How to Predict Financial Distress in the Wholesale Sector: Lesson from Indonesian Stock Exchange

Abstract

Financial distress is a stage of decline in financial conditions experienced by a company before going bankrupt. This phenomenon in Indonesia in recent years since 2016 shows more and more companies are experiencing bankruptcy. The purpose of this study is to know what are the factors causing it using discriminant analysis. The population of this study is issuers in sub-sector wholesale listed on the Indonesia Stock Exchange 2010-2015 period. Results showed that all four variables those are leverage, activity, liquidity, and profitability have significance values and able to explain 72.42% of the variation distress and non-distress. The accuracy of the model is 96.8% on distinguishing companies that experience financial-distress with non-distress. Overall this research model is reliable and valid to be used for forecasting companies that will experience bankruptcy.

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