Factors that affect financial distress: An evidence from jakarta stock exchange listed companies, Indonesia

Abstract

Financial distress is a state under which the organisation's financial position is unstable yet has not gone bankrupt. Many manufacturing companies in Indonesia experienced corporate financial instability, revenues from manufacturing companies continued to fluctuate, and some companies experienced negative operating profits. It creates a significant effect on financial distress, where it is not just the business that will incur losses but also the stakeholders. Thus, the present study attempts to analyse the factors (i.e., liquidity, profitability, leverage, company size, and interest rates) that affect financial distress in Jakarta Stock Exchange-listed companies, Indonesia. This study uses secondary data collected from two sources, i.e., the Central Bureau of Statistic and Financial Services Authority website for 2012 to 2018. The data analysed using multiple linear regression by assisting with econometric software, namely Eviews-10. This study found that liquidity, profitability, leverage, and interest rate significantly affect financial distress. Besides that, firm size does not affect financial distress. The results showed that, from the independent variables studied, it was proven that the liquidity variable and the interest rate had a negative effect on financial distress. Meanwhile, the variables of profitability and leverage have a positive effect on financial distress. It means that company leaders must consider liquidity, profitability, leverage, company size and interest rates to avoid financial distress. However, it is also necessary to pay attention to the Economic Stimulus, which can moderate these variables' relationships.