W. H. (1966). Financial Ratios As Predictors of Failure. In Empirical Research in Accounting: Selected Studies (Vol. 4).
Bellovary, J. L., Giacomino, D. E., & Akers, M. D. (2007). A Review of Bankruptcy Prediction Studies: 1930 to Present. In Source: Journal of Financial Education (Vol. 33). https://about.jstor.org/terms
Chabachib, M., Kusmaningrum, R.H., Hersugondo H., & Pamungkas, I.D. (2019). Financial Distress Prediction in Indonesia. WSEAS Transaction on Business and Economics, 16, 251–260.
ElBannan, M.A. (2021). On the prediction of financial distress in emerging markets: What matters more? Empirical evidence from Arab spring countries. Emerging Markets Review, 47.
Fachrudin, KA, & Ihsan, MF (2021). The effect of financial distress probability, firm size and liquidity on stock return of energy users companies in Indonesia. International Journal of Energy Economics and Policy, 11(3),
Figlioli, B., & Lima, F.G. (2022). A proposed corporate distress and recovery prediction score based on financial and economic components. Expert Systems with Applications, 197, 116726.
Friedman, M., & Schwartz, A. J. (1963). Money and Business Cycles. In Source: The Review of Economics and Statistics (Vol. 45, Issue 1).
Ghozali, I., & Handriani, E. (2020). Leverage Determinants of Manufacturing Firms: Evidence From Indonesia. International Journal Of Scientific & Technological Research, 09(04), 2734–2744. www.ijstr.org
Hadad, MD, Santoso, W., Besar, DS, & Rulina, I. (2004). Probability of Corporate Failure Using the Merton Model. Research Paper, 6(16), 1–13. www.bi.go.id
Hanifah, OE (2013). The Influence of Corporate Governance Structure and Financial Indicators on Financial Distress Conditions (Study on Manufacturing Companies Listed on the Indonesia Stock Exchange for the Period 2009-2011). https://repofeb.undip.ac.id/4160/
Haris, A., Ghozali, I., & Najmudin, N. (2022). Indicators of financial distress conditions in Indonesian banking industry. Accounting, 8(1). https://doi.org/10.5267/j.ac.2021.6.009
Herlina, MTH, & Murhadi, WR (2020). Financial Distress Prediction Models in Property Sector Companies Listed on Indonesia Stock Exchange. Science and Technology Journal of Proceedings Series No (1), 228–234. www.idx.co.id
IOSCO. (2009). Guidelines to Emerging Market Regulators Regarding Requirements for Minimum Entry and Continuous Risk-Based Supervision of Market Intermediaries. www.iosco.org
Isnalita, & Utama, AAGS (2013). Independent Commissioner, Institutional Ownership And Financial Distress Banks In Indonesia. Journal of Accounting & Auditing, 10(1), 27.
Jacoby, G., Liu, M., Wang, Y., Wu, Z., & Zhang, Y. (2019). Corporate governance, external control, and environmental information transparency: Evidence from emerging markets. Journal of International Financial Markets, Institutions and Money, 58, 269–283. https://doi.org/10.1016/j.intfin.2018.11.015
Jones, S. (2022). Distress Risk and Corporate Failure Modelling; The State of the Art. Routledge. https://doi.org/10.4324/9781315623221
Konstituanto, A. (2012). Probability of Bank Failure from Management and Financial Aspects. Bogor Agricultural University.
Konstituanto, A., Hakim, B., & Manurung, AH (2012). Summary of Bank Failure Probability from Management and Financial Aspects. MB-IPB.
Konstituanto, A., Sanim, B., Manurung, A.H., & Hakim, D.B. (2011). Probability of Bank Failure: Merton Model. Journal of Management, Volume XV(No. 03), 293–304.
Kristanti, FT (2019). Financial Distress (Theory and Its Development in the Indonesian Context) (I). Media Intelligence.
Kristanti, FT, & Isnuwardhana, D. (2018). Survival Analysis of Industrial Sectors in Indonesia Companies. Journal of Finance and Banking, 22(1). https://doi.org/10.26905/jkdp.v22i1.1601
Kristanti, FT, Rahayu, S., & Huda, AN (2016). The Determinant of Financial Distress on Indonesian Family Firm. Procedia-Social and Behavioral Sciences, 219, 440–447.
Kristanti, FT, Rahayu, S., & Isynuwardhana, D. (2019). Integrating Capital Structure, Financial and Non-Financial Performance: Distress Prediction of SMEs. GATR Accounting and Finance Review, 4(2), 56–63.
Kurniasari, C., & Ghozali, I. (2013). Analysis of the Influence of CAMEL Ratio in Predicting Financial Distress of Indonesian Banking. DIPONEGORO JOURNAL OF ACCOUNTING, 2(4), 1–10. http://ejournal-s1.undip.ac.id/index.php/accountingISSN
Laila, N., & Widihadnanto, F. (2017). Financial distress prediction using Bankometer model on Islamic and conventional banks: Evidence from Indonesia. International Journal of Economics and Management, 11(SpecialIss), 169–181.
