Identifying Financial Distress Condition in Indonesia Manufacture Industry

Rayenda K Brahmana

(raye_brahm@yahoo.com)

Birmingham Business School, University of Birmingham

United Kingdom

Abstract

Identifying financial distress condition is more important than learning bankruptcy. Because company must meet financial distress first then bankruptcy will follow. Unfortunately, many researchers more like to study bankruptcy rather than financial distress. Financial distress still can be managed by the management and, even better, financial distress can be identified before it occurs.

The main purpose of this research is to identify factors that can make a corporate financial distress condition by analyzing historical data and comparing it to current condition. Industry-Relative ratios, Unadjusted Financial Ratios and Auditor Reputation are the variables which would be analyzed in this research. After having historical information that shows us the influencing factors, I will compare it to current condition of manufacture industry. So, all of us can know does Indonesia Manufacture Industry have a financial distress indication or not.

The research population is Indonesia manufacture companies. The samples are companies which delisted from Jakarta Stock Exchange at 2000-2003 periods and all listed manufacturing companies until today. The Sampling method in this research is Purposive Sampling Method. The statistic method that used in this research is regression of logistic test. Enter technique is used to create the model. This technique is useful for establishing highest classification power. After obtains the factors that affect financial distress, then compare it to the current condition and gain a list of manufacture companies that indicate a financial distress condition.

Overall, the research results show us that unadjusted financial ratios have higher classification power than industry-relative ratios. Another important highlight is the auditor reputation has insignificant relation to the financial distress condition.

In conclusion, there are 1% of Indonesia manufacture companies that indicate a financial distress condition. Shareholders, Investors, Creditors and the management must pay attention to this phenomenon.

Keywords: Financial Distress, Manufacture Listed Company, Unadjusted Financial Ratios, and Audit Firm Reputation

PPI UK