Articlediamond2023

FINANCIAL DISTRESS PREDICTION: THE ROLE OF FINANCIAL RATIO AND FIRM SIZE

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Financial Distress and Bankruptcy Prediction Financial Analysis and Corporate Governance Corporate Insolvency and Governance

Abstract

Financial distress reflects a continuous decline in the company's financial performance that needs to be predicted and minimized. Therefore, this study aims to test financial ratios in predicting financial distress moderated by firm size with a sample of 128 manufacturing companies listed on the Indonesia Stock Exchange in 2018-2020. The data analysis method is Structural Equation Model based on Partial Least Square (SEM-PLS) with SmartPLS 3.0. The results showed that leverage and liquidity negatively affected financial distress, but operating cash flow had the opposite effect. Meanwhile, firm size can moderate the effect of leverage and operating cash flow on financial distress, but on the other hand, firm size weakens the relationship of liquidity to financial distress. Therefore, the implications of this research for manufacturing companies serve as a benchmark for analyzing financial distress.

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References

2016Financial ratios and corporate governance indicators in bankruptcy prediction: A comprehensive study 2017Financial distress prediction: The case of French small and medium-sized firms 2016Capital and liquidity ratios and financial distress. Evidence from the European banking industry 2018The Differential Impact of Leverage on the Default Risk of Small and Large Firms 2021Financial distress and its determinants: Evidence from insurance companies in Ethiopia 2018Predicting financial distress: Importance of accounting and firm-specific market variables for Pakistan’s listed firms 2019Financial Distress Prediction Through Cash Flow Ratios Analysis 2019Modeling corporate financial distress using financial and non-financial variables

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