Lesmana, N., & Damayanti, CR (2021). How Corporate Governance Protects Indonesian Companies From Financial Distress. Journal of Business Administration, 10(1), 13–22. https://doi.org/10.14710/jab.v10i1.33523
Lisetyati, E. (nd). Financial Report Analysis as a Bank Bankruptcy Prediction Tool. Retrieved June 17, 2022, from http://etd.repository.ugm.ac.id/home/detail_pencarian/137976
Lutfiyah, D. (2016). Analysis of the Use of the ALTMAN Model (Z SCORE) to Predict Financial Distress Conditions in Property and Real Estate Sector Companies Listed on the Indonesia Stock Exchange (IDX) for the Period 2012-2015. In IOSR Journal of Economics and Finance (Vol. 3, Issue 1).
Malasari, D., Adam, M., & Hanafi, A. (2020). Financial Ratios and Default Probability Using the KNV Merton Method in Non-Financial Companies on the Indonesia Stock Exchange (Vol. 15, Issue 1).
Mariano, S.S.G., Izadi, J., & Pratt, M. (2020). Can we predict the likelihood of financial distress in companies from their corporate governance and borrowing? International Journal of Accounting and Information Management, 29(2), 305–323. https://doi.org/10.1108/IJAIM-08-2020-0130
Maulvi, M., & Arafat, YM (2014). The Influence of Liquidity, Leverage and Audit Committee Effectiveness on Predicting Financial Distress in Public Companies in the Real Estate and Property Sector in 2007-2009: Altman Z-Score Method. Jurnal Ilmiah Wahan Akuntansi, 9(2), 134–151.
Mishkin, F.S., & Eakins, S.G. (2018). Financial Markets and Institutions (9th Edition). Pearson Education. www.myfinancelab.com
Musyaffa, RS, & Chalid, DA (2020). Cash Flow Pattern For Predicting Bankruptcy. Business and Management Issues in The Global and Digital Era: Indonesian Perspectives, 125–142. http://ebookcentral.proquest.com/lib/undip-ebooks/detail.action?docID=5997182.
Nesvold, H. Peter., Anapolsky, Jeffrey., & Lajoux, A. Reed. (2011). The art of distressed M & A : buying, selling, and financing troubled and insolvent companies. 476.
Nurhayati;, Mufidah, A., & Kholidah, AN (2017). The Determinants of Financial Distress of Basic Industry and Chemical Companies Listed on Indonesia Stock Exchange. Review of Management And Entrepreneurship, 01(02), 19–26.
Ohlson, J. A. (1980). Financial Ratios and the Probabilistic Prediction of Bankruptcy. In Source: Journal of Accounting Research (Vol. 18, Issue 1).
Financial Services Authority. (2017). POJK Number 57/POJK.04/2017 concerning the Implementation of Corporate Governance of Securities Companies Conducting Business Activities as Securities Underwriters and Securities Trading Intermediaries.
Financial Services Authority. (2024). POJK Number 32/POJK.04/2024 concerning the Development and Strengthening of Securities Transactions and Institutions.
Platt, H. D., & Platt, M. B. (2002). Predicting corporate financial distress: Reflections on choice-based sample bias. Journal f Economics and Finance, 26(2), 184–199.
Purnanandam, A. (2008). Financial distress and corporate risk management: Theory and Evidence. Journal of Financial Economics, 87(3), 706–739. https://doi.org/10.1016/j.jfineco.2007.04.003
Ramadhani, ZR, & Fitri, A. (2021). Analysis of Default Probability Before and During the Covid-19 Pandemic Using the Merton Model in Leasing Companies Listed on the Indonesia Stock Exchange. Journal of Accounting and Taxation, 22(02), 1122–1130. http://jurnal.stie-aas.ac.id/index.php/jap/article/view/3139/pdf
Sati, YL, & Prasetyo, AB (2019). The Influence of Corporate Governance on Company Financial Performance and Financial Distress (Empirical Study on Non-Financial Companies Listed on the Indonesia Stock Exchange in 2017). DIPONEGORO JOURNAL OF ACCOUNTING, 8(2), 1–7.
Sayidah, N., Assagaf, A., & Faiz, Z. (2020). Does earnings management affect financial distress? Evidence from state-owned enterprises in Indonesia. Cogent Business and Management, 7(1). https://doi.org/10.1080/23311975.2020.1832826
Sugianto, FX., Prasetiono, & Teddy Hariyanto. (2002). Benefits of financial indicators in the formation of a prediction model of bank health conditions. Journal of Strategic Business, 10(VII), 11–26.
Syaepullah, R. (2022). The Influence of Financial Ratio and Corporate Governance on Financial Distress in Indonesian Islamic Banking Period 2013 – 2019. SHARIA ECONOMICS: Journal of Economic Studies, 5(2). https://doi.org/10.30983/es.v5i2.4857
Wijayanti, KN, Sari, IA, & Indriasih, D. (2018). The Influence of Risk Profile, Good Corporate Governance, Earnings, and Capital on Predicting Financial Distress in Rural Credit Banks. Permana, IX(2).
Zhou, F., Fu, L., Li, Z., & Xu, J. (2022). The recurrence of financial distress: A survival analysis. International Journal of Forecasting. https://doi.org/10.1016/J.IJFORECAST.2021.12.005
Zutter, C. J., & Smart, S. B. (2022). Principles of Managerial Finance (16th edition). Pearson Education. www.pearsonglobaleditions.com.
License
Copyright (c) 2025 Catur Karyanto Pilih, Wisnu Mawardi
This work is licensed under a Creative Commons Attribution 4.0 International License.
Downloads
How to Cite
