Title: Predicting the financial distress of Indonesian manufacturing companies: an application of the multinomial logit model

Authors: Jaja Suteja; Ardi Gunardi; R. Avianty Octavia

Addresses: Faculty of Economics, Universitas Pasundan, Jalan Tamansari 6-8 Bandung, 40116, Indonesia ' Faculty of Economics, Universitas Pasundan, Jalan Tamansari 6-8 Bandung, 40116, Indonesia ' Faculty of Economics, Universitas Pasundan, Jalan Tamansari 6-8 Bandung, 40116, Indonesia

Abstract: This study aims to provide empirical evidence on the factors influencing a company's financial distress. This study examines the role of financial ratios attained from financial statements in predicting the financial distress of manufacturing companies listed in the Indonesia Stock Exchange from 2009 to 2011. The research sample consists of a group of 100 healthy companies, the group of negative net income companies that experience distress for two consecutive years consists of 14 companies, and the group of negative equity book value that experiences financial distress for two consecutive years consists of five companies. The multinomial logit regression was used to test the hypothesis. Results indicate that financial ratios attained from financial statements, namely, profit margin ratio, profitability, and financial leverage, are significant variables in predicting the financial distress of manufacturing companies listed in the Indonesia stock exchange.

Keywords: financial distress prediction; financial ratios; financial statements; multinomial logit; Indonesian manufacturing companies.

DOI: 10.1504/IJMEF.2017.087475

International Journal of Monetary Economics and Finance, 2017 Vol.10 No.3/4, pp.250 - 256

Received: 07 Jan 2016
Accepted: 22 Mar 2016
Published online: 16 Oct 2017 *

